HAVEL & PARTNERS, the largest Czech-Slovak law firm, has marked another success on the global scene. It was rated the best law office in the Czech Republic for 2020 by the prestigious UK rating agency Chambers & Partners at the international Chambers Europe Awards competition of law firms.
“We highly appreciate the victory as the award granted by Chambers & Partners is considered the highest and the most prestigious international award for law firms. We value it even more so because the winners are selected based on a survey not only among the law firms themselves but also among our clients. This is clear evidence of our state-of-the-art expertise, high work commitment and the willingness and ability to always give maximum support to our clients. That is why I would like to express gratitude not only to all my colleagues and the entire HAVEL & PARTNERS team but also to our clients and business partners that motivate us to keep moving forward and keep providing top level services,” says Jaroslav Havel, the managing partner and founder of the law firm, about the firm’s success.
Awarded by London-based Chambers & Partners publishers, this year’s prestigious Chambers Awards Europe was announced online on the Chambers & Partners twitter account for the first time in its history, due to the current extraordinary situation. The agency has been involved in global legal services market rating since 1990. Chambers & Partners issues annual rating publications mapping the best law offices around the world on the basis of independent evaluations and comments received from clients, the law firms themselves and assessments from over 130 analysts.
Authors: Ondřej Florián, Soňa Karbanová, Kamil Kovaříček
The emergency situation caused by the coronavirus is having fundamental impacts on business and many companies’ economic condition. Entrepreneurs need to quickly orient themselves in the current situation, which is still evolving, and at the same time to cope with new challenges that are yet to come. Members of corporate governing bodies have thus unexpectedly found themselves in the role of crisis managers facing high demands and expectations that they will guide their companies through the crisis without any significant harm.
This text is the first part of our summary for members of governing bodies. Our aim is to remind and present, in the light of today’s emergency situation, the basic principles of the functioning of governing bodies and their duties and risks arising from their position. However general the text may seem, we can and may only assess specific issues on the basis of these universal rules. In the next parts, we will present specific duties in the context of crisis management and important practical issues of this time (dividend payments and dividend advance payments, concern instructions and some other issues).
A very brief summary is highlighted in bold for very busy managers. We nevertheless recommend you read the whole text.
Members of governing bodies are obliged to perform their office with necessary loyalty, which means that have to put the company’s interests before theirs and before the interests of third parties, including the company’s members, as well as with necessary knowledge and due care. The assessment of whether a member of the governing body fulfils this duty is objective and is conducted by means of a comparison with an average “manager acting with due care”.
Since a manager acting with due care is not expected to exercise due professional care, the member of a governing body does not have to be professional in all areas of the company’s operations. The body members need to have the basic knowledge necessary for management; however, they must be able to recognise where their abilities are not sufficient and where an expert must be engaged. The crisis management needed today may indeed be a new experience for many body members, and in some cases, it may be appropriate to contact company employees with necessary qualifications and experience or external consultants. Such assistance may also come in handy in the legal field because in times of a state of emergency we constantly learn about new government measures and laws, which are changing quite spontaneously and rapidly increasing in number. Similarly, procedures in relation to business partners and employees may also be exceptional at this time and may require greater knowledge of the applicable legal regulation or the analysis of existing contracts.
If the governing body decides to delegate some of its powers, it should bear the following important duties/responsibilities in mind:
In the event that a member of the governing body has a certain qualification and ability, the member is obliged to use it when performing their office, even though body members are not required to exercise due professional care. In this event, the member will be assessed in the given area against increased demands whether they have acted with due managerial care.
The art of exercising due managerial care is also about making the right use of all available information and tools suitable for the company’s efficient operation. For example, the governing body should monitor economic outlooks relevant to the given industry and collect all the necessary data concerning the company for its further (we may say crisis) management, such as interim profit and loss data, estimated imminent damage, etc. If measures adopted under the state of emergency can provide companies with suitable relief or state support, the governing body should learn about such an option and make an informed assessment of whether it is appropriate for the company to use the instrument. Under the Supreme Court’s ruling, a member of the governing body must use reasonably available (factual and legal) information sources and on that basis carefully weigh the possible advantages and disadvantages (recognisable risks) of existing options to make a specific business decision (see the Supreme Court’s resolution of 18 September 2019, ref. no. 27 Cdo 844/2018). Each governing body should thus have a continuous overview about what is going on in the company and about relevant external facts that may influence its business decisions.
The Supreme Court also draws an important conclusion that compliance with this duty must be assessed ex ante. This means that, in order to assess whether a member of the governing body has made an informed decision and therefore proceeded with due care, we may only consider the information and facts that the body member knew or – upon exercising due care – could and should have known at the time of making the decision. The governing body cannot thus be held accountable for the fact that the situation later developed otherwise, from the ex ante point of view, unpredictably. In the context of the present time, we need to say that the unpredictability of the further development of the current situation is also a criterion to be taken into account when making specific decisions. In general, we may assume that the present time favours more conservative decisions than risky ones (with exceptions given in particular by the purpose of business). However, we cannot recommend that you take no action, since the failure to act may also be considered a breach of due managerial care.
It is clear that the members of governing bodies are facing increased demands today. Sanctions for their breach of due diligence care vary from the duty to compensate the company for the harm caused, through the surrender of the benefit obtained, liability for the company’s debts vis-à-vis its creditors, to the ban to serve as a member of any governing body for a certain period of time. The good news for body members is the existence of what is known as the business judgment rule. The law acknowledges that doing business carries a certain amount of risk and even diligent business decisions may bring about negative results. After all, the governing body’s duty is to maximise the company’s profit, which is practically impossible if it is too cautious and does not take any business risk. Therefore, the governing body is responsible for the performance of its office as such, i.e. for adhering to the due decision-making procedures, and not for the outcome of this process. Even if a business decision turns out to be negative, the member of the governing body can prove that they have not breached their duty to act with due managerial care. As the burden of proof lies with the governing body, we recommend that it should document its corporate management actions, for example by writing detailed minutes of the board of directors’ meetings.
