act legal Czech Republic succeeded in Chambers Europe 2021

Chambers & Partners, the prestigious rating agency that maps out the quality of legal services in Europe, named act legal Czech Republic (act Řanda Havel Legal) as a “Recommended firm” in the Dispute Resolution and Employment categories in its 2020 ratings.

We are pleased to be awarded by the renowned Chambers & Partners agency. Receiving this prestigious recommendation is an important award for our law firm and emphasises the quality and professionalism of our work – especially the deserved respect and strong reputation of our legal team,” said Martin Řanda, Managing Partner, about the success of act Řanda Havel Legal. He adds, “Huge thanks to all our colleagues, as well as to all our clients, without whose confidence we wouldn’t have won this award.”

act legal Czech Republic is the best law firm in the area of labour law

act legal Czech Republic (ŘANDA HAVEL LEGAL) won the Labour Law category in EPRAVO.CZ’s prestigious “Law Firm of the Year“ ratings, adding another victory on top of the previous year’s wins in the Telecommunications and Media and Energy and Energy Projects categories. In addition, ŘANDA HAVEL LEGAL placed highly in the other fourteen categories.

Mgr. Tomáš Slabý, the head of ŘANDA HAVEL LEGAL’s Labour Law team, considers this award a great success: “We highly appreciate this award, which primarily reflects the satisfaction and trust of our clients. We also understand it as an appreciation of our Labour Law team’s performance in connection with the issues caused by the Covid-19 pandemic and the provision of related advice, especially in the areas of compensation and restructuring of our clients’ workforce.” He adds, “Huge thanks to all our colleagues, as well as to all our clients, without whose confidence we wouldn’t have won this award.” 

In competition with almost 80 Czech and international offices, ŘANDA HAVEL LEGAL was “highly recommended” in the categories of Energy and Energy Projects, Restructuring and Insolvency, Real Estate Projects, Telecommunications and Medias, Intellectual Property and Compliance. It is “recommended” in the categories of M&A, Information Technology Law, Banking and Finance, Public Procurement, Corporate Law, Competition Law and Dispute resolution. In addition to the above, ŘANDA HAVEL LEGAL was highly recommended in the special category of Czech Companies in the International Markets. 

This result puts us among the best law firms in the Czech Republic.

Employers will be able to gefer contributions to their social insurance at reduced penalties

On May 20, 2020, the Czech Senate passed a law allowing employers to defer payments for their social security insurance premiums for the months of May – July 2020 at reduced penalties. The law can be expected to become effective in the coming days.

The purpose of this law is to strengthen the liquidity of employers in the current difficult situation and to provide them with relief regarding their mandatory payments for the social security insurance premiums (hereinafter referred to as the “insurance premiums“). In order for employers to be able to defer payments for their insurance premiums for the above-mentioned months, they must continue to pay insurance premiums on behalf of their employees for the said months.

Please note that deferring payments of insurance premiums does not release employers from the obligation to pay a penalty for not paying the insurance premiums on time. The adopted law only allows for deferral of insurance premiums payments for employers paid for the months of May – July 2020 until October 20, 2020 with a reduction of the late payment penalty by 80%. The amount of the penalty is now 0.01% of the amount owed for each day, instead of the usual 0.05%. Deferment of payments will be assumed automatically, i.e. it will suffice if the employer does not pay its insurance premiums for the month of May 2020 by June 20, 2020 (the procedure will be analogous for the months of June and July 2020). However, if the employer fails to pay the amount due by October 20, 2020, the Social Security Administration will impose regular penalty instead of the more favorable penalty of 0.01%, i.e. a penalty of 0.05% of the amount owed for each day.

Another benefit of this law is undoubtedly the fact that in the case of using the option to defer payments for insurance premiums in accordance with the above, the “debt” incurred will not be considered to equal unpaid insurance premiums for the purpose of confirming the employer’s lack of indebtedness.

Please note that the deferral of insurance premiums payments cannot be used at the same time as the state contribution from the Antivirus program for the wages compensations. A prerequisite for obtaining the contribution from the Antivirus program is the due payment of insurance premiums, both for the employer and on behalf of its employees. Currently, the Antivirus program is valid until the end of May, but its further extension can be expected. Employers will therefore have to choose whether they want to draw contributions from the Antivirus program or use the deferral option for their insurance premiums.

