Articles

What measures should an entrepreneur take to avert the crisis?

by Lenka Katríková

The global spread of the COVID-19 coronavirus has resulted in the state adopting a number of fundamental measures; on the one hand, this will undoubtedly limit the spread of the virus, however it could create a paralysis for a large number of entities resulting in potential crises for their business.

In light of the seriousness of this pandemic, the Slovak Government is not alone in establishing changes across society and as well as other countries is adopting measures to prevent the spread of COVID-19 together with rescue packages to deal with the upcoming economic crisis.

Considering the above, we have decided to provide an entrepreneur with guidance on navigating appropriate measures to reduce the costs and mitigate the consequences of the spread of COVID-19.

We summarize these measures into the following nine points:

1. Taxes

We recommend extending the statutory period for filing tax returns by submitting a notice of extension of to this period. In this way, the tax liability can be postponed until 30.06.2020. The Slovak Government has decided not to impose a fine if entrepreneurs fail to submit or pay tax till 30th June 2020. It is also considering adjusting the depreciation of tax losses by extending the possibility of depreciation for a longer period than is currently provided for. How long a period should be is not yet clear.

2. Deductions

In the case of social and health insurance contributions, it is obligatory to continue paying these contributions as stipulated by law. However, it is also proposed to help entrepreneurs by introducing a so-called deduction break and the obligation has been postponed, for example, for the next 3 months in which the spread of COVID-19 is expected to culminate. Additionally, the repayment of this obligation would be spread over or up to 18 months.

3. Employees

One of the most pressing issues when implementing a measure to close down retail and services was and is the question of how to proceed correctly for employees working in those retail and services, eventually employees that the employer does not necessarily need at the place of work.

If the employee is in compulsory isolation at home (quarantine), then the employer pays 25% of wage compensation in the first three days, then the amount increases to 55% and on the tenth day, this obligation passes to the Social Insurance Agency.

If the employer was obliged to close its premises and for this reason it is not possible to allocate work to employees, this is an obstacle on the part of the employer. In such cases, he is obliged to provide the employee with a wage compensation of 100% (in the case of employers' representatives, it is possible to agree on a reduction of this compensation up to 60%). If there are employees' representatives at the employer, it is also possible to cover a temporary lack of work by introducing a working time account, where the employee can work, for example, for one month less hours and in the second month to do overtime.

Employers used to unilaterally order employees to take immediate holiday, but there are several legal implications regarding such a procedure. This is because the 14-day period prior to such a unilateral holiday was not respected and, in such cases,, the interest of the employee was not usually taken into account. However, apart from the above, it is true that the employer 's obligation to pay employees 100% wage compensation is often liquidated for entrepreneurs in closed retail and services. For this reason, we encourage employers to sensitively explain the current circumstances to employees and, together with them, look for an alternative solution to this situation. For example the employee and employer may agree that time during which the employee cannot work will be partially covered by taking holiday or taking compensatory leave, partially by reimbursement of 100% of wages due to obstacles on the part of the employer and partially by unpaid holiday. It is also possible to suggest to the employee, for example, longer maturity of his wage according to Section 129 (1) of the Labor Code. Last but not least, if an entrepreneur expects a decrease in work, the employee can be contacted with a proposal to agree on temporarily reduce the workload for a shorter period of time. In certain circumstances, a change in the place of work or the type of work can be agreed or ordered as well.

Some entrepreneurs have already been forced to fire their employees as a result of the spread of COVID-19. In this context, we emphasize that if you have more than 20 employees and you are planning to terminate employment within 30 days (even by agreement!) with a minimum of 10 employees, we recommend to discuss this problem with an expert/lawyer as this process is more complex and requires to fulfil multiple legal obligations.

However, we believe (and we see it in practice with our clients) that by an appropriate dialogue with employees or their representatives, it is possible to achieve that the employees themselves have an interest in helping their employer in the given situation. It should be borne in mind that, in particular for small and medium-sized entrepreneurs, there is a real risk of bankruptcy and the end of their entrepreneurial activities. As a result of this, employees could lose their jobs and their claims would be settled in bankruptcy only proportionally (except fulfilment from the guarantee fund which is paid only for the first 3 months of insolvency of the employer).

Again, in this area, the state is considering helping employers. The solution is, for example, a measure in the form of exemption from paying social and health contributions as well as income tax for employees who cannot work in a given situation. The government is also considering simplifying conditions for CFM (custody of a family member), for example by paying up to 80% of the average wage by the Social Insurance Company, or by providing a 600 EUR voucher for babysitter. Last but not least, there is also an interest in simplifying the payment of the maintenance allowance for small and medium-sized enterprises and sole traders. We will see in what final form these measures will eventually be adopted.