We hope that our summary will help the members of governing bodies to navigate today’s difficult situation. Each member of a governing body should pay increased attention to due managerial care and the specific situation in their company. As every company is facing a bit different challenges, we unfortunately cannot provide specific advice in this newsletter apart from the fundamental and general principles outlined above. Nonetheless we will attempt to present specific situations to you in which our clients often seek our assistance.
In any case, our corporate practice group is fully ready to aid you at any time in any specific situation.
Authors: Václav Audes, František Neuwirth, Denisa Fuchsová
On 17 April 2020, in response to the extraordinary circumstances triggered by the pandemic outbreak of COVID-19 caused by the SARS-CoV-2 virus, the European Parliament approved an amendment to Regulation (EU) 2017/745 on medical devices (MDR). The key aim of the proposed amendment is, in particular, to ensure the availability of medical devices on the market, including the devices critical for combatting COVID-19 and thus alleviate the current burden placed on competent authorities of the Member States, health care providers and other economic operators. The effective date of the MDR has been deferred to prevent putting at risk the due and timely implementation of the requirements laid down by MDR and smooth functioning of the internal market.
Until now the European Commission has not published any information on whether the effective date of Regulation (EU) 2017/746 on in vitro diagnostic medical devices (IVDR) will be postponed too. The IVDR is therefore still expected to come into effect on 26 May 2022.
Clearly, the deferred effective date of the MDR will also have an impact on the new bills on medical devices currently debated in the Chamber of Deputies (document of the Chamber no. 696) and the draft amendment to the existing act on medical devices (document of the Chamber no. 697). Currently, none of the bills have been passed in the Chamber of Deputies for debate. Given the current development of EU legislation, however, the pressure on their speedy adoption is expected to loosen. That would imply that the introduction of new rules governing the advertising of medical devices (which are part of the above legislative package) will be postponed too.
Source: BUILDING WORLD magazine
Authors: Lukáš Syrový, Jakub Vojtěch
This year, the Czech real estate market will be significantly influenced by a new Real Estate Brokerage Act. It brings about new requirements for real estate brokers with a high impact on their clients and real estate market participants in the area of the previously unregulated real estate business.
The Real Estate Brokerage Act, which has been under discussion and preparation for several years, will come into effect on 3 March 2020. Although it contains “only” 27 sections, including transitional provisions and provisions amending some other related laws, its significance is truly revolutionary in terms of regulation of the real estate brokerage business. So far, there has been no legal regulation in the field of the real estate brokerage business in the Czech Republic.
According to the explanatory memorandum, the intention of the new legislation is primarily to cultivate the conditions for providing real estate brokerage services. Following the example of similar professions, such as insurance intermediaries or consumer credit intermediaries, the new legislation sets the conditions under which real estate brokers and real estate agencies will be able to do their business.
Real estate brokerage is currently ranked among the fields of activities classified as a notifiable unregulated trade with the object of business “Production, trade and services not listed in Annexes 1 to 3 to the Trade Licensing Act”. So far, no special conditions have been required to obtain a trade licence to operate a real estate business. Under the new legislation, however, real estate brokerage will be classified as a notifiable regulated trade which, in addition to fulfilling the notification obligation, requires professional qualification in the form of a certain level of education, length of experience or professional examination. For example, accountants, restorers, psychologists or driving school operators already belong to this group of trades.
Real estate brokers will be required to hold (i) a master’s degree in law, economics or construction. In these cases, previous experience is not required. Nevertheless, it will also be possible to meet the condition of professional qualification by holding (ii) a bachelor’s degree, one year of experience and completion of an internationally recognized real estate course, (iii) university, higher vocational or secondary education with a school-leaving examination and, in addition, three years’ professional experience, or (iv) passing a professional qualification examination.
Existing real estate brokers are obliged to document the fulfilment of the new condition for professional qualification to the Trade Licensing Office within 6 months of the effective date of the Real Estate Brokerage Act, i.e. by 3 September 2020. At the same time, they must notify the Trade Licensing Office of the commencement of the performance of the regulated trade “Real estate brokerage”. Otherwise, their trade license to provide real estate brokerage services will expire.
Another increased requirement for real estate brokers will be their clear criminal record. Pursuant to the Real Estate Brokerage Act, a person with a clear criminal record means a person who has not been finally convicted of a criminal offense committed intentionally or for a criminal offense committed negligently in connection with the provision of real estate brokerage services. If the real estate broker is a legal entity, this obligation shall apply to a member of the statutory body as well as to the beneficial owner.
Municipal trade licensing offices will be responsible for checking whether real estate brokers have a clear criminal record or not. As a last resort, they will be entitled to revoke the trade licence of the real estate broker.
Another obligation newly introduced by the Real Estate Brokerage Act is compulsory insurance. Real estate brokers will have to be insured for the entire duration of their activities in case they become obliged to compensate for damage caused in connection with the performance of their activities. The minimum insurance limits are set at CZK 1,750,000 per claim and at least CZK 3,500,000 in case of multiple claims occurring in one year. The deductible must be arranged so that it does not exceed CZK 5,000 or 1% of the insurance benefit amount.
