SLOVENIA Law and Practice Contributed by: Vid Kobe and Peter Gorše, Schoenherr Slovenia
agement liability. Any prohibited distribution must be reimbursed to the company. Breaching capital main- tenance rules may also impact third parties (eg, lend- ers), particularly if they were aware or should have been aware that the transaction is not permitted under Slovenian capital maintenance rules. Group-of-Companies Rules Under the group-of-companies rules ( koncernsko pra- vo ) and general rules on management liability, compa- nies are generally prohibited from entering into trans- actions that are detrimental to them (ie, not in line with corporate benefit or the arm’s length principle), even if instructed to do so by the controlling entity. As noted below, this does not apply to the extent the control is formalised by way of a corporate control agree- ment. However, such agreement, inter alia, entails the obligation of a controlling company to reimburse the controlled company’s profit and loss (P&L) on an annual basis. Additional exemption applies when there is no cor- porate control agreement between the concerned entities in place (ie, where only factual control, such as through ownership of the majority equity stake, exists). In such a case, the controlling company may instruct the controlled company to enter into a detri- mental transaction provided that it compensates the controlled company for such detriment by the busi- ness year’s end (the so-called group of companies privilege ( koncernski privilegij ). If the loss is not offset during the financial year, it is necessary to determine when and how the loss shall be offset no later than the end of the financial year in which the controlled company suffers the loss. Breaching these rules may lead to management liabil- ity for both involved companies, with the controlling company also being liable for any damages suffered by the controlled company as a result of the breach. Mitigation Measures The restrictions and limitations regarding the upstream and side-stream guarantees and security outlined above are typically addressed by, inter alia, limitation language in the financing documentation (in a nutshell, to the effect that a guarantee and/or security is effec- tive (only) to the extent permitted by law). However, it
should be noted that the effectiveness of such mitiga- tion measures has not been tested in court. While other mitigation measures are theoretically available, such as providing guarantees for market consideration or through a corporate agreement on control between the borrower and guarantor, these do not represent a “market standard” approach (and are seldom used in practice) due to legal uncertainties and practical challenges. For instance, if a corporate con- trol agreement is reached between two entities, the controlled entity may, upon instructions from the con- trolling company, arguably engage in activities such as providing loans, guarantees or security, which would otherwise breach capital maintenance rules. However, as the corollary, the controlling entity must, among other things, annually reimburse any balance sheet losses incurred by the controlled entity. Consequently, whether Slovenian obligors are required to enter into such control agreements in financing transactions is Save for two exemptions (which are of limited impor- tance in the context of typical acquisition financing), a prohibition of financial assistance for the acquisition of own shares by JSCs applies under Slovenian law. This includes any assistance by way of granting a guaran- tee or in rem security by the target for the purpose of securing an acquisition loan. The prohibition is broad and applies to all (economically) comparable transac- tions. There are no whitewash procedures available. For the sake of completeness, an “extended form” of financial assistance prohibition also applies in public acquisitions effected by way of a takeover bid. By way of summary, it is prohibited for the offeror to – for the purposes of securing acquisition finance – directly or indirectly, pledge or offer to pledge any shares in the target it does not own at the relevant point in time (ie, shares that are the subject of the takeover bid) or any assets of the target. Absent such a “negative condition”, the competent regulator will not issue the approval for the takeover bid. Conversely – and while this remains judicially untest- ed – it is broadly accepted that financial assistance restrictions, otherwise applicable to JSCs, do not a matter of commercial agreement. 5.4 Restrictions on the Target
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