Newsroom / News / Media / Info Magazine LGP NEWS 01/2020 / Corona measures for business entities in Slovakia

Corona measures for business entities in Slovakia

Corona measures for business entities in Slovakia

The current situation has prompted the Slovak government to adopt several measures to eliminate economic impacts associated with the spread of the Covid-19 disease. One of the results is the temporary protection of business entities through the amendment to the so-called “Lex Corona” effective from 12 May 2020. 

Its purpose is to create a time-limited framework with tools to support the effective management of the negative effects of the spread of Covid-19 disease on business entities operating the enterprise. The business entity (legal entity, as well as natural person-entrepreneur) is entitled to apply to the court for temporary protection if it fulfills defined formal pre-conditions. Its seat or business place has got to be situated in the territory of the Slovak Republic and its authorization to do business has to have originated before 12 March 2020. Besides, the entity can`t be a bank, an insurance company, a broker or another entity excluded by the law.

Conditions for state support

Furthermore the entities must fulfill various conditions, determined under the “Lex Corona”, some rather easy to prove and formal, others more challenging. All businesses must maintain proper accounting, pursue the purpose of temporary protection and can`t breach the obligation to deposit the financial statement in the collection of deeds within the statutory period. There must not exist any enforcement proceedings pending against them as per 12 March 2020 in order to satisfy a claim and as per the date of submission of the application, there cannot be reasons for a bankruptcy declaration or restructuring permit towards the entity. At the same time, the condition that the entity was not bankrupted as per 12 March 2020 must be fulfilled. All applications must be submitted due to a significant increase of overdue receivables or a significant decrease of revenues compared to the same period in 2019, which significantly jeopardize the operation of the enterprise. In relation to its enterprise, assets, rights or other property belonging to the enterprise, no exercise of the pledge was commenced as per 12 March 2020.

It gets a little more complicated in terms of investments: In the calendar year 2020 the entity cannot have distributed profit or other owned resources or eliminate the implications of such acts. Furthermore, except for measures aimed to mitigate the effects of the Covid-19 disease spread, they did not take any other measures to jeopardize their financial stability or remove implications of such measures. Upon court acceptance of such an application, the court shall grant the business entity a certificate of temporary protection. The court shall immediately publish the information in the Official Gazette that the applicant has been granted temporary protection.

Temporary protection through Lex Corona

The temporary protection of the entity has wide reaching effects, such as if an enforcement proceeding began after 12 March 2020 against the entity to satisfy a claim from its business activities, this is interrupted for the duration of the temporary protection. Proceedings on a creditor’s application for the declaration of bankruptcy regarding an entity’s assets filed after 12 March 2020 are interrupted and the entity, including the obliged persons on its behalf, is not obliged to file an application for the declaration of bankruptcy on its assets for the duration of the temporary protection. No pledge can be exercised against the entity in respect of the enterprise, its property, rights or other assets belonging to the enterprise during the period of protection. In terms of contract, another contractual party may not terminate a contract concluded with the entity by notice, withdraw from the contract or refuse performance under such a contract due to the entity’s delay in the period from 12 March 2020 to 12 May 2020 caused by the spread of the Covid-19 disease, unless the other contractual party directly endangered the operation of its enterprise.

The entity (including its statutory body) may not distribute profits or other owned funds and it shall refrain from the disposing of any assets in which there are substantial changes in the composition, use or designation or its significant reduction. It is not possible to set off a receivable towards the business entity arising before the provision of temporary protection (if it is a receivable that belongs to or belonged to an affiliated person) against a receivable of the business entity arising after the provision of temporary protection. Time limits for exercising rights against the entity (including time limits for exercising claims from disputable legal acts) do not elapse during the period of temporary protection.

The obligations immediately related to maintaining the operation of the enterprise which arose after the granting of temporary protection, the business entity shall be entitled to pay preferentially over the previously due liabilities for the duration of the temporary protection. The temporary protection expires on 1 October 2020, however, the duration may be extended by the government up to 31 December 2020. Its termination is also possible at the entity’s own request or by court decision if there were in fact no preconditions for temporary protection, the preconditions for granting have ceased or the business entity under temporary protection has breached the obligations under temporary protection.

Keeping in mind the practice of liability settlement in Slovakia, potential evidence of declared fulfillment of conditions, especially non-existence of insolvency status, may in many cases depend on profound constructive interpretation of an entity’s financial relations. The proper evaluation of the fulfillment of the conditions may be crucial for the entity defending within court proceedings considering termination of temporary protection.

At the same time, we state that even if an entity does not meet the requirements to grant it temporary protection, it still has the opportunity to solve its situation by negotiation with creditors and business partners or by restructuring, bankruptcy proceedings or debt relief, legal options stipulated by the Slovak legislation. 

Authors:

JUDr. Martin Jacko, Managing Partner at LANSKY, GANZGER + partner Slovakia
Mgr. Martin Holý, Associate at LANSKY, GANZGER + partner Slovakia

My documents

Add page

There are currently no documents in your basket.