In case of any questions related to the state compensation measures taken in the field of employment which an employer can use in the current difficult situation, please contact attorney-at-law Mgr. Lenka Droscová, our labor law specialist.

Abolition of real estate acquisition tax and statutory pre-emptive right

We would like to inform you that the Government of the Czech Republic (the “Government”) has decided, not only in connection with the COVID-19 pandemic, to abolish certain legal institutes related to the real estate transfer.

It particularly concerns an abolition of:
(i) Real estate acquisition tax; and
(ii) Statutory pre-emptive right between co-owners.

While the Government has decided to abolish the real estate acquisition tax mainly in order to stimulate the real estate market, the reason for abolishing the statutory pre-emptive right is not so clearly detectable.

Abolition of real estate acquisition tax
As of 30 April 2020, the Government approved a draft law to abolish the real estate acquisition tax. The draft law is obliged to go through the standard legislative process. However, regarding the fact that it is a government law proposal, its relatively fast approval and adoption can be expected.

The abolition of this tax shall be effective retrospectively and shall apply (i) to all real estate acquisition for which registration in cadastre of real estate (completion of the registration proceedings) was made in December 2019 and later, and (ii) to all real estate not registered in the real estate cadastre if the agreement on their transfer entered into force in December 2019 and later. The tax due date has been already postponed by government measures. Those, who have already paid the tax, shall be entitled to claim a refund.

The related tax deductions of interest on housing loans shall be abolished with the effect from the beginning of January 2022. Thus, persons who acquire ownership of real estate in the meantime (from December 2019 to the end of the year 2021) shall not be obliged to pay the acquisition tax, but at the same time the possibility to reduce the tax base through respective deductions shall be maintained for them.

Abolition of the legal pre-emptive right between co-owners
The statutory pre-emptive right in case of a transfer of co-ownership share on the real estate has been returned into Czech legal order in 2018. However, with the effect from 1 July 2020, the current form of this institute will be abolished and the respective provisions of the Civil Code will be restored to their original form.

In practice it above all entails that the statutory pre-emptive right applies only in situations where the so-called undivided co-ownership has been established by a disposition mortis causa (typically testament, inheritance contract) or by another legal fact in a way that made it impossible for the co-owners to affect their rights and obligations from the very beginning. Furthermore, the statutory pre-emptive right to a co-ownership share shall only last 6 months from the establishment of the undivided co-ownership and will not apply to transfers to certain family members or other co-owners.

If you have any questions about real estate transfers, please, do not hesitate to contact us at tomas.slaby@randalegal.com.

What changes in the procedural law issues and enforcement implementations are brought by Lex Covid?

This new Act allows, under defined conditions, relief from the effects of expiry of a time limit, even in cases where it would not otherwise be possible under the law. Lex Covid also sets out that until 30 June 2020, with exceptions, the courts will not undertake enforcements by selling movable assets and buildings in which the debtor has permanent residence.

As we have informed, the President of the Czech Republic signed an Act known as Lex Covid on 20 April 2020. The Act is intended to address practical problems arising in connection with the Covid-19 pandemic in judicial proceedings and bankruptcies, and it also deals with the functioning of legal entities. The purpose of this newsletter is to present the content of Lex Covid concerning the procedural law issues and implementation of enforcements.

Relief from the effects of expiry of procedural time limits

As a result of the adopted extraordinary measures, the courts have scaled down their activity and in particular they have significantly reduced access to the court buildings for the public whereby, among other things, they have limited access to case files. That, however, made it impossible or excessively difficult for some parties to proceedings to carry out the necessary procedural steps within the set time limits, e.g. submission of a response. In some cases, such situation could be addressed by filing a request for extension of the time limit to perform an act but the courts did not manage to deal with the requests within a reasonable time.

Lex Covid therefore enables relief from the effects of expiry of a time limit under set conditions, even in cases where this would be otherwise impossible by law. A condition for the relief is submission of a request/application by the party concerned within a set time limit, to which the omitted act must be attached.

