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News 9/2020

Lex Covid

The Senate approved the bill “on certain measures to mitigate the impacts of the coronavirus (SARS CoV-2) epidemic on parties to court proceedings, injured parties, victims of crimes and legal entities and on the amendment of the Insolvency Act and the Execution Procedure Act“, referred to in short as “Lex Covid“. This law is aimed to eliminate, at least in part, the impact of emergency measures adopted by public authorities in connection with the coronavirus pandemic (hereinafter referred to as the “emergency measure“) in both private and commercial law. The most important provisions of this Act are described below.

1. Remission of procedural deadlines

According to Lex Covid, if a time limit expires in civil proceedings, administrative court proceedings, execution, insolvency, criminal, court enforcement proceedings or Constitution Court proceedings, the court shall relieve from the effects of the expiry of such a time limit (restoration of the status quo ante in criminal proceedings), even where the law otherwise excludes this possibility.

However, remission of procedural deadlines is only possible if the time limit expired for excusable reasons lying in an obstacle caused by the emergency measure, which either made it impossible or considerably more difficult for the party or their agent to take the relevant procedural step (action) and if the application for remission of the deadline has been filed within the time limit laid down in Lex Covid.

The omitted act must be joined with the application for remission.

2. Decision making in commercial companies

Over the duration of the emergency measure, legal entities may take decisions outside their statutory bodies’ meetings, either using technical means (i.d. via the Internet – Skype, WebEx etc.) or per rollam (i.e. by correspondence), even in cases where such decision-making methods are not allowed in the company’s Memorandum or Articles of Association.

Where no conditions of “distance” decision-making are provided for by law or the founder’s legal act, such conditions shall be set out by the statutory body of the company (in the case of the company’s supreme body), or, where another body of the company is concerned, directly by this body. These conditions must be communicated well before the decision-making.

3. Term of office of statutory bodies, co-optation

If the term of office of a member of an elected body of a commercial corporation expires during the emergency measure or within one month from the day following its termination, the term of office shall be extended to three months after the end of the measure.

However, no automatic extension of terms of office of elected bodies shall apply, if the member of the elected body does not agree with the extension; the member’s dissent must be delivered to the legal entity before the expiry of the term of office.

If the term of office of a member of an elected body expired between the date of adoption of the emergency measure and the date of entry into force of Lex Covid, their office shall be renewed if the member so agrees and no other member was elected or appointed in their place in the meantime. The office of the member of an elected body shall be renewed at the date of service of the member’s consent to the renewal on the company, expiring three months after the end of the emergency measure.

If the term of office of a member of an elected body expired between the date of adoption of the emergency measure and the date of entry into force of Lex Covid, their office shall be renewed if the member so agrees and no other member was elected or appointed in their place in the meantime. The office of the member of an elected body shall be renewed at the date of service of the member’s consent to the renewal on the company, expiring three months after the end of the emergency measure.

4. Discussion on the annual accounts

Should the deadline for discussion on the annual accounts expire earlier than three months after the end of the emergency measure, the deadline shall expire not earlier than three months after the end of the emergency measure, but no later than on 31 December 2020.

5. Insolvency petitions, extraordinary moratorium, suspended restructuring

According to the law, the obligations of debtors to file an insolvency petition have been suspended. A debtor who was not insolvent on or before 12 March 2020 (for whatever reason) is not obliged to file for insolvency from the date of entry into force of Lex Covid to six months from the expiry or abolition of the emergency measure (but no later than on 31 December 2020) if the insolvency is due to the declared measures.

The suspension of the obligation to file for insolvency does not apply to persons whose insolvency occurred already before the emergency measure was adopted, or if the insolvency is not prevailingly due to the circumstances related to the emergency measure that make it impossible for the debtor to fulfil its financial obligations, or substantially hamper the fulfilment of such obligations.

Creditors’ insolvency petitions filed on or before 31 August 2020 shall be disregarded (shall not cause the initiation of insolvency proceedings).

Until 31 August 2020, debtors who are entrepreneurs and were not insolvent as of 12 March 2020, may request the declaration of an extraordinary moratorium with the insolvency court, before the insolvency proceedings are initiated or after they were initiated at the request of a third party. The extraordinary moratorium is approved by the court for a period from three months (without the creditors’ consent) to six months (with the creditors’ consent). For as long as the moratorium lasts, the debtor may not be declared insolvent.

After the extraordinary moratorium was requested, the debtor should make every reasonable effort to satisfy the creditors as far as possible, giving preference to the creditors’ common interest over their own and third party’s interests.

According to Lex Covid, if a restructuring plan was finally approved in insolvency proceedings on or before 12 March 2020 but has not been performed in full, the debtor is entitled, in the period between the date of entry into force of Lex Covid and the end or abolition of the emergency measure, to request that the Insolvency Court decide that the debtor is entitled to temporarily suspend the performance of the restructuring plan, which right lapses no later than on 31 December 2020. For that period, restructuring procedure may not be transformed into bankruptcy.

6. Temporary suspension of distraints on moveable property and distraints on immovable property

According to the law, bailiffs shall not carry out execution sales of movable property until 30 June 2020. This does not apply if the debtor (the obliged person) so agrees or if maintenance claims or claims for compensation for loss or damage caused by bodily injury, or other intentional crimes are concerned. In such a case, distraints on moveable property may continue.

Under Lex Covid, execution sales of immovable property are also suspended until 30 June 2020; however, this applies only to immovable property in which the debtors have their place of permanent residence.

Likewise, this shall not apply if the obliged person agrees to the continuation of the distraint or if maintenance claims or claims for compensation for loss or damage caused by bodily injury, or other intentional crimes are concerned. In such cases, execution sales of immovable property may be carried on.

7. Limitation of the amount of contractual default interest 

Lex Covid prohibits contractual default interest exceeding the currently applicable statutory annual rate of default interest, until 30 June 2020, due to any default by the debtor occurred from 12 March 2020, provided that the debtor proves that restrictions resulting from the emergency measure made it impossible for the debtor to fulfil their financial obligations in due time, or substantially hampered the discharge of such obligation. However, this rule shall not apply to liabilities arising from contracts concluded after the date of entry into force of the bill.