Dear Clients and Business Partners,

In connection with the state of emergency declared for a period of 30 days starting on 5 October 2020, we are bringing you an update of the impacts of the pandemic, the key changes and measures adopted in selected areas of law. A number of measures currently in place were already declared during the spring outbreak or in the fall prior to the re-introduction of the state of emergency. The state of emergency was declared on the grounds that as a result of the deteriorating epidemic situation it was necessary to adopt further stricter measures that interfere with fundamental rights and freedoms to a greater degree. This is only possible under such extraordinary regime.

STATE OF EMERGENCY AND RELATED LEGAL REGIME

• The government is the key crisis management body in the declared state of emergency, pursuant to Act No. 240/2000 Sb. The government is authorised to issue emergency measures to the extent necessary and for a necessary period of time and thus restrict fundamental human rights.
• Decisions on the emergency measures are published in public media and promulgated in the Collection of Laws at https://aplikace.mvcr.cz/sbirka-zakonu/. They become effective on the date specified in the decision.
• The government’s working body dealing with critical emergency situations is the Central Emergency Committee of the Government of the Czech Republic. Its membership and activities are governed by the Statute of the Central Emergency Committee, which is approved by the Government.
• The Ministry of Interior is in charge of coordination. Needless to say, the Ministry of Health will also play a key role under the circumstances. To ensure readiness at the level of self-governing territorial units, regional and municipal authorities or regional governors and mayors are also vested with powers laid down by law to address various emergency situations.
• The Code of Administrative Procedure does not, save for certain exceptions, apply to the decisions adopted during a state of emergency. The breach of emergency measures is considered an offence punishable by potentially high fines in administrative proceedings. With respect to the nature of certain emergency measures, criminal law impacts cannot be ruled out either.

LABOUR LAW

• It is suitable to use the institute of working from home again where this is not ruled out by the nature of the work (only on the basis of an agreement, as employees cannot be forced to work from home). For more detailed information on working from home, please refer to our Newsletter.
• Currently, government programmes aimed at unemployment aid including the Antivirus Programme, are still in place; for details on its existing terms, click HERE.
• The Chamber of Deputies is discussing comprehensive legal provisions regarding the kurzarbeit, nevertheless its final terms or the envisaged date of effect – currently scheduled for 1 November 2020 – are not quite clear at the moment.

LAW OF CONTRACTS

• It should be kept in mind that in general, Covid-19 is no longer an unforeseeable event and should be taken into account when entering into new contracts.
• When making contracts, parties may always deviate from the law on a number of matters. Thus, it is not suitable to follow only general recommendations but it is always better to tailor a contract to specific conditions.
• A party hit by the Covid-19 pandemic may not,in general, unilaterally increase or decrease the agreed upon prices. Only where the parties entered into a contract when it was still impossible to foresee the current measures and the further spread of Covid-19, and where the impact of the pandemic would cause a specifically gross disproportion in the supplies/payments of both parties, the injured party may request the other party renew contract negotiations.
• The measures linked to Covid-19 may justify the failure to fulfil obligations arising from contracts only where they constitute force majeure. The claims and the related procedures will differ depending on whether the contract in question contains force majeure provisions or not. What also matters is how the specific contract defines force majeure and whether the current restrictions match the definition. Simultaneously, the obstacle in the form of Covid-19 must be the cause of the fact that an obligation was not fulfilled duly and on time.
• Government measures may, in certain cases, lead to the extinguishment of contractual obligation due to the impossibility of performance (i.e. additional impossibility of performance). This is applicable under the circumstances that the performance may not be supplied even under aggravated conditions, at higher costs, with the assistance of another person or after a certain period of time.
• You can find out more about the impact of the government measures on the law of contracts in this article, which describes in detail what cases may arise in contractual relationships at the time of the pandemic.

BUSINESS CORPORATIONS

Business corporations will be subject to the provisions of Act No. 191/2020 Sb., on certain measures to mitigate the impact of the SARS Covid-19 pandemic on persons participating in judicial proceedings, injured persons, victims of crime and legal entities and on amendments to the Insolvency Act and the Code of Civil Procedure, i.e. the Lex Covid. The following applies to business corporations:

• The general ban on mass events does apply to the performance of a profession, business or other similar activity, although the wording of the emergency measure does not make it quite clear whether the exemption also applies to general meetings and meetings of other bodies of legal entities, as the exception is not expressly listed; hence, it is always necessary to consider the specific terms, also in terms of people’s possible participation.
• A general meeting or a meeting of a body of a legal entity may take place by written consent (“per rollam”) or with the use of technical means (videoconference) even where this possibility is not laid down in the founding legal act (articles of association / by-laws).
• Meetings take place under conditions laid down in the founding legal act or under provisions laid down in the Corporations Act.
• In the event of legal entities other than corporations (associations), the terms governing meetings are set by the governing bodies or the body organising the meeting (e.g. a supervisory body).
• Pursuant to law, the term of office of members of bodies that was to lapse when the emergency measures were in place will be automatically extended until the end of a 3-month period after the date of termination of the emergency measures.
• The term of office of members of bodies will also be extended where it lapsed within 1 month from the date of termination of the emergency measures, until the lapse of a 3-month period from such date.
• If a member of a body does not wish to remain in office, they must express their refusal by the date the term of office would otherwise lapse.
• Another possibility is co-opting, i.e. a temporary appointment of a person to a vacant office in a body by the body itself unless the number of their members falls under 50%, also in case co-opting is not permitted by the founding legal act.
• Under certain conditions, the period of approval of financial statements of some corporations is extended.

FINANCING, RESTRUCTURING AND INSOLVENCY

• No measure adopted under the state of emergency directly relates to financing or rendering of financial services.
• Debtors are not obliged to file a debtor’s insolvency petition until31 December 2020 even though they are insolvent.
• The statutory moratorium for the repayment of loans terminates on 31 October 2020.
• The end of the statutory moratorium is likely to lead to a number of companies and consumers facing severe financial difficulties, to an increase in insolvencies and related insolvency proceedings.
• Currently, the repayment of approximately CZK 200 billion in corporate loans and CZK 250 billion in consumer loans has been deferred, out of which CZK 180 billion constitute mortgage loans.
• The deferred repayments concern 360 thousand debtors, 66% of which relate to consumer loans, 26% to mortgage loans, 5% to loans to businesses and the remaining 3% to other types of loans.

PUBLIC CONTRACTS

• The issues concerning e.g. direct purchase of face masks, disinfectants or medical material on the basis of a general exception from the obligation to proceed in the procurement procedure pursuant to the Public Procurement Act (PPA) or the use of a negotiated procedure without prior publication are being reopened again.
• In this regard, please refer to the opinions of the competent authorities containing practical recommendations on public contracts awarded during the pandemic published on the public procurement portal.
• Published recommendations, however, cannot be applied in the second Covid-19 wave by the operation of law itself, as they were influenced by an unparalleled situation that the pandemic caused in its first (spring) wave and that had been unprecedented globally. Hence, it is impossible to automatically rely e.g. on the possibility to apply Section 222(6) of the Public Procurement Act when extending the deadlines for the fulfilment of contracts as the experience from the first pandemic wave could worsen the position of contracting authorities when justifying the unforeseeability of the need to amend a contract.

STATE AID

• State aid tools provide a number of possibilities to curb the economic impacts of the Covid-19 pandemic. They may be in principle applied irrespective of the declaration of a state of emergency.
• The European Commission issued framework rules for various types of aid (financial grants, loan guarantees, subsidised interest rates, export loans, support to R&D and the development of products against Covid-19, deferred payment of taxes and other levies, subsidised payroll expenses and recapitalisation of companies in need). The framework rules allow for the provision of aid until the end of 2020 though its prolongation has not been ruled out.
• The Czech Republic has already launched a number of aid programmes under the framework, namely programmes of guarantees for COVID loans, export aid, the COVID rent programme, aid in the area of production of medicinal products, or accommodation vouchers to support the spa industry. Further measures would also be possible, e.g. subsidising interest rates.
• Furthermore, the European Commission declared the Covid-19 pandemic a natural disaster, which creates room for direct compensation of damage caused as a result of the pandemic (the legal assessment of damage, however, does not depend on whether a state of emergency has been declared or whether emergency or extraordinary measures have been issued or not).

COMPETITION LAW

• The rules of competition law remain unchanged at the time of a pandemic and economic crisis, agreements restricting competition or abusing dominant power are still forbidden.
• A temporary exception from the ban on certain agreements between competitors may be used by farmers in the area of the production of milk, potatoes, live plants and flowers and wine.
• Competition authorities are willing to make an informal assessment of a planned cooperation between companies and in certain cases confirm they are free from defects, e.g. for reasons of consumer benefit.
• In the event of a concentration between undertakings subject to approval by the European Commission, it should be taken into account that the prenotification stage is twice as long as the standard procedure.