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COVID-19: PROTECTION OF ENTREPRENEURS IN CONNECTION WITH THE SPREAD OF THE DISEASE COVID-19

Hereby we would like to inform you about the amendment of the Act No. 62/2020 Coll. on certain emergency measures in relation to the spread of the dangerous contagious human disease Covid-19 and in the judiciary and on amending and supplementing of certain acts (the concerned act hereinafter the “Act” and the concerned amendment hereinafter the “Amendment”) that was approved by the National Council of the Slovak Republic on April 22, 2020 and that shall become effective in two steps; one part of the Amendment shall become effective on the day of publication thereof in the Collection of Laws and the second part on May 12, 2020.

The Amendment modifies the measures already adopted by the Act and introduces some new regulations and rules that are aimed at helping entrepreneurs survive the current coronavirus crisis and maintain their business activities and at the same time providing at least a partial inevitable protection to their creditors. Except for few new measures that will apply to all persons (which we will explain in more detail below), the Amendment restricts the validity of most measures to a limited group of persons who are provided with the so-called temporary protection.

A. Measures applicable to all persons

The Amendment prolongs the prohibition of exercise of pledge and of conducting auctions (introduced already by the Act) until May 31, 2020. Originally such prohibition was limited until April 30, 2020.

Furthermore, a debtor who is a natural person shall, under the Amendment, be entitled to apply for postponement of enforcement proceeding (execution) if, due to an emergency situation caused as a result of the spread of the disease COVID-19, debtor’s income has temporarily decreased and an immediate enforcement of receivables against a debtor could have particularly negative consequences for debtor or his/her family members. The postponement of enforcement proceeding will last for six months following the postponement of such enforcement proceeding, however not longer than until December 1, 2020.

The Amendment also introduces a special protection for tenants leasing real estate, including flats or non-residential premises who find themselves in a difficult life situation in connection with a coronavirus pandemic, which temporarily prevents them from paying rent and payments for rent-related services. The landlord shall not be entitled to terminate lease contracts concluded with such tenant in case of tenant’s delay with payments under the lease contract during the period from April 1, 2020 to June 30, 2020. However, the above protection is granted only if these tenants are unable to fulfil their payment obligations due to circumstances caused as a result of the spread of the disease COVID-19, which the tenant must be able to sufficiently prove to the landlord. The landlord shall be prohibited from terminating the lease contracts until December 31, 2020.

The part of the Amendment introducing measures and changes mentioned in this part A. hereof shall become effective as of the day of publication of the Amendment in the Collection of Laws.

Recommendation: In this respect we wish to recommend our clients in the position of landlords to carefully consider the possibility of terminating lease relationships with their tenants who fail to fulfil their financial obligations under lease contracts (providing of course, such termination is in the concerned case allowed either by the lease contract in question or by law). As we expect that the Amendment will be published in the Collection of Laws possibly even today or tomorrow, we strongly advise our clients to do so within the shortest time possible.

B. Measures applicable to entrepreneurs under temporary protection

As mentioned above, the Amendment creates a legal framework for provision of a new institute of entrepreneurs’ temporary protection. It needs to be emphasized that an entrepreneur will not obtain temporary protection automatically, but only after he/she has successfully applied for it. Only an entrepreneur with a registered office or place of business in the territory of the Slovak Republic, who was entitled to conduct business before March 12, 2020 may apply for temporary protection by the competent court.

Providing an entrepreneur meets all criteria prescribed by the Amendment for obtaining temporary protection, the court will grant such protection and will publish this information in the Commercial Journal.

We wish to emphasize that the provision of temporary protection will have significant consequences that will need to be taken into consideration not only during the current coronavirus crisis but also after such crisis will have gone away.

Below please find a short summary of the said consequences:

  • The proceedings regarding the creditor’s petition to declare bankruptcy against the property of entrepreneurs under temporary protection that was filed after March 12, 2020 will be suspended.
  • The debtor – entrepreneur under temporary protection will not be obliged to file petition in bankruptcy against their own property.
  • During the temporary protection, certain enforcement proceedings commenced against entrepreneurs under temporary protection after March 12, 2020 will be suspended.
  • The granting of temporary protection also prevents the exercise of pledge over the assets of entrepreneurs under temporary protection.
  • The Amendment introduces a new rule according to which offsetting of certain claims against related parties is prohibited.
  • Entrepreneurs under temporary protection will also gain a special position with respect to their contractual relationships. Contractual partners of such entrepreneurs shall not be entitled to terminate a contract concluded with entrepreneurs under temporary protection, withdraw from it or refuse to provide performance under such contract due to delay in fulfilling such entrepreneur’s obligations towards their contracting partners that occurred between March 12, 2020 and May 12, 2020.
  • Time periods for asserting rights against entrepreneurs under temporary protection (in particular limitation periods), including time periods for contesting of legal acts will be interrupted.
  • Obligations of entrepreneurs under temporary protection directly related to the maintenance of the company’s operations that arose after the provision of temporary protection may be fulfilled before their previously due liabilities.
  • The Amendment also introduces new rules regarding the loans and similar services that correspond to the loan economically provided to the entrepreneur under temporary protection by related parties.
  • Entrepreneurs under temporary protection shall be obliged to make a sincere effort to ensure that their creditors are satisfied as much as possible. At the same time, entrepreneurs shall, during temporary protection, prefer interests of their creditors over their own. Entrepreneurs under temporary shall, inter alia, not be entitled to distribute profits or other own resources and dispose of any material assets pertaining to its enterprise.

The part of the Amendment introducing measures and changes mentioned in this part B. hereof shall become effective on May 12, 2020.

Recommendation: Given a relatively simple way of obtaining temporary protection, we expect a large number of applications from entrepreneurs being filed. As the courts will conduct rather formal review of compliance with the conditions for granting temporary protection, we believe many entrepreneurs will be granted such protection.

In the light of the above, we recommend to review contentiously the information published in the Commercial Journal so that you have an overview of whether your business partners (especially those in the position of debtors) have been granted temporary protection so that you may carefully consider all consequences that granting of such protection may cause (especially with respect to the current contractual relationships).

Last but not least, we recommend considering whether applying for temporary protection is a step you wish to take and if yes, then, considering the overload of work this new legal instrument will most probably cause at the competent courts, we recommend to do so as soon as possible.