The time limit for filing the application will start to run upon terminating or cancelling the extraordinary measure against the epidemic, which made it impossible or substantially difficult to carry out the act. The time limit will not end before a certain number of days after the emergency ends. The time limits for which it is possible to file an application or request for relief vary in different areas of the procedural law.

In civil justice, the application for relief must be filed within 15 days of the termination or cancellation of extraordinary measures. If the party has missed the time limit for submission of a response, as a result of which a judgement for recognition was issued, the court will decide based on the application of the party concerned on relief from the effects of expiry of the time limit for response and on an annulment of the judgement for recognition.

In administrative justice, the application for relief from the effects of expiry of a time limit must be filed within 14 days of terminating or cancelling the extraordinary measure that hindered or rendered it excessively difficult to carry out the omitted act.

In enforcement proceedings, the application for relief can be filed within 7 days of the termination or cancellation of the extraordinary measure. However, it is not possible to condone non-compliance with the time limit for filing an appeal against a decision in which the ownership of an asset was transferred to the purchaser at auction (an example can be a forced sale of immovable assets, or sanctioning of a business establishment by its sale).

It is newly possible under this extraordinary situation to launch proceedings for a stay of enforcement also after the enforcement has already been performed, provided that the performance took place during the extraordinary measures and the party could not file the application before the enforcement was performed due to the extraordinary measures. The party can launch proceedings for a stay of enforcement, if it was ordered based on an unenforceable decision, the enforcement decision is annulled or rendered ineffective, or if the enforcement was inadmissible because there is another reason why the decision cannot be enforced.

The same applies for enforcement proceedings. If, moreover, the party against whom enforcement is sought permits the time limit for fulfilling the enforced obligation to elapse, it can apply for relief from the effects of the expiry of that period. However, such party must pay the enforced claim and an advance payment for the reduced execution costs within 15 days of the termination or cancellation of the extraordinary measure, which will eventually mean lower execution costs for the party.

In insolvency proceedings, the person who permitted the time limit set for completing acts in this type of proceedings to elapse due to extraordinary measures can file an application for relief, with the omitted act attached, within 7 days of the termination or cancellation of the extraordinary measure. That does not apply if the case in question has already been decided or if the judgment against which the party failed to lodge an objection within the set period has become final and the party would like to file the objection presently.

In proceedings before the Constitutional Court, the application cannot be rejected solely on the grounds of being filed after the expiry of the set period, if the appellant filed it out of time due to restrictions arising from extraordinary measures against the epidemic. But the application must be filed no later than 15 days following the termination or cancellation of the extraordinary measure. That period will not end earlier than 15 days after the termination or cancellation the state of emergency.

If a person in criminal proceedings has allowed a period set for performing an act to expire, the person can apply to have his position restored to the status quo ante. That way, it is possible to restore also the period for lodging an appeal. It is necessary to apply for restoration of the status quo ante within 3 days of the termination or cancellation of the extraordinary measure in question, however, that period will not end earlier than 3 days after the termination or cancellation of the emergency. Such application must be accompanied by the act in question if it still has not been performed.

Lex Covid also deals with relief from the effects of expiry of a time limit in proceedings for satisfaction of property claims pursuant to the Act on the use of funds from material criminal sanctions imposed in criminal proceedings, and also with relief in procedures relating to applications for financial assistance pursuant to the Act on victims – in both cases, the entitled person can file an application for relief within 15 days of the termination or cancellation of extraordinary measures against the epidemic. The application must be accompanied by the submission which was to be made within the missed period.

Court decisions granting the relief, except for decisions of the Constitutional Court, do not have to be justified.

Enforcement and execution proceedings

Lex Covid has also laid down that until 30 June 2020, the courts will not implement enforcement and execution by forced sales of movable assets and buildings in which the debtors are registered as permanently resident. That does not apply if the person against whom the enforcement is brought makes a written notification to the court that the court should continue the enforcement or execution in the above manner, or if the subject of the proceedings is recovery of maintenance claims, personal injury claims or claims of compensation for damage caused by intentional criminal offences.

