On October 22, 2019, the Slovak parliament adopted Act No. 390/2019 Coll. (the “Amendment”), which significantly amends the Slovak Commercial Code as well as some other acts. Most of the Amendment’s provisions will come into effect on October 1, 2020.
The Amendment introduces, among other things, substantial changes in the liquidation procedure, restrictions on individuals against whom enforcement proceedings are conducted (such persons can’t found an LLC, transfer or acquire an ownership interest in an LLC, or become a managing director in an LLC), and changes in the functioning of the Commercial Register (such as digitalization and deregistration of inactive entities).
We would like to focus on certain aspects of the new liquidation regime. In light of the COVID-19 crisis, it is likely that more businesses will consider discontinuation of their operations in Slovakia than usual. In such cases, voluntary liquidation of a company is one of the possibilities to exit the Slovak market, alongside, for instance, the sale of the Slovak operation or bankruptcy (where the statutory conditions for bankruptcy are met).
In general, liquidation can be defined as an out-of-court settlement of property relations of a wound-up company that does not transfer equity to a legal successor and that shall cease to exist upon its deregistration from the Commercial Register without a legal successor. The purpose of the liquidation is to convert the property of a company into money and to satisfy creditors.
Based on the explanatory report, the purpose of the Amendment is to make the liquidation procedure more efficient.
The Amendment distinguishes the winding-up of a company and its entry into liquidation. A company is wound-up as of the day stipulated in the resolution of the shareholder(s), and it enters into liquidation upon the registration of the liquidator in the Commercial Register.
Under the current regime, a company enters into liquidation on the day of its winding-up, i.e., as of the day stipulated in the resolution of the shareholder(s). The liquidation of the company and nomination of the liquidator shall be incorporated into the Commercial Register, but this incorporation is only of a declaratory nature.
This newly-introduced distinction is important because during the time between the winding-up of a company and its entry into liquidation, any disposal of assets of a company with a value exceeding 10% of the registered capital amount is subject to an expert evaluation and the approval of the supreme body of the company (e.g., in case of LLCs this would be the general meeting or the sole shareholder). This “standstill” regime is designed to protect the interests of a company’s creditors.
Further, during the time between the winding-up and its entry into liquidation a company will be considered to be in crisis with all related consequences arising from the relevant provisions of the Commercial Code. Again, this mechanism is designed to protect creditors.
Prior to the registration of the liquidator in the Commercial Register, a liquidated company will also be obliged to deposit an advance payment for the liquidation into a notarial escrow which can be used solely for the payment of the remuneration and the expenses of the liquidator.
Another important change introduced by the Amendment is that by entering into liquidation, any unilateral legal acts of the liquidated company – authorizations, powers of attorney, and procurations with the exception of powers of attorney granted for the representation in court proceedings – cease to exist.
The process of the registration of creditors’ claims will also be regulated in more detail. The liquidator shall, among other things, prepare a list of registered claims and deposit it with the Collection of Deeds. The liquidator shall also prepare and deposit a list of assets of the liquidated company with the Collection of Deeds.
The Amendment also regulates in detail the satisfaction of claims by the liquidator. One of the new rules stipulates that claims of affiliated persons shall be satisfied only after the satisfaction of other claims.
According to the Amendment’s transitional provisions, any liquidations where the liquidator was registered before October 1, 2020 shall be generally finalized according to the previous legal regime.
Overall, in terms of liquidation, the Amendment is a step towards greater protection of creditors of liquidated companies.
By Michaela Stessl, Country Managing Partner, and Andrej Liska, Associate, DLA Piper Bratislava
This Article was originally published in Issue 7.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
