Overview of bankruptcy purchases, M&A and transport law in Slovenia
By Aleš Velkaverh & Aleš Štravs
Posted: 14th December 2015 10:22
Since its declaration of independence in 1991, Slovenia (covering merely 20.000 square kilometres and having a population of 2 million) underwent an important path. It is now a well-developed country and a member of the EU and NATO. Its economy, geographical position and the well-educated population (the majority of its people being fluent in many world languages) represent a good foundation to set up a new business there. Moreover, the country’s legal system has some considerable advantages if compared to other countries in the Balkans, Eastern Europe and even Western Europe. The aim of this paper is to underline a few of them.
Opportunities in insolvency proceedings
Although foreign investors have already assumed a significant role in privatization proceedings in Slovenia, other investment opportunities, especially in bankruptcy sales, are often overlooked. Following an increase in bankruptcies in recent years, many valuable assets of various Slovenian companies are being sold in bankruptcy proceedings, including hotels, ski resorts and other large properties, as well as controlling stakes in operating companies. Currently it is still uncertain whether telecommunications giant T-2 will also go bankrupt, but it does seem increasingly likely and could provide an excellent opportunity to purchase the entire business operation of the leading optic internet service provider in Slovenia.
In 2008 Slovenia adopted a new act governing insolvency proceedings: the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act (the Insolvency Act). Despite some shortcomings, the new Act, which is based on the UNCITRAL Legislative Guide on Insolvency Law, provides an efficient system and adequate legal certainty for investors who are looking for new opportunities in areas where businesses have previously failed.
The Insolvency Act has been modified six times since its entry into force, mostly in response to the financial crisis, introducing new or improved possibilities for financial restructuring and debt relief. However, the essential provisions governing sales in insolvency proceedings remain more or less the same.
We have implemented a system of mutual notifications, under which it is possible to notify all bankruptcy administrators in one step of a possible interested buyer. The response time is quick and negotiations are usually done in real time. All sales are also published and freely available on the internet.
The legal framework of the 2008 Insolvency Act is transparent and secure. The method of sale is usually a public auction and or a public binding call for tenders. Under certain conditions, the sale can also be carried out after a non-binding call for tenders and after direct negotiations. There have already been cases of good practice where major assets were sold in these procedures using also a combination of sale methods providing investors the possibility to perform a thorough due diligence before committing to the sale. The Insolvency Act also regulates the purchase of a failed company’s entire business in one step, whereby the purchaser acquires all items and other property rights which are, as a whole, necessary to carry out an operation.
Successful purchases are approved by a court decision, providing the bidder the necessary legal certainty, as no objections can be brought against the sale after such an approval. On the other hand the buyer too does not have the right to rely defects found after the sale is concluded, making it necessary to perform a thorough due diligence before the sale. The entire process can be however concluded in no more than six months.
The sale process in insolvencies is quick, efficient and transparent. Due to a lack of demand because of low domestic purchasing power the prices are also low and appealing, making it an excellent platform for possible investors. In the future we therefore expect more investors looking at opportunities to purchase businesses and valuable properties in these proceedings as the legal framework provides adequate security to foreign investors.
Opportunities in the transport sector
Geographically Slovenia is positioned in the very heart of Europe. Two Pan-European transport corridors- corridors V and X- intersect in its capital, Ljubljana. These facts alone also accompanied by the constantly growing importance of the Port of Koper as one of the major cargo ports at the Adriatic Sea (providing significantly faster transit routes for shipments from Asia compared to Europe’s northern ports) represent a good reason for transport companies and logistical operators to consider setting up their business in Slovenia. Moreover, there are also some legal advantages making such a consideration worthwhile.
Slovene law contains certain provisions which- if not overlooked- may have a significant role in securing the financial position of road carriers. For example, the Road Transport Contracts Act gives the road carrier a statutory lien on the goods which are being carried. However, contrary to other European laws, the use of such a lien under the Slovene act is not limited to the protection of claims arising from the transport of the goods in question. In other words- the use of such a lien is not limited to the claims arising from the current contract of carriage, but can also be used for the protection of the claims arising from previous contracts entered into with the same sender. Hence, according to the Slovene Act, the carrier may seize the goods and use them to secure its claims related to the transport of these goods as well as the claims from the past transports (of other goods) which have not been paid for yet. Of course, the carriers’ statutory lien is a common instrument being incorporated in numerous national legislations across Europe. However, when comparing them with the Slovene Act, several other legislations (e.g. German- §440 HGB; Austrian- §440 UGB; Italian- Art. 2761 of the CC; UK etc.) limit such a lien solely to the claims accrued under a specific voyage. As explained above, Slovene law on the other hand contains no such limitations and, at least from this perspective, puts Slovenia on the map of the so called carrier-friendly countries. But there is more to it.
In case the carriers’ claims remain unpaid the carrier can also (regardless of the statutory lien as described briefly above) rely on the statutory guarantee as defined in the Road Transport Act. According to this act the carrier is entitled to claim the payment of the fright fee from the consignee if the sender fails or refuses to pay.
In accordance with the Article 5 of the EC Regulation No. 593/2008 (Rome I Regulation) one of the arguments leading to the applicability of Slovene law is the fact the carrier has his habitual residence (registered seat) in Slovenia. A consideration to set up a new road-carriage business (entity) in Slovenia might therefore be sensible from this perspective too.
Aleš Velkaverh works as a lawyer in the law firm Starman/Velkaverh in Koper, Slovenia. Aleš advises clients primarily on corporate matters, commercial disputes, mergers and acquisitions and insolvency proceedings. Working also as an administrator of insolvency proceedings Aleš acquired extensive knowledge in managing complex financial restructurings as well as large scale acquisitions and sales in insolvency proceedings. He is also a distinguished writer in expert publications on legal questions related to corporate and insolvency law.
Aleš can be contacted on +386 5 6309 222 or by email at email@example.com
Aleš Štravs works as a lawyer in the law firm Starman/Velkaverh in Koper, Slovenia. He specializes in transport, freight forwarding and logistics law. Over a decade he has acquired significant experience in advising many well-known companies which are recognized as the leading players in this sector of the industry. Aleš is also active as a lawyer covering M&A issues as well as a litigation lawyer, dealing mainly with commercial, property and labour law disputes.
Aleš can be contacted on +386 5 6309 222 or by email at firstname.lastname@example.org