Although the ZFPPIPP-H amendment came into effect at the end of 2023, the Ministry of Justice has already begun preparing a new amendment ZFPPIPP-I. Below, we summarise the changes it is expected to bring.
The Ministry of Justice has prepared the ninth amendment to the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (“ZFPPIPP”). The main purpose of amendment ZFPPIPP-I is to implement the constitutional ruling no. U-I-414/20-13 from May 3, 2023 regarding the unconstitutionality of the ninth paragraph in connection with point 1 of the second paragraph of Article 112 of ZFPPIPP.
In the ruling, the Constitutional Court decided that the automatic ban on assigning new cases to an insolvency administrator suspected of committing a criminal offence significantly restricts their right to work. This ban would temporarily prevent them from practising their profession, potentially causing lasting damage to their business and having consequences that could persist even after the ban is lifted.
The court adopted this position in pursuit of the objective that trust in the work of insolvency administrators and the integrity of insolvency proceedings are crucial for their proper functioning. The legislator established an irrefutable legal presumption of value-based unsuitability to achieve this objective. This presumption applies in cases where a final indictment has been issued against the insolvency administrator or when a main hearing has been scheduled in a summary criminal proceeding related to any criminal offence listed in the catalogue, regardless of its nature, severity, or circumstances. The legal presumption is not limited to cases where the continuation of the insolvency administrator’s work would be manifestly unacceptable at first glance (e.g., criminal offences related to the misuse of the administrator’s function).
Given all the above, the Constitutional Court ruled that the benefits of the contested regulation do not outweigh the severity of its consequences for the affected insolvency administrator. Therefore, it determined that the assessed legal provision is inconsistent with the right to the freedom of work under the first paragraph of Article 49 of the Constitution, in connection with the free choice of employment under the second paragraph of the same article of the Constitution.
The proposed amendment to Article 112 of ZFPPIPP is expected to establish an irrefutable presumption that an insolvency administrator cannot temporarily carry out their duties if criminal proceedings have been initiated against them for:
(i) a criminal offence committed in the performance of the duties of an insolvency administrator in insolvency proceedings; or
(ii) a criminal offence committed with intent against property or the economy, which is prosecuted ex officio;
and in such proceedings, a judicial investigation has been finally initiated, the indictment has become final without an investigation, or a main hearing has been scheduled on foot of a motion to indict. In cases where an insolvency administrator is facing criminal proceedings for suspected involvement in a different type of criminal offence, the Minister of Justice will decide on the suspension.
The next proposed amendment involves the introduction of adversarial proceedings in the suspension process, allowing the insolvency administrator the opportunity to present their case. Additionally, the sixth paragraph of Article 112 of the ZFPPIPP is set to be amended so that, in cases where the minister’s assessment of diminished trust in the insolvency administrator’s work is required, the minister would issue a decision as soon as possible after becoming aware of the reason (instead of within three days, which will apply to “more serious” cases where suspension is automatic).
In addition to the above-mentioned amendments, a further three minor adjustments to the existing regulation have been proposed:
1. The first change is related to the amendment of the definition of priority claims in Article 21 of the ZFPPIPP. The amendment explicitly specifies that in judicial restructuring proceedings aimed at eliminating imminent insolvency, and in insolvency proceedings, priority claims also include unsecured claims for the payment of contributions that arose before the commencement of these proceedings. The first paragraph of Article 221.ab of the ZFPPIPP stipulates that, in judicial restructuring proceedings aimed at eliminating imminent insolvency, the rules for the forced settlement procedure shall be applied mutatis mutandis. However, since Article 21 of ZFPPIPP is not among them, the bill of amendment explicitly seeks to incorporate this provision. The amendment is also designed to address the dilemma of how judicial proceedings aimed at eliminating imminent insolvency impact unpaid contributions, which would now be explicitly classified as priority claims.
2. The second change involves the removal of the second paragraph of Article 390 of ZFPPIPP, which regulates the possibility of enforcing certain priority claims during personal bankruptcy proceedings. The removal is based on the view that this provision is unnecessary, as the Enforcement and Security Act (“ZIZ”) already regulates the exemption of certain income from enforcement or the limitation of enforcement. Additionally, ZFPPIPP contains provisions on income exempt from the bankruptcy estate. The current provision allows the initiation of enforcement proceedings for certain priority claims, which are otherwise settled with priority in bankruptcy proceedings and are not affected by a discharge of obligations. The provision to be repealed currently allows for enforcement against exempt assets (e.g., minimum income) or assets that were part of the bankruptcy estate. Since such enforcement is not permitted, proceedings initiated on these grounds have only served to burden enforcement courts and receivers.
3. The third amendment involves supplementing Article 413 of ZFPPIPP to ensure more reliable and efficient record-keeping of discharge of obligations decisions. In personal bankruptcy proceedings, after the debtor submits a request for discharge of obligations, the court also obtains data from the criminal record and the register under Article 413 of ZFPPIPP, i.e., the register of discharge of obligations decisions. Under the current system, these data are still entered manually. However, the proposed amendment would establish a legal basis for the automatic retrieval of debtor data using the personal identification number (EMŠO) from the Central Register of the Population (CRP) or the tax register. This includes data outlined in the third paragraph of Article 17 of ZFPPIPP (full name, permanent residence, date of birth). Previously, courts were required to notify the Ministry of the necessary data within three business days.
The amendment is currently undergoing interdepartmental coordination, meaning it may still be subject to modifications or other changes before its final adoption.