In addition, real estate brokers will always have to inform the Ministry for Regional Development about the conclusion of an insurance contract, the change in insurance limits or the amount of the deductible and submit to it a copy or an officially verified copy of the insurance contract or its amendment within 10 business days. In addition, real estate brokers will also be required to submit an insurance policy confirming the conclusion of the insurance contract to the client upon his/her prior request.
Under to the new Act, the purpose of the activities of real estate brokers is solely to mediate the conclusion of real estate contracts (contracts for the acquisition of ownership rights to real estate and contracts concerning the authorisation to use it), based on real estate brokerage contracts concluded between real estate brokers on the one hand and interested parties (clients) on the other hand. The Act lays down certain requirements for the form and content of such contracts.
The real estate brokerage contract must be primarily in written form. At least in general terms, it must define the subject matter of the transfer or use and the purchase price or rent. The contract must always include the amount of commission for the real estate broker or at least the method how it is determined. Failure to meet these content requirements will invalidate the real estate brokerage contract. However, only the client will be able to raise an objection to the validity of the contract.
The new Act also addresses the interconnection of the real estate brokerage contract (between the client and the real estate broker) and the real estate contract (between the seller and the purchaser, or the tenant and the landlord). The real estate brokerage contract will not be included in the same document as the real estate contract. In addition, the commission is to be payable, in principle, not earlier than the conclusion date of the real estate contract, the intermediation of which was ensured by the real estate broker. However, the Act allows a claim for commission to arise before the conclusion date of the real estate contract when the maturity of the commission can be tied to procuring the opportunity to conclude the real estate contract.
In the real estate brokerage contract, it will no longer be possible for a client who is a consumer to assume the obligation to conclude a real estate contract or a contract for the conclusion of a future real estate contract. Nor will it be possible to use a promissory note or check to settle or ensure the settlement of a debt in relation to the consumer.
The new Act allows for agreeing on exclusive brokerage, which will restrict the client’s right to conclude a real estate brokerage contract on the same subject matter with another real estate broker, or which will exclude the possibility of concluding a real estate contract without the cooperation of the real estate broker. However, the restriction comes again in relation to consumers, when exclusive brokerage can be concluded for a maximum of 6 months. The positive news, however, is that this period can be extended repeatedly.
Another restriction in relation to the consumer is connected to the termination of the real estate brokerage contract. If real estate brokerage with the consumer has been concluded for an indefinite period, the notice period may not exceed 1 month.
As for the commission, the new Act stipulates that in relation to the client – consumer, the advance on the commission may not exceed two thirds of the agreed amount.
No later than on the conclusion date of the real estate brokerage contract, the real estate broker will have to submit to the client a Real Property Register extract in relation to the real estate that is the subject matter of real estate brokerage. This extract must not be older than 3 business days. If the real estate broker breaches the obligation to submit this extract, the client may withdraw from the real estate brokerage contract within 14 days of the date of its conclusion.
In addition, the real estate broker will be obliged to provide the potential acquirer with information on specific defects and restrictions that are attached to the subject matter of the transfer or use and which are entered in public registers, as well as those that the real estate broker knew or, given his/her professional qualification, should have known. Again, as in the previous case, failure to comply with this information obligation establishes the client’s right to withdraw from the real estate brokerage contract.
The original draft Act did not provide for the possibility of holding escrow by real estate brokers. However, the final wording of the new Act has been affected by the amendments during the legislative process, so real estate brokers will thus be able to hold in escrow funds for the purpose of performing the real estate transfers they have mediated, subject to fulfilling several conditions.
First and foremost, real estate brokers will not be able to actively offer their own escrow to their clients. They will formally be authorised to hold such escrow only upon the client’s written request. In connection with holding escrows, real estate brokers will then be obliged to keep an escrow register, in which they shall record the statutory details: the parties’ identification details, total escrow amount, duration of escrow, date of receipt and release of funds, designation of escrow account that must be opened for each individual depositor. The escrow agreement will have to be made in writing and the funds will need to be deposited in a bank account, and it will be the obligation of the real estate broker to inform the bank that the funds are owned by a third party. Receipt and release of funds from escrow may only be executed by wire transfer, while real estate brokers must inform the trade licensing office about the first executed escrow.
The new Real Estate Brokerage Act entails many changes to the Czech real estate market. We recommend real estate brokers to make adjustments to their contracts and comply with all regulatory requirements within the statutory deadlines.
Authors: Lukáš Syrový, Jakub Zámyslický
The government’s proposal addressing the impacts that its measures adopted during the state of emergency in response to the COVID-19 outbreak might have on the tenant-landlord lease relationship is currently attracting major attention. According to the press releases of cabinet members, namely the Minister of Industry and Trade, the measures will lead to the “postponement of rent payments” for a certain period of time.
Though being frequently quoted by the media, this statement is not reflected in the wording of the bill approved by the government and by the Chamber of Deputies.
According to the wording that includes changes approved by the Chamber of Deputies, a tenant’s failure to pay rent that falls due between 12 March 2020 and 30 June 2020 does not entitle the landlord to terminate the lease. The landlord is entitled to terminate the lease if the payments are still overdue after 31 December 2020.
This concept, in our view, applies also after the adoption of the amending motions despite the fact that part of the new wording of the act may lead to interpretations that the rent payments are postponed, which we do not consider correct.
The bill does not presume the postponement of rent payments but merely prevents the landlord from terminating the lease in the specified period. That, however, is something fundamentally different. This means that the tenant is still obliged to pay the rent as it falls due pursuant to the lease agreement. The act merely cancels one of the sanctions for the breach of this obligation, namely the right of the landlord to terminate the lease.