Should you have any questions concerning procedural law, not only related to the state of emergency, please contact Ladislav Peterka at ladislav.peterka@randalegal.com.

Lex Covid Act – Impact on Bodies of Legal Entities

The Czech Parliament adopted an Act which is also known as „Lex Covid“. This Act is intended to solve the practical problems arising out of pandemic disease Covid-19 in the area of court proceedings, insolvency as well as functioning of legal entities. The purpose of this newsletter is to present the content of the Act relating to the functioning of legal entities.

Decision-making of legal entities’ bodies outside the physical meeting
The essential change being brought by Lex Covid is the extension of the regulation for decision-making bodies of legal entities outside their personal meeting – either in written form (per rollam) or by using technical means. The body of a legal entity may now decide even if the foundation legal act (particularly the Articles of Association or Memorandum of Association) does not permit such procedure. This option applies not only to the General Meetings, but also, for example, to the meetings of the Board of Directors or the Supervisory Board.

Therefore, Lex Covid in fact temporarily supplements (for the duration of the emergency measure) the Articles of Association or Memorandums of Association by allowing flexible actions to be taken by the bodies of legal entities in case this option has not been allowed in these documents yet. This should be very beneficial e. g. for joint-stock companies which are not obligated to hold general meetings with large number of people under difficult conditions, but instead the general meeting’s decisions may be taken in the form of per rollam.

Extension of the term of office of a body member
The extension of the term of office brought by Lex Covid relates to those members of elected bodies whose term of office would expire during the effectiveness of the emergency measure or within 1 month from the day following the date of its expiration. In that case, the term of office shall be extended until the lapse of three months following the end of the emergency measure. Automatic extension can be prevented by a member of the elected body delivering his disagreement to the legal entity before the expiry of the term of office.

Lex Covid also lays down the conditions for the resumption of the office if such term of office has expired between the adoption of the emergency measure and the date on which Lex Covid comes into force. The resumption of the function of a member of the body shall take place only if the member delivers his consent and if no other member has been elected in the meantime. The term of office shall expire 3 months after the day following the date of termination of the emergency measure.

Lex Covid allows, under specified conditions, the co-optation of members of the legal entity’s body, even if this possibility is not allowed within the foundation legal act. The co-optation represents a way in which the missing members of a particular body are elected by that body itself, with the effect until the next meeting of the body which is otherwise authorised to elect those members.

Deadlines for discussion the ordinary financial statements
Lex Covid also solves the practical problem residing in the obligation of general meetings of most companies to discuss the financial statements by the end of June. In this context, Lex Covid extends the deadline for discussing the ordinary financial statements of a private limited liability company, a joint-stock company or a cooperative – so that in case this deadline should expire earlier than 3 months after the date of termination of the emergency measure, it will expire up to 3 months after the termination of the emergency measure, but no later than on 31 December 2020. In fact, the companies are given more time to discuss the financial statements.

The above options are, of course, temporary and last during the emergency measures related to the Covid-19 epidemic.

In case of any questions regarding the functioning of legal entities, and not only during the state of emergency, please contact Mgr. Michal Pálinkás at Michal.Palinkas@randalegal.com.

Beware of Significant Provision in the Agreement on Providing Contribution from the Antivirus Programme

We would like to draw your attention to the relatively significant, albeit hidden, provision contained in the agreement (“the Agreement“) concluded between the Labor Office of the Czech Republic and an employer that applies for provision of a state contribution as compensation of wages paid to its employees under the Antivirus Programme (see our newsletter “Compensation Package for Employers Adopted by the Government of the Czech Republic”).

In Article IX. of the Agreement entitled “Settlement”, it is set out that by concluding the Agreement, all claims of the employer against the state for damages caused by the relevant emergency measures of the government are settled when it comes to damages arising from the employer’s statutory obligation to pay wage compensation to employees due to obstacles to work incurred during the period for which the employer is entitled to the contribution.

For employers, this is to exclude the possibility of simultaneously drawing money for wage compensation from the Antivirus Programme and to claim damages from the state in the future caused by adopted emergency measures regarding wage compensation paid by the employer using its own money.