4. Leases on non-residential premises and real estate

Most entrepreneurs exercise their activities in rented premises or real estate for which they have to pay rent. These expenses, beside staff costs, are usually one of the highest items of operating costs. Therefore, in this situation we recommend that entrepreneurs should review the concluded lease agreements and the possibility of temporarily reducing the rent, postponing its maturity or not paying it at all. We are currently reviewing these arrangements for our clients and providing advice on how best to deal with these situations. We would like to emphasize that entrepreneurs should not hesitate to address a lawyer in this case, as simple legal advice can save them substantial costs for the coming months.

5. Suppliers and customers

In the case of contractual relations, there is also the possibility of applying certain exclusions from the obligation to perform. However, it is always necessary to assess what type of contract it is and whether the contract is concluded between entrepreneurs in the course of their business (so-called B2B relationship) or with a customer who is a consumer (so-called B2C relationship).

In general, in the case of COVID-19 coronavirus, we assess in particular whether a force majeure (vis major) as defined in the contractual relationship or arises from the law can be used, eventually whether application of so-called impossibility of performance (as the circumstances of performance of the contract have changed so much that it is not possible to perform the contract objectively), or similar so-called frustration of the purpose of the contract, which is applied under the Commercial Code, may be used. There are many variations of legal argumentation, and the final conclusions of the legal assessment is derived from fact whether the client is interested in terminating the contract, extending the term of performance, claiming damages, or paying a contractual penalty, etc.

Entrepreneurs should be aware of fact that if the same situation is to happen again, they can be prepared in advance (where the law permits). For example, it is useful to incorporate a definition of force majeure (vis major) into the wording of the contracts. Such force majeure (vis major) would include the spread of COVID-19 coronavirus, or other contagious diseases and, of course, the adoption of measures by the State and/or other Member States and its respective bodies, as is currently the case. It is also important to agree in a contract, to which party the force majeure will be 'counted' and what the legal consequences of force majeure (vis major) will be. As is obvious in the current situation contractual arrangements are necessary, as the law is largely vague in this area and does not regulate some situations at all. By working with skilled professionals/attorneys you can effectively close these gaps.

6. Loan

Undoubtedly, many business entities have financed their business by credit and are currently repaying the loan. Several banks offer the possibility of requesting a reduction in instalments and an extension of the period for payments; or they also provide the possibility of requesting a temporary deferral of maturity of the repayment of the loan. However, the problem is that such persons who apply for deferral of loan repayments are subsequently listed as a debtor in the credit register. For this reason, the State allegedly suggests not temporarily making an entry in this register for this case, which we believe would be a very appropriate solution.

Similarly, the possibility of providing short-term and low-interest loans to small and medium-sized entrepreneurs operating in the most affected areas (e.g. gastronomy) is also under negotiation. In our opinion, this option should also be granted to tourism entrepreneurs, as travel has been limited substantially.

7. Cross-border imports of goods

If you are importing goods from countries within the EEC, customs duties remain. However, in order to temporarily relieve entrepreneurs from this obligation, the government suggested to extend the term for payment of the customs debt of up to 30-40 days. However, this measure has not yet been approved.

8. Gas, electricity, water and so on

Entrepreneurs also have to deal with the obligation to pay for electricity, water, gas, etc. on an ongoing basis. We also recommend a review of the contract and the general terms and conditions, as individual media and service providers may regulate this area differently. The Minister of Economy of the Slovak Republic stated that they are considering making certain interventions, for example in the form of regulation of electricity prices or financing of certain costs directly by the state.

9. Insurance (travelling, liability for damages)

At this moment, we probably feel the biggest demand from our clients as to whether the situation can be considered as an insurance event because of an inability to travel, or in relation to liability for damage/injury/costs. It depends on the agreed conditions of insurance. In this case, our law firm assesses not only the content of the insurance contract itself, but mainly the general insurance terms and conditions, which include insurance exclusions. After the legal analysis we subsequently help the client with communication and eventual argumentation in reporting the insurance event as well as in its further investigation.

It is obvious that the current situation is new, constantly changing, and law does not explicitly provide answers to many questions currently raised. As lawyers, we can offer help during this unfavourable situation to entrepreneurs who are forced to assimilate to many new regulations and measures immediately, often within a few hours. We provide our clients with guidance and support in finding measures that are not only lawful, but also the most appropriate and cost-effective solution for the client.

 

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