This has a number of practical implications. The act does not affect other sanctioning and securing mechanisms. The failure to pay the rent will standardly lead to accrued statutory or agreed upon default interest, the right to contractual penalties (where agreed for such breach) and namely it is likely that it will be possible to use the provided deposit (bond) or bank guarantee to pay the overdue rent. If the tenant fails to subsequently pay the used part of the deposit or bank guarantee, the landlord will be entitled to terminate the lease by notice due to the breach of this duty (if the breach of this duty is listed as a reason for notice under the lease).
The bill also contains several provisions that may lead to considerable uncertainty among the landlord and tenant. The prohibition of termination by notice, for instance, applies to cases where the emergency measures have disabled or severely aggravated the performance of the tenant’s business. This tenant is obliged to substantiate (prove) this fact to the landlord by evidence. The fulfilment of this condition may be disputable in a number of cases, either because of the insufficient description of such impact on the tenant or because it is questionable to prove that the business activity performed in certain premises (namely office premises) has been disabled or aggravated. Consequently, it is also questionable whether landlords may terminate such lease by notice or whether they are prohibited from doing so under the bill.
Another provision that may lead to disputes regarding the validity of the termination of lease is that landlords are entitled to terminate the lease earlier than after 31 December 2020, unless they can be reasonably expected to endure the restrictions imposed by law.
Moreover, the wording of the bill does not address some crucial related issues such as the impact of this act on the landlord’s obligation to pay VAT. We are inclined to believe that landlords will be obliged to pay this tax.
The bill only addresses default on rent payments and does not address default on the payment of other related services charges. The duty to pay for services related to the lease thus remains unaffected by the bill. The articulated wording of the bill in principle fails to correspond to the declarations in the media and, on the contrary, creates a number of uncertainties and risks in relation to the landlord-tenant relationship. We believe that the bill is yet to undergo some changes that will be discussed by the professional public in order to find a solution acceptable for both tenants and landlords, and eventually also for the state.
Authors: David Krch, Josef Žaloudek
Dear Clients and Business Friends,
We write to you with a summary of information on the support approved by the Parliament of the Czech Republic and signed by the President provided to self-employed persons (“Entrepreneurs”) in connection with the emergency measures and the fight against COVID-19. To make it more reader-friendly, we have prepared our summary in the form of a Q&A, although the interpretation or the actual wording may be subject to changes by state authorities. If you have any questions on these topics, we will be happy to help you.
Authors: Petr Kadlec, Jakub Kocmánek
On 3 April 2020, the European Commission amended its Communication of 19 March 2020 called the Temporary Framework for state aid measures to support the economy in the current COVID-19 outbreak (the “Temporary Framework”).[1] We provided you with our roundup of the previous wording of the Temporary Framework earlier.[2]
The Commission specified in more detail the terms governing the cumulation of individual types of aid. Aid granted in the form of guarantees on loans and grants for interest regarding a single principal can be cumulated only if the loan amount does not exceed double the amount of the super-gross personnel expenses or 25% of the annual turnover of the enterprise, or higher in justified cases.
Member States will be allowed to provide direct grants, repayable advances or tax advantages for relevant R&D projects carrying out COVID-19 and another relevant antiviral research. Aid for fundamental research projects may cover up to 100% of the eligible costs, for industrial research and experimental development up to 80% of the eligible costs (the cap may be increased to up to 95% for cross-border cooperation projects). The R&D aid may not be cumulated with aid for the same eligible costs spent on the manufacturing of antiviral products (point C) below).
The aid can be provided in the form of direct grants, tax advantages or repayable advances before the end of 2020. The aid may not exceed 75% of the eligible costs spent on the testing and upscaling infrastructure, while the aid for the actual expansion of production may not exceed 80% of costs. The limits may be increased by as much as 15 percentage points if the project was completed within two months after the date of granting the aid or if it involved cross-border cooperation. Where the aid was simultaneously granted in the form of repayable advance payment, the limit may be increased by up to 30%. If a project is not completed within six months after receiving the aid, the aid will have to be reimbursed. A loss cover guarantee may be granted in addition to a direct grant.
The Commission concluded that deferrals of taxes and mandatory levies aimed selectively at undertakings (including self-employed persons) in certain areas or fields that have been strongly affected by the outbreak of the COVID-19 pandemic can be considered as compatible with the internal market. Non-selective aid of this kind vis-à-vis all undertakings is not considered state aid.
Member States can provide wage subsidies for employees and self-employed persons in certain sectors or fields. The subsidy may be granted for a period of twelve months and may cover up to 80% of monthly gross salaries (including social security contributions) of employees who would otherwise be laid off. Non-selective aid of this kind vis-à-vis all undertakings is not considered state aid.
When amending the Temporary Framework, the
Commission cancelled the condition for proving that otherwise commercially
insurable risks cannot be currently insured against as a result of the outbreak
of the COVID-19 pandemic. Now it will be possible to support export credit
insurance to all countries throughout the world with the exception of EEA, USA,
Canada, Australia, New Zealand and Japan.
[1] Amendment to the Temporary Framework: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.CI.2020.112.01.0001.01.ENG&toc=OJ:C:2020:112I:TOC
Original wording of the Temporary Framework: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020XC0320(03).
Authors: Petr Kadlec, Štěpán Štarha
The coronavirus pandemic has led to a steep increase in demand for certain commodities and consequently to their general shortage. Apart from a solidarity wave we can unfortunately also witness excessive prices charged in an attempt to take advantage of the current situation to one’s own economic benefit. The Office for the Protection of Competition (Office) has already declared its preparedness to take action against undertakings that take advantage of the current situation.[1] However, the office can intervene only in a situation involving a cartel agreement or abuse of dominance.[2] Not everyone knows that protection against excessive prices is also offered to affected entities by Act no. 526/1990 Sb. on Prices, as well as by the legal regulation of excessive loss and usury under the Civil Code. These regulations also provide protection in situations in which the Office cannot intervene.