If employers receive a state contribution of 80% of wage compensation paid to employees under regime A, then by entering into the Agreement, they undertake to waive the claim towards the state for reimbursement of the remaining 20% of the wage compensation. This applies equally to regime B employees, i.e. their employers receive a contribution of 60% of the wage compensation paid out and for the remaining 40%, the state requests a waiver of the right to reimbursement to which the employer might otherwise be entitled from the state.

The aforementioned approach by the state and the ‘settlement’ appear logical in relation to the amount of the state contribution granted. On the other hand, we consider the waiver of any compensation from the state in relation to the part of the compensation paid by the employer using its own money to be really pushed here by the state.

In addition, the application for the contribution itself is silent as to any exclusion of future claims for damages in connection with the Agreement entered into and the payment of the contribution to wage compensation. Employers fill out this application through a web application that automatically generates the application after filling in, together with the Agreement to be concluded with the Labor Office of the Czech Republic. Thus, in an automatically generated Agreement, employers may not even notice a provision limiting their right to compensation from the state. Also, employers do not have a real opportunity to change the wording of the Agreement in any way and must accept the agreement if they wish to draw money from the Anvitirus Programme.

It is also important to note that the state has not yet informed employers of this restrictive provision. This requirement is also neither reflected in any way in the conditions for receiving contributions in the announced Antivirus Programme, nor in the Employer Manual that was published afterwards.

The Agreement concluded by the employer with the Labor Office of the Czech Republic is a so-called adhesion contract as the draft Agreement is unchangeable and the employer has no possibility to change its content in any way if they want to receive the state contribution. In addition, employers can be considered to be the weaker party in relation to the state, among other things because the employer usually applies for a state contribution in an acutely critical economic situation.

The Civil Code stipulates that a provision of an adhesion contract which is particularly disadvantageous for the weaker party (without a reasonable reason) is invalid. We believe that the conclusion regarding invalidity should also apply to the aforementioned ‘settlement’ clause in the Agreements. In this respect, however, the courts will have the final say in the event of a dispute with the state.

Perhaps a positive factor is that the state acknowledges its liability for the damage caused by the measures adopted, otherwise the authorities would not insert the provision on ‘settlement’ and ‘waiver’ into the draft Agreements.

Please do not hesitate to contact us if you have any questions regarding the right to compensation from the state arising from the adopted measures in crisis or otherwise.

How to Employ Foreigners During the State of Emergency?

In connection with the COVID-19 pandemic, the government adopted a series of crisis measures which have an immediate impact on the employment of foreigners and their work in the Czech Republic.

These include:
(i) a ban on entry for foreigners to the Czech Republic and a ban on leaving the Czech Republic; and
(ii) suspension of the reception of new visa applications and applications for temporary and permanent stays in the Czech Republic, as well as the suspension or discontinuation of proceedings regarding previously submitted visa applications or applications for stays in the country.

The above crisis measures have a major impact on employers who employ foreigners from third countries (i.e. countries outside the EU/EEA and Switzerland). However, the projects and supplies of entrepreneurs who do not directly employ any foreigners but who use the services or supplies from foreign subcontractors can be also significantly influenced by these measures. In order to minimize the negative consequences of the above-mentioned prohibitions, we have prepared a brief overview for you of selected specifics related to the employment of foreigners at the time of the state of emergency.

Specifics of Entry of Foreign Workers into the Czech Republic During the State of Emergency

There are several exceptions to the general ban on entering the Czech Republic and the ban on traveling out of the country during the state of emergency which can be applied in the case of arrival of foreign workers. One of them is an exception for workers who regularly cross the borders of the Czech Republic for the purpose of work (so-called cross-border workers). This exception is most often mentioned in relation to Czech employees commuting to work to Germany and Austria, but it can also be used the other way round (i.e. in relation to foreign workers coming from neighboring countries to work in the Czech Republic).

