Addressing the Inability to Pay and Restructuring of Financially Distressed Enterprises in Slovenia

Abstract

The main provisions of the new Law on the Financial Management of Enterprises (LFME) became fully effective in January 2000. The new legislation's motivation was to improve the ability to pay and bolster payment discipline in the Slovenian economy. Besides reducing the number of enterprises with blocked bank accounts, the LFME should have motivated the members of management boards to more frequently file for restructuring or bankruptcy procedures in the courts. In the year after the law was introduced the number of enterprises with a blocked account dropped significantly. However, the correlation between the occurring account blockages and the procedures remained weak. In addition, management teams in Slovenian enterprises did not manage to significantly restructure financially distressed enterprises so as to thereby improve their competitive capacity. Often used measures were write-offs and lay-0ffs. Smaller enterprises had to more frequently accept debt-to-equity swaps rather than just negotiating pure write-offs.

Keywords: financial distress, business restructuring, insolvency

JEL Classification: G30, G33