The most extreme intervention under the Act on Prices is official price setting (fixed, maximum or minimum prices) or pricing moratorium (prohibition to increase prices). Fixed prices have been consistently applied e.g. to cigarette prices (by the Customs Inspection Office for the Central Bohemian Region) or to some components of the price for electricity and gas supply (by the Energy Regulation Office). The last time the Ministry of Finance set a maximum price was in the case of a price rise in response to the rapid increase in prices for class FFP3 respirators on 4 March 2020.[3] Another price regulation method is cost-based regulation, under which conditions are set out for price negotiations (in the form of a binding pricing or price calculation procedure by including justified costs and a reasonable profit) in particular in the health care sector, public transport and for drinking water. The pricing supervisory authorities[4] may impose a penalty of up to CZK 10 million for a breach of regulated prices.
Nevertheless, the Act on Prices also provides for the possibility of sanctions for the sale of unregulated goods or services if a more advantageous economic position is abused by the seller or the purchaser to gain disproportionate material benefit either by selling for a price including unjustified costs or unreasonable profit by applying a higher selling price than what is the usual price or purchasing for a price significantly below justified costs or lower than what is the usual price. This is a situation in which the seller or the purchaser causes harm to the other party by applying a price that is higher or lower respectively than the price they would achieve in a situation of being exposed to substantial price competition. A profit that is considered to be reasonable is the usual profit achieved on a long-term basis through comparable economic activities andensuring reasonablereturnof the used capital within a reasonable period of time.
Unlike in the case of a dominant position (overseen by the Office) based on market power allowing an undertaking to behave highly independently of other undertakings or consumers, in the case of a more advantageous economic position it suffices if an undertaking does not face substantial pricing competition. Thus, unlike in the case of a dominant undertaking, its position is assessed in relation to a particular buyer or seller as the weaker contracting party.[5] To prove abuse of a more advantageous economic position by a seller or buyer it is not necessary to prove that a practice objectively restricted or could have restricted competition. What is important is whether the seller or the buyer gained disproportionate material benefit to the detriment of the other party.[6]
It is apparent that the Act on Prices, which is only sporadically used in this respect, provides consumers with a potentially very efficient tool in facing unfair practices of suppliers as well as customers who take advantage of a particular situation to gain unreasonable profit, typically by overpricing goods in short supply. The supervisory authority may impose a fine of up to five times the amount of the disproportionate material benefit or up to CZK 10 million if it is impossible to determine the amount of the disproportionate material benefit. If a harmed buyer (or seller) files a motion at a Specialised Tax Office, administrative proceedings are commenced and a fine for an offence is imposed, it is not ruled out that the buyer can subsequently seek, in civil court, compensation for damage caused to them by the offender committing the offence of abuse of a more advantageous economic position. However, based on our experience, we should add that the Specialised Tax Office commences such administrative proceedings in absolutely exceptional cases and, therefore a professionally drafted motion with elaborate argumentation pointing at the existence of a more advantageous economic position is thus essential.
Consumers and entrepreneurs who conclude a contract outside the course of usual business are granted protection by the Civil Code against what is called excessive loss. Excessive loss occurs if one party is bound under a contract to provide performance that is grossly disproportionate to the performance provided by the other party. Gross disparity is established by comparing the agreed price with the price that is usual at the place where and time when the contract is concluded. The Civil Code does not provide for any limit whose violation would constitute gross disparity. However, inspired by Austrian law, our commentaries refer to one half.A party which suffered loss may defend itself by seeking cancellation of the contract in court and restoration of the original condition. However, this right is available only for one year from the conclusion of the contract and then it ceases to exist if not exercised during this period. The party that causes loss may avert cancellation of the contract if compensating the other party for its loss.
However, the Civil Code provides for numerous limitations of situations in which cancellation of a contract can be sought due to excessive loss. It is, for example, when the party causing loss was not and could have not been aware of the causing disproportion or if, in contrast, the harmed party was or must have been aware of the actual price but still agreed with the excessive price. The harmed party also loses its right to seek cancellation of the contract if it expressly waived this right and declared that that it accepted performance for an excessive price due to special liking. However, this is not the case if it is expressed, for example, in terms of business or standard contract formulations used by the harming party.
Due to the restrictive coronavirus measures many people have lost their source of income. According to the media, the majority of Czech families do not have savings to live on for two or more months. If the state does not provide support to a larger extent, the affected families will face duress. Should they borrow money in such a situation or receive other performance the value of which is in gross disproportion to what they have provided to the other party and should the other party be aware of the duress and gross disproportion in performance and abuse it,such a situation would qualify as usury. The Civil Code does not provide any definition of gross disparity. According to legal commentaries, the limit for usury is double the amount of the value of performance and consideration. When assessing performance and consideration the objective value of performance at the conclusion of the contract should serve as the basis.
Experts are not in agreement regarding the legal consequences of a usurious contract. They all agree that such a contract is invalid but they are not in agreement as to whether invalidity of the contract is relative or absolute. However, an entrepreneur who concluded such a contract in the course of business does not have the right to invoke the invalidity of a usurious contract.
Last but not least, please note that usury may also qualify as a criminal offence for which evidence of intent is required but unlike civil usury this type of offence can also be committed against an entrepreneur. Under the current crisis it is also possible to apply even more severe penal rates.