Although this exception applies in particular to workers who normally commute to work in a neighboring state daily or at regular intervals, it can also be used for the arrival of employees of foreign suppliers or subcontractors for the implementation of an international project (e.g. in the construction industry). However, it should be mentioned that these workers must be workers from neighboring countries of the Czech Republic. Moreover, these cross-border workers (commuters) must meet several prerequisites which differ according to the state from which they enter the Czech Republic. Therefore, it is always necessary to consider carefully whether this exemption is applicable in a particular case, all the more so since the rules for applying this exemption have changed several times in the state of emergency.

Another exception to the ban on entry for foreigners in the Czech Republic is the exception for employees of critical infrastructure services. This is an exception for foreigners who are to carry out urgent or emergency servicing of critical Czech infrastructure – i.e. infrastructure that is so important that any disruption of its functioning would have a serious impact on the security of the state, security of basic living needs of the population, human health or state economy. It follows from the above that only a limited group of entities will be able to benefit from this exemption (in addition to critical infrastructure operators, also certain major suppliers to such operators). The advantage of this exemption is that, unlike some of the exceptions for cross-border workers, it neither provides for a minimum period of stay nor for a maximum distance of the place of work from the borders.

In this context, it should be emphasized that the possibility of using any exemption from the ban of entry at the time of the state of emergency must always be assessed individually. For the application of individual exceptions, it may be decisive e.g. the worker’s domicile, the content of the employment contract or the activity to be performed by the worker in the Czech Republic.

Specifics of Employment of Foreigners from Third Countries During the State of Emergency

Currently, receipt of applications for residence permits is suspended at embassies of the Czech Republic. As a result of this measure, foreigners from third countries wishing to work in the Czech Republic can obtain a work permit, but they cannot receive a residence permit that is absolutely necessary for employment in the Czech Republic.

If foreigners are already working in the Czech Republic, then they can continue to work here during the state of emergency. This applies even if their work permit expires before the state of emergency ends. The validity of a work permit is automatically extended after certain conditions have been met, up to a period of 60 days from the date of expiry of the state of emergency. Also, foreigners whose residence permit expires during the state of emergency are entitled to remain in the Czech Republic for the duration of the state of emergency.

Foreigners working in the Czech Republic can change their employer during the state of emergency at any time. However, the change can only be made if (i) the new job is registered in one of the relevant central records of vacancies for foreigners maintained by the Labor Office of the Czech Republic or (ii) a new work permit is obtained. In view of the above, it is recommended to employers who are currently interested in employing foreigners to focus primarily on recruiting foreigners already residing in the Czech Republic.

If an employer is forced to terminate or not prolong their employment relationship with a foreigner due to the economic impact of the pandemic, they are asked by the Ministry of Labor and Social Affairs to assist such employees with registration of the status of a job seeker on the website of the Ministry of Labor and Social Affairs, or to provide them with assistance in dealing with the situation (e.g. assistance to return to their country of origin). If the employer fails to comply with this obligation, the employer is at risk of limiting participation in or exclusion from government migration programs.

We have extensive experience with the issue of employment of foreigners (including the application of individual exceptions to the ban on foreigners entering the Czech Republic during the state of emergency). We regularly monitor all restrictions and obligations arising from the crisis measures issued in connection with the state of emergency. We will be happy to provide you with legal assistance in this matter.

If you have any questions regarding the employment of foreigners, not necessarily only during the state of emergency, please contact Lenka Droscová lenka.droscova@randalegal.com or Jakub Adámek jakub.adamek@randalegal.com.

New Insolvency Rules Resulting from the COVID-19 Pandemic

The current unusual situation caused by the COVID-19 pandemic will undoubtedly have substantial consequences for the economy of the Czech Republic. It can be expected that the amount of debts will rise sharply not only on the side of the state, but also on the side of citizens and business entities. Subsequently, many of these debts are not going to be repaid. Therefore, such debts will be claimed before the courts and other competent authorities sooner or later and subsequently enforced (either individually through enforcement proceedings or collectively through insolvency proceedings).

