On 14.4.2020, the Government adopted a draft act which amends Act No. 62/2020 on Certain Extraordinary Measures in the Justice Sector in Connection with the Spread of Dangerous Communicable Human Disease COVID-19, which also amends and supplements other acts (“Draft”). We are bringing to you a summary of the salient provisions of the Draft.

The objective of the Draft is to create a legal framework for the granting of temporary protection to those companies:

(i) which have their registered seat or place of business in the Slovak Republic;

(ii) which were licensed for business before 12.3.2020, and

(iii) which were not insolvent as of 12.3.2020 and which have been affected by the negative impacts of the spread of COVID-19.[1]

 

Granting of temporary protection

 

Temporary protection may be granted by the relevant court[2] based on an application submitted through an application form to be published by the Ministry of Justice of the Slovak Republic. Apart from providing general information in the application[3], the applicant must declare that:

  1. he is eligible to submit the application,
  2. he was not insolvent as of 12.3.2020,
  3. as of the application date, no grounds exist for the applicant’s dissolution and that the applicant is not subject to the effects of adjudicated bankruptcy of permitted restructuring;
  4. in the calendar year of 2020, the applicant did not distribute profits or equity funds or, if such distribution took place, the applicant has remedied its consequences;
  5. in the calendar year of 2020, apart from taking the measures aimed at mitigating the impacts of the spread of COVID-19, the applicant took no other measures jeopardising his financial stability or, if he took such measures, the applicant has remedied their consequences;
  6. The applicant maintains proper accounting books and records and is not in breach of the duty to submit his annual and extraordinary financial statements to the register of corporate documents pursuant to Section 40(2) of the Commercial Code.

 

If the application meets the requirements, the court will grant the applicant temporary protection and will issue a confirmation to that effect. The court will publish information about the applicants subject to temporary protection in the Commercial Journal. Temporary protection is deemed effectively granted one day after publication in the Commercial Journal.

 

Effects of temporary protection

 

  • Temporary protection basically prevents the petitions for bankruptcy filed by creditors from being tried or otherwise acted on. Hence any proceedings in respect of a creditor’s petition for bankruptcy filed after 12.3.2020 against a company under temporary protection will be stayed. The same applies to the petitions/motions filed by creditors during the temporary protection period.

 

  • During the temporary protection period, the company under temporary protection is not bound to file a petition for bankruptcy in respect of its own assets. The same applies to the individuals who have a statutory duty to file a petition for bankruptcy on behalf of the company (members of statutory bodies).

 

  •  The enforcement proceedings (exekúcia) initiated after 12.3.2020 against a company under temporary protection for the satisfaction of a business claim will be stayed for the entire duration of the temporary protection period. The provisions of the Enforcement Code[4] which regulate the suspension [of enforcement] without blocking [of assets] will apply mutatis mutandis also to situations in which the proceedings are stayed after the enforcement itself has started.

 

  • A company under temporary protection is immune from foreclosure in respect of the company itself, as well as any items, rights, values or other assets belonging to the company. If a notice of foreclosure is given, the grace period after the lapse of which the foreclosure may be effected will be reset to start over after the temporary protection has ended.

 

  • A claim due to a company shielded by temporary protection that arises after the company has been granted temporary protection cannot be offset against an earlier claim pursued against the company if such claim is or was payable to the company’s related party as defined by the Bankruptcy Act[5]. 

 

  • A counter-party may not terminate a contract concluded with a company under temporary protection, nor may it rescind such a contract citing overdue performance as the reason, even if the counter-party had become entitled to terminate/rescind the contract before the temporary protection was granted. Any termination/rescission or these grounds will be ineffective.

 

  • The time limits for the exercise of the rights against a company shielded by temporary protection, including the time limits for the pursuit of actionable claims, shall be stayed for the duration of the temporary protection period.

 

  • A company under temporary protection is required, insofar as it may reasonably expected to do so, to exert sincere endeavour to satisfy its creditors to the maximum extent possible. Also, the company has a duty to place the common interest of its creditors above its own interest and that of other parties. A company under temporary protection may not, in particular, distribute its profits and other equity funds, and must refrain from disposing of its estate and the assets it may include, insofar as such disposal could lead to material changes in the composition, use or intended purpose of assets or to their other-than-negligible diminishment. A company under temporary protection, including its statutory bodies and/or members of its statutory bodies, is bound by these duties from the moment it has filed the application for temporary protection.

 

  • A company under temporary protection may pay the liabilities it has incurred in direct connection with its business operations after was granted temporary protection ahead of the liabilities maturing earlier.

 

  • Any credit or quasi-credit facilities provided on a non-cash basis during the period of temporary protection, relating directly to the maintenance of the company’s business, are exempt from the provisions of the Commercial Code on ‘undertakings in a crisis’ and from the provisions of the Bankruptcy Act[6] on subordinated debt. These claims are not deemed secured in bankruptcy proceedings.

 

Expiry of temporary protection

 

The temporary protection facility will expire on 1 October 2020, but the Government may extend the coverage until 31 December 2020. Temporary protection may be lifted upon request of the company which enjoys it or revoked by a court decision.

The decision on the revocation of temporary protection will be taken by the court which granted it, acting either ex officio or on a qualified motion. The court will revoke temporary protection (i) if the granting thereof was ungrounded, (ii) if the grounds for its granting ceased to exist, or (iii) if the company under temporary protection breaches its duties ensuing from the temporary protection facility.

The Draft has been put on the agenda of the upcoming session of the Parliament. We are monitoring the situation very closely and we will update you immediately on any new developments.

 

Zuzana Judiaková

 

[1] Under the Draft, the temporary protection facility will not be available to banks, e-money institutions, insurers, reinsurers, health insurance companies, asset management companies, security brokers, stock exchanges, the central depository of securities, collective investment entities, payment system operators, administrators of pension funds, administrators of supplementary pension funds, payment institutions and creditors licensed to provide consumer credits without limitation in scope.

[2] The following courts are competent to grant temporary protection:

  1. Trnava District Court for the territorial circuits of the Trnava and Bratislava Regional Courts,
  2. Žilina District Courts for the territorial circuits of the Žilina and Trenčín Regiona Courts,
  3. Banská Bystrica District Court for the territorial circuits of the Banska Bystrica and Nitra Regional Courts;
  4. Prešov District Court for the territorial circuits of the Prešov and Košicie Regional Courts.

[3] The ‘general information’ is: (i) identification of the court to which the application is addressed, (ii) identification of the applicant – forename, surname, place of business and company identification number (IČO) for those applicants who are natural persons, and name or registered legal name, seat and the company identification number (IČO) for those applicants who are legal persons,  (iii) e-mail address of the applicant unless the applicant who is a natural persons already has an electronic mailbox activated for the service of documents (iv) declaration affirming that the information presented in the application is true and correct and that the applicant is requesting temporary protection pursuant to the Draft, (v) date of application and the applicant’s signature.

[4] Act No. 233/1995 on Court-appointed Enforcement Officers and on Enforcement Procedures (the “Enforcement Code”), amending and supplementing certain other laws.

[5] Act No. 7/2005 on Bankruptcy and Restructuring, amending and supplementing certain other laws

[6] Act No. 7/2005 on Bankruptcy and Restructuring, amending and supplementing certain other laws.