[1] Joint statement by the European Competition Network (ECN) on application of competition law during the COVID-19 pandemic available at https://www.uohs.cz/cs/hospodarska-soutez/aktuality-z-hospodarske-souteze/2750-spolecne-prohlaseni-souteznich-uradu-eu-sdruzenych-v-evropske-soutezni-siti-ecn-tykajici-se-uplatnovani-pravidel-ochrany-hospoda.html.
[2] In connection with the use of dominance the Office refers to exclusionary practices more than to exploitive conduct that is typical for overpriced products, see https://www.uohs.cz/cs/hospodarska-soutez/aktuality-z-hospodarske-souteze/2756-dohled-nad-dodrzovanim-pravidel-hospodarske-souteze-v-dobe-krize-zpusobene-onemocnenim-covid-19.html.
[3] See the Decree of the Ministry of Finance no. 03/2020, amending the list of goods with regulated prices issued by the Decree of the Ministry of Finance no. 01/2020.
[4] Competences of pricing authorities are stipulated by Act no. 265/1991 Sb., on competences of Czech authorities in the field of pricing.
[5] See the explanatory memorandum to Act no. 403/2009 Sb., amending Act no. 526/1990 Sb., on Prices
[6] As the Supreme Court confirmed in judgment no. Komp 3/2006-511of 18 December 2007.
Authors: Robert Nešpůrek, Jan Diblík, František Korbel
Dear Clients and Business Friends,
Since 12 March 2020, when it proclaimed a state of emergency, the Czech government has been adopting crisis measures in response to the coronavirus pandemic. These crisis measures substantially change the traditional work style to which most of us are accustomed. Videoconferences are held instead of meetings, personal contact or appointments at public offices are not desirable. Therefore, questions naturally arise as to how to behave towards business partners and authorities without physically meeting with them in practice. For some time now, Czech law has provided for the possibility to conclude contracts and perform legal acts electronically, i.e.even in situations when the parties cannot meet. Here we present a summary of FAQs regarding how to remain “functional” at a distance.
We have been
consistently striving to make Czech courts and their case-law eventually
recognise the liberalisation of electronic legal acts and their equalisation
with the paper form of documents as introduced by European legal
regulations and the Czech Civil Code many years ago. Recent new legislation (in particular the Act on the Right for
Digital Services and amendments to acts introducing what is called “banking
identity”),in which our legislation
and digitalisation expert team participated in the drafting to a considerable
extent, will certainly facilitate the further digitalisation of legal acts.The wide use of electronic means that
Czech law offers already now will undoubtedly accelerate this trend.
[1] In cases where Czech law is applied, see Section 562(1) of the Civil Code with the exception of a requirement for an officially authenticated signature or a public instrument form. This applies despite the Czech case-law, which is extremely formalistic and outdated.
[2] See Article 3 point 10 and Article 10(25) of Regulation (EU) No 910/2014 of the European Parliament and of the Council (EU) of 23 July 2014 on Electronic Identification and Trust Services for Electronic Transactions in the Internal Market (“eIDAS”), and Section 7 of Act no. 297/2016 Sb., on Trust Services for Electronic Transactions, as amended (“Act”).
[3] E.g. resolution of the Supreme Court of the Czech Republic no. 26 Cdo 1230/2019-175 of 22 May 2019.
[4] See Section 6 of the Act, i.e. advanced electronic signature based on a qualified certificate for an electronic signature or a qualified electronic signature. A qualified certificate by means of which you can create a recognised electronic signature can be obtained from any of the certification authorities. For the duration of the state of emergency the company První certifikační autorita, a.s. offers the possibility of obtaining a qualified certificate for an electronic signature solely online.
[5] Unless other legal regulations or internal policies require a joint act performed by several persons.
The Export Guarantee and Insurance Corporation (“EGAP”) should grant up to CZK 200 billion in guarantees for bank loans as part of another package of crisis financing. According to the latest information, applications for this form of aid could be submitted by:
The possibilities for using funds from this COVID PLUS program are also considerably wider than those from the COVID II program for small and medium-sized enterprises. Funds from the guaranteed loan may be used for:
The EGAP will provide a loan guarantee of up to 80% and although specific parameters are not yet known, according to current information it will be possible to apply for loans from CZK 5 million up to CZK 1.4 billion. The maximum amount of the loan available should be limited to 25% of the applicant’s total annual sales for 2019.
To assist our clients in applying for, and preparing and negotiating this guaranteed loan, we have a permanent bank financing expert team of extremely experienced lawyers who, also in normal situations, advise clients on many dozens of financing transactions worth hundreds of millions or several billion Czech crowns a year. In addition, we have dedicated the capacity of up to fifty lawyers and economic experts to support this team, creating a unique dedicated crisis financing team that has been able to assist nearly 200 clients in the COVID I and COVID II programs alone.
Due to the seriousness of the situation and anticipated economic and other losses to be suffered by a number of entities due to the coronavirus pandemic, we are offering our legal services to all clients and business partners at a reduced flat rate of EUR 100/CZK 2,600 effective from 16 March 2020 until the end of April 2020, except for services where more favourable terms have been previously agreed (especially in the public sector). Naturally, this preferential rate also applies to legal services related to the EGAP-guaranteed financing and other subsidized funding programs.
If you are interested, please contact us at krizove.financovani@havelpartners.cz. If you have any specific questions, do not hesitate to reach out to the following key contacts :
We believe that as the largest independent law firm in Central Europe, HAVEL & PARTNERS is fully equipped to deal with crisis situations in which crisis financing is an essential element. We will be happy to help you too – please do not hesitate to contact us at any time.