The current emergency may thus lead to the bankruptcy of many entrepreneurs, both in the form of insolvency and in the form of over-indebtedness. In spite of the current extraordinary situation, entrepreneurs are still obliged to file an insolvency petition without undue delay after they have learned of their insolvency or should have learned about it exercising due care. This obligation is also not affected by the fact that the insolvency could have been caused by the current emergency and it could be expected that the debtor will be able to recover from the inability to pay its debts in the near future (the so-called temporary insolvency). This puts many entrepreneurs at considerable risk, as their personal property may also be at stake. Failure to file the insolvency petition creates the liability of these persons (including members of the statutory body) for damages.

On March 31, 2020, the Government of the Czech Republic tried to mitigate the negative consequences of the COVID-19 pandemic on the economic situation of citizens and entrepreneurs by passing a bill (adopting draft legislation) to amend, inter alia, the Insolvency Act and the Act on Private Enforcement Procedure (hereinafter referred to as the “Amendment”). The Czech Republic thus follows the countries such as Germany or Spain which have already adopted certain changes to their enforcement or insolvency regulations.

The most important proposed changes to the Czech insolvency law can be summarized as follows:

1.Limitation of the obligation of entrepreneurs to file debtor insolvency petitions: A new rule is introduced for entrepreneurs not being obliged to file a debtor insolvency petition within the period from the effective date of the Amendment until 6 months from the termination or cancellation of an emergency anti-epidemic measures (but no later than by December 31, 2020). An exception to this rule exists when (i) the insolvency occurred even before an emergency anti-epidemic measure was adopted, or (ii) the insolvency was not mostly caused by the emergency anti-epidemic measure that would make it impossible or substantially difficult for the debtor to fulfil its payment obligations.

2. Limitation of creditor insolvency petitions: Creditor insolvency petitions filed from the effective date of the Amendment till August 31, 2020 will not be taken into account. Thus, there is a legal fiction that no such insolvency petition will have been filed. Therefore, such filing will not even be published in the insolvency register. The purpose of this measure is, inter alia, to prevent the debtor from spending money to defend against a creditor’s insolvency petition. However, the creditors will still be entitled to exercise their civil-law rights (e.g. by offsetting or enforcing a collateral), in court proceedings or out of court. [1] This measure – unlike the limitation of the obligation of entrepreneurs to file debtor’s insolvency petitions – affects all debtors (i.e. not only entrepreneurs) and regardless of why and when the insolvency occurred.

3. Introducing an extraordinary moratorium: The Amendment establishes the rule that a debtor who is an entrepreneur and who has not been in bankruptcy at the date of March 12, 2020 can file a request for a so-called extraordinary moratorium by August 31, 2020. The effect of the moratorium is that: (i) the debtor cannot be declared insolvent for the duration of the moratorium, (ii) the debts required to maintain the debtor’s enterprise that arise after the extraordinary moratorium is introduced can be paid by the debtor during the moratorium preferentially, before previously due liabilities are met and (iii) the time limits for exercising rights against the debtor for the duration of the extraordinary moratorium neither commence nor continue to run. The debtor may file a motion for a moratorium order even before the filing of an insolvency petition and the commencement of the insolvency proceedings. In addition, unlike the current “normal” moratorium, the proposal for an extraordinary moratorium does not need to be approved by the majority of the debtor’s creditors.

4. Suspension of performance of a reorganization plan: A debtor whose reorganization plan has been legitimately (finally) approved as of March 12, 2020 at the latest is entitled to propose to the insolvency court to state that the debtor is entitled to temporarily suspend performance of the reorganization plan (provided that the plan has not yet been fully fulfilled). The performance of the reorganization plan may be interrupted for the period of time during which the obligation of entrepreneurs to file debtor’s insolvency petitions is to be limited (see section 2 above). During the said period, it will not be possible to convert reorganization into bankruptcy (i.e. the liquidating way of the bankruptcy solution). However, the insolvency trustee and the creditor committee must comment on the debtor’s proposal to suspend the reorganization plan.

