Buying distressed assets in Словения

Slovenian law does not provide a standard definition of a distressed asset. In general, the term refers to non-performing assets that are sold at a discounted price due to financial or operational difficulties.

In Slovenia, distressed assets are not specifically regulated before they enter insolvency. Regulatory provisions apply only once a company owning the assets becomes insolvent, regardless of whether formal insolvency proceedings have been initiated.

In Slovenia, insolvency is defined under the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (hereinafter: Insolvency Act). A debtor is considered insolvent if they are unable to settle due liabilities over an extended period of time (so-called “continuous insolvency”) or they become insolvent, which means that

• the value of its assets is less than the sum of its liabilities ('over-indebtedness'),
• (for a limited liability company): the sum of the loss of the current year, including losses from previous years, has reached half of the share capital and that loss cannot be covered by profits or reserves from previous years.

Insolvency Act establishes specific legal presumptions under which a company is deemed insolvent. If a creditor invokes these presumptions, the burden shifts to the company to prove that it is not insolvent.

Pursuant to the Insolvency Act all problematic legal acts performed by the debtor (including the sale of distressed assets) within the 12-month period preceding the initiation of insolvency proceedings may be declared invalid by the court. In certain cases the period within which such legal acts may be challenged extends to 36 months prior to the commencement of insolvency proceedings. Legal acts that may be challenged by the creditors are broadly defined, as any legal act resulting in a decrease in the net value of the assets of the debtor may be declared invalid. If the compulsory settlement was opened before the bankruptcy proceedings, the legal acts prior to the compulsory settlement may be challenged mutatis mutandis, before the court.

The buyer who buys distressed assets from the insolvency administrator buys those assets free of any encumbrance, however, there are exceptions and the buyer should be careful about them. A thorough analysis of each case is therefore strongly recommended.

A buyer of distressed assets must also exercise caution when purchasing multiple assets from the debtor after the formal opening of insolvency proceedings. Normally, in the event of a purchase of individual assets from the debtor, the buyer does not directly assume any obligations towards the debtor’s creditors. However, Insolvency act provides that when the buyer acquires the debtor’s assets that may be considered a “business whole”, which is capable of providing services or manufacturing products, the buyer assumes all the debtor’s obligations towards their creditors and their public law burdens.

It is important to note that contracts relating to the acquisition of distressed assets may be declared invalid regardless of the buyer’s intent. Therefore, risks relating to the acquisition of distressed assets can most effectively be mitigated by a comprehensive due diligence process of the underlying company.

First, the acquirer should assess the financial position of the distressed asset’s underlying company. According to the Insolvency act, a company must refrain from executing any action that could contribute to the unequal treatment of its creditors. The transfer of operations or financial transactions to another legal or natural person is specifically mentioned as a potentially prohibited act. Therefore, even if the underlying company has not been subjected to formal insolvency proceedings, buyers should conduct an analysis of the company’s financial information to determine its solvency. If the company is found to be insolvent, any acquisitions of distressed assets for less than “fair value” could be declared invalid. Second, even if the acquirer should find that the underlying company is not currently insolvent, but could become insolvent in the next 12 months, a heavily discounted acquisition of its distressed assets could still come under scrutiny by creditors and be declared invalid.

Legal risks related to buying distressed assets are mostly limited to purchases concluded outside of formal pre-insolvency or insolvency proceedings, as such purchases are open to scrutiny by the distressed company’s creditors for being preferential or fraudulent.

In the pre-insolvency context, the new amendment to the Insolvency law enables a voluntary and a judicial pre-insolvency restructuring procedure. In these proceedings, the majority of the debtor’s creditors may negotiate a restructuring plan which is also binding for dissenting creditors (so-called “cramdown effect”). Such a restructuring plan may include the creditors’ or judicial consent for the sale of certain assets and a restructuring of creditor claims. Resorting to such proceedings therefore reduces the risk of claw-back actions which have been covered in previous questions, making such acquisitions less risky. Furthermore, when acquiring whole companies, a restructuring of a company’s debts may also be achieved.

In the insolvency context, the insolvency administrator, supervised by the courts, handles the sale of the debtor’s distressed assets. All asset sales must be conducted using prescribed procedures and judicial approval. Acquisitions of assets within formal insolvency proceedings therefore represent a lower risk for the buyer.

Purchases of distressed assets before the formal initiation of insolvency proceedings may be declared invalid if concluded up to 12 or 36 months before the initiation of insolvency proceedings.

As already discussed in question number three, when purchasing distressed assets within the insolvency proceedings, the buyer must assess whether their purchase represents a “business whole”, which is capable of independently providing services or manufacturing products. In such cases, the buyer must be aware of the fact that they shall assume certain debtor’s debts.

In the pre-insolvency context, a public tender for purchase of distressed assets is not required. However, as discussed in more detail under question number four, any transactions that could contribute to unequal treatment of the debtor’s creditors could be invalidated by creditors. Therefore, a properly executed public tender could reduce the risks associated with the invalidation of the transaction by the debtor’s creditors, as the buyer would have stronger grounds to assert that the distressed asset was sold at a fair price.

In the context of insolvency procedures, the Insolvency act provides that normally a sale of the debtor’s assets can only be concluded on the basis of a public auction, online public auction or a binding call for tenders.[1] Only if these methods fail to attract a buyer, the sale of the assets may be concluded on the basis of direct negotiations with a purchaser.

Acquiring distressed assets in Slovenia carries significant legal risks, especially outside formal pre-insolvency or insolvency proceedings. Under the Insolvency Act, transactions within 12 to 36 months before insolvency may be challenged, and buyers of a "business whole" may assume certain debtor’s liabilities.

To mitigate risks, thorough due diligence is essential, including assessing the debtor’s financial position and ensuring compliance with insolvency laws. Pre-insolvency and insolvency procedures offer safer acquisition routes, as court-supervised sales reduce the risk of claw-back actions. While a public tender is not required in pre-insolvency proceedings, it strengthens legal certainty. In insolvency, public auctions or tenders are generally mandatory. Given these complexities, legal and financial guidance is crucial for risk management.