Authors: Ondřej Florián, Radek Wejmelka
The current emergency measures adopted in response to the new coronavirus, SARS CoV-2 epidemic, in the Czech Republic affect the life of each of us as well as companies, their shareholders and members of their corporate bodies. . In this respect, the Ministry of Justice prepared a bill (referred to as Lex Covid) that is to allow, among other things, the work of corporate bodies under the current state of emergency and related epidemiologic measures. The bill is expected to come into effect in the next few days (“Lex Covid”).
In Sections 18 to 22, Lex Covid regulates issues affecting not only companies but also other legal entities such as cooperatives (the affected legal entities are referred to below only as “companies” for the sake of simplification. In this article, we focus in particular on limited liability companies, joint-stock companies and European companies (Societas Europaea), and, if relevant, unlimited liability companies and partnerships in commendam). Major novelties include:
Companies may follow the procedures set forth by the special measures of Lex Covid only for the duration of the “emergency measure during an epidemic” (this is a statutory term for a series of measures adopted in relation to the current epidemic and the state of emergency declared for the territory of the Czech Republic). Nonetheless, the consequences of some special measures will go beyond the end of the emergency measure (see below).
One of the major issues related to the emergency measure is that meetings of corporate bodies, such as general meetings and meetings of boards of directors, supervisory boards and administrative boards, are practically impossible. That is why Lex Covid allows for using technologies to hold such meetings or to adopt resolutions remotely in writing, even if this option is not expressly stipulated (or admitted) in the articles or memorandum of association (for the sake of simplification, these documents are referred to below only as “articles of association” which are to cover both terms in this article).
There is essentially no change for companies which have expressly regulated this matter in their articles of association – they may hold meetings remotely under the conditions specified in their articles. Companies which have not regulated this matter in their articles of association will have to hold the meetings remotely under the conditions stipulated in the Czech Companies Act (i.e. Section 175 et seq. for limited-liability companies and Section 418 et seq. for joint-stock companies).
In case of companies that are not subject to any special statutory conditions (typically unlimited companies), such conditions for holding meetings of the supreme corporate body remotely will be set forth by the company’s governing body. The governing or supervisory bodies will provide for the conditions of their meetings themselves. Under Lex Covid, members of the respective bodies must be notified of the conditions specified in this way well in advance.
For the sake of completeness, we have to say that a company will proceed under Lex Covid if it is to complete a process of adopting resolutions remotely or a technology-enabled meeting after the end of the emergency measure, provided that the company has started the process or convened the meeting before the emergency measure ceases to apply. Nobody will be able to seek the invalidity of a resolution on the grounds that the articles of association did not allow for such a mode of meeting as they are replaced directly by Lex Covid.
The bill also foresees situations in which corporate body members’ terms of office expire by lapse of time while the emergency measure is still in effect. In order to avoid de facto “corporate interregnum” due to the failure to appoint new members, Lex Covid provides for automatic extension of all corporate body members’ terms of office that would normally expire by lapse of time while Lex Covid is effective. The term of office will be extended to up to 3 months after the termination of the emergency measure. A body member’s term of office expiring within 1 month of the termination of the emergency measure will also be extended. In these cases, the term of office will be extended to 3 months from the termination of the emergency measure.
Corporate body members not wanting to remain in office may contact the respective company and object to the extension of their term of office no later than the date of its termination.
Corporate body members’ terms of office that expire in the time between the promulgation of the emergency measure and the date of effect of Lex Covid will not be extended but renewed based on the respective corporate body member’s consent. In such a case, the term of office is renewed on the date of delivery of the consent to the respective company and expires in 3 months from the termination of the emergency measure. This procedure may only be applied if the respective body has not appointed or elected a new person to fill the vacancy. In that case, if the consent is delivered to the company, the former corporate body member’s term of office will not be renewed.
Even if not admitted in the articles of association, Lex Covid allows for co-option, i.e. temporary appointment to fill a vacancy in the corporate body by the body itself provided that the number of its members has not fallen below one half.
As part of the adopted measures, the time limit to discuss companies’ annual financial statements is also extended. Instead of 30 June, a usual deadline for companies with their financial year identical to the calendar year, the time limit is extended this year to three months upon termination of the emergency measure. However, the last date to discuss the annual financial statements is 31 December 2020. This measure is nonetheless without prejudice to duties stipulated by public laws (including in particular the duty to submit a tax return; you can find more details in our Tax Package and Tax Package 2 articles).
We firmly believe that the above-mentioned measures will help you ensure that your companies remain in operation, at least at the corporate level, in spite of these difficult times. Our corporate practice group is of course always ready to assist you not only in the matters described in this article. Above all, we wish all our clients good health and a lot of strength.
Authors: Jan Koval, Štěpán Štarha, Lenka Ostró
On 4 April 2020, a government proposal amending the Labour Code came into force. At the same time, as of today, 6 April 2020, employers will be able to apply for benefits to support the maintenance of jobs. You can read about all the current changes in our overview below.
Until now, the employee could also work outside his/her workplace, at so-called home office, only if he/she had the employer’s consent, or if both agreed on it.
Under the new legislation, the employer may order the employee to work from home office in his/her household. Failure to comply with this employer’s order could establish the employee’s liability under the Labour Code.
At the same time, the employee’s right to work from home office in his/her household has also been introduced. Although the wording of the amendment does not explicitly state that the employee shall only notify the employer of home office, but the law does not exclude it. However, the employee’s right to work from home office is limited by the fact that the employee may claim working from home office only if there are no serious operational reasons on the part of the employer which do not allow performance of work from home office.