5. Discontinuation of time limits for relative ineffectiveness of legal acts: During the period of limitation of the obligation of entrepreneurs to file debtor’s insolvency petitions (see section 2 above), time limits for objections to relative ineffectiveness of legal acts should be suspended. By claiming ineffectiveness of a legal act, creditors can defend themselves within the statutory time limit against legal acts of the debtor that jeopardize the payment of their enforceable claim. When the measures described above provide special protection to the debtor, it is equally fair, during the period of such emergency measures, to discontinue the time limits for creditors within which they can defend themselves against the debtor’s prejudicing acts. Nevertheless, it is recommended that creditors should, even during the state of emergency, carefully monitor changes in the structure of their debtors’ assets (e.g. in the land registry) so that they can effectively defend themselves against any prejudicing disposal of the debtor’s assets.

The Government proposes that the Amendment is to be discussed by both chambers of the Parliament of the Czech Republic in an abbreviated procedure. Therefore, it can be expected that the Amendment may be passed in a few days. However, before the described changes to insolvency law become effective, entrepreneurs still have the obligation (i) to perform the so-called insolvency test and (ii) to file a debtor’s insolvency petition without delay after the defined prerequisites of insolvency are met. Failure to comply with this obligation may have far-reaching consequences not only for the legal entity, but also for the members of its statutory body, consisting mainly in incurring liability for damage caused thereby.

We would like to assure you that we have extensive practical experience with insolvency law, from the point of creditors and debtors (and their statutory bodies). We also continuously monitor the current changes in Czech insolvency law. Please feel free to contact us if you have any questions regarding the above.

At the same time, we are ready to provide you with comprehensive legal advice on imminent or already existing bankruptcy situation (if any) and solutions thereto under insolvency law, including protection against personal liability of members of statutory bodies of legal entities. Such advice can be provided in connection with your (imminent) bankruptcy situation, but also in the case of bankruptcy of your contractual partners (either suppliers or customers). Should you decide to enforce your receivables in a different manner than by insolvency, we will be happy to propose the best solution for you and to provide you with comprehensive legal representation. If you are in danger of bankruptcy as a result of the crisis-related measures of the Government of the Czech Republic, we are ready to provide you with comprehensive legal advice regarding claiming damages towards the state. [2]

At the same time, insolvency can be an opportunity to expand your business activities, for example by buying a debtor’s enterprise. We also have considerable experience with insolvency acquisitions and, therefore, we can provide you with the necessary assistance in this regard.


[1] For out-of-court dispute resolution options at the time of the coronavirus epidemic, see the ŘANDA HAVEL LEGAL newsletter called “Impact of the COVID-19 Epidemic on Dispute Resolution” that is available here: https://www.randalegal.com/download/files/newsletter_newsletter_praktickprvninformace_vii._engid244236.pdf.

[2] For the possibility of claiming compensation from the State for crisis measures, see the ŘANDA HAVEL LEGAL newsletter on “Recent Developments in the Matter of State Liability for Damage in Connection with Measures in Crisis” that is available here: https://www.randalegal.com/download/files/newsletter_newseletter_praktickprvninformace_viii.engid244494.pdf.

Compensation Package for Employers adopted by the Government of the Czech Republic

Government of the Czech Republic yesterday (i.e. on 31 March 2020) adopted the new modified Compensation package for employers (“Antivirus Programme”) which we have previously reported. For the sake of clarity, the Government has combined the previously published compensatory measures into two (2) compensatory measures, i.e. regimes A and B listed below.


Under the A regime the state will provide employers with a contribution in the amount of 80% of the wage compensation provided to an employee, including social and health insurance contributions, if the reason for the obstacle to work is

• on the employee’s side “Quarantine ordered to an employee” (an obstacle under Section 191 of the Labour Code), whereas the amount of wage compensation provided by the employer is 60% of the employee’s average assessment base; or
• on the employer’s side “Inability to assign work due to enterprise closure as a result of adopted emergency measures” (an obstacle under Section 208 of the Labour Code), whereas the amount of wage compensation provided by the employer to is 100% of the employee’s average earnings.

The maximum amount of the contribution is derived from the current average supergross wage including social and health insurance contributions, and in this case amounts to approximately CZK 39,000.

Under the B regime the state will provide employers with a contribution in the amount of 60% of the wage compensation provided to an employee, including social and health insurance contributions, if the reason for the obstacle to work is on the employer’s side

“Childcare or Quarantine Ordered to a significant part of employees, i.e. at least to