Thus, the employee will not be able to leave to work from home office if, for example, the employer necessarily needs him/her at the workplace. In the event of a conflict, it will be at the discretion of the employer to prove such operational reasons that have required the employee to be present. These reasons must be serious and related to the operation. The assessment of the severity of these reasons will depend on the specific case.
Even with these changes, it has still remained unchanged that the type of work that the employee performs must allow the performance of work from home office.
The need to respond flexibly to the rapid evolution of the situation by employers has also manifested itself in shortening some deadlines.
Employers may notify employees of working time schedule 2 days in advance, instead of the original 7 days. The employer may also agree with the employee on a shorter deadline. The employer will thus be better able to adapt to current needs.
We note that changing the work schedule does not mean shorter working time; it is only a schedule of employees’ shifts.
The employer will be able to notify the employee of ordering vacation at least 7 days in advance, instead of the original 14 days. As for the so-called remaining paid vacation (i.e. vacation not taken last year), it will be at least 2 days in advance. With the employee’s consent, the employer may also use shorter deadlines.
This measure directly reflects the situation immediately after the outbreak of the pandemic, which restricted employers in determining the taking of paid vacation.
A prohibition on serving a termination notice applies to an employee in quarantine or isolation as in the case of an employee incapable for work. Termination notice may also not be served on an employee who does not work due to important personal obstacles on his/her part, which is personal and full day care of a sick family member or full day care of a natural person specified in a special regulation.
When such an employee returns to work, the employer is obliged to assign him/her to the original work and workplace. If the assignment to the original work and the workplace is not possible, the employer is obliged to assign him/her to other work corresponding to the employment agreement.
The cessation or restriction of the employer’s activity based on a decision of the competent authority shall be expressly considered as an obstacle on the part of the employer.
An obstacle on the part of the employer is also the cessation or restriction of its activity resulting from the declaration of an extraordinary situation, a state of emergency, or an exceptional state.
Under the new legislation, the first group of employers are those whose activities are restricted or ceased directly by, for example, a measure of the Public Health Authority.
The second group are those employers who had to restrict or cease their activities due to a declaration of an extraordinary situation or a state of emergency.
However, already now we see possible interpretation problems regarding the second group of employers. Will this group also include all employers whose sales have dropped in the current situation and have therefore been forced to restrict or cease their activities?
We understand that the approved wording aims at the fact that the mere declaration of an extraordinary situation or a state of emergency itself will cause the employer to restrict or cease its activity (e.g. a prohibition of importing goods to the employer who processes). The drop in sales will only be the result of a restriction or cessation of the activity, not its cause. In our view, this measure will not apply to employers whose activities have not been restricted at all, or have been restricted but not due to the COVID-19 pandemic.
This provision does not apply to the possibility to reduce the wages of employees across the board, but to reduce wage compensation for employees who face obstacles to work on the part of the employer, i.e. for those employees who are at home and do not work.
With these obstacles on the part of the employer, the amount of compensation of the employee’s wage is reduced from the current 100% of average earnings to 80% of average earnings. However, wage compensation may not be lower than the minimum wage.
The employer may still pay wage compensation of at least 60% of average earnings if agreed with the employees’ representatives in advance.
These rules do not apply to employees of economic mobilization entities in which a work obligation has been imposed (e.g. health care providers).
These approved changes in the Labour Code may only be used by employers and employees for the duration of an extraordinary situation, a state of emergency, or an exceptional state, also up to two months after their cancellation. There is also a special regulation of provisions on ordering and notifying of home office, which are linked to the issued and effective measures of the Public Health Authority for the prevention and spread of communicable diseases, or measures taken in the case of threat to public health. The temporal limitation of the use of the changes only emphasizes the extent and importance of interventions in labour relations.
We consider the approved changes to the Labour Code only as ad hoc measures taken to free up employers’ hands and minimize adverse consequences during an extraordinary situation, a state of emergency, or an exceptional state.
It is not possible to assess the economic significance of the amendment in the current situation, and especially for the future. However, we can envisage some measures in the Labour Code also without their time limitation for the period of an extraordinary situation, a state of emergency, or an exceptional state, and shortly thereafter.
Employment promotion benefits are divided into two parts. The first group includes employers who, due to the extraordinary situation on the basis of the Measures of the Public Health Authority of the Slovak Republic, had to close their operations. Employers in the first group will be able to apply for a benefit from 6 April 2020, 12:00 PM. The maximum total benefit amount per applicant is EUR 800,000 for the entire period of the project’s implementation.
The second group includes employers who did not have to close their operations on the basis of the Measures of the Public Health Authority of the Slovak Republic, but their sales have dropped by at least 20% or more. Employers in this second group should be able to apply for a benefit 2 days later, starting from 8 April 2020.
In both groups, the employer will be entitled to a benefit only for those employees to whom it cannot assign work due to an obstacle on the part of the employer (Section 142 of the Labour Code).
As regards the benefit amount, employers in the first group will be entitled to a benefit per employee in the amount of wage compensation paid for the time of obstacles to work, up to a maximum of 80% of average earnings, with a maximum of EUR 1,100 per employee.
Employers in the second group will be entitled to a benefit per employee in the amount of wage compensation paid for the period of obstacles to work, up to a maximum of 80% of average earnings, while the maximum amount being determined by the drop in sales in each month. Details of the conditions that employers will have to fulfil in order to be paid benefits, as well as the individual facts that will have to be demonstrated, are published on the website of the Ministry of Labour, Social Affairs and Family, as well as on the website www.pomahameludom.sk and www.neprepustaj.sk, through which applications can be submitted and where all the instructions on how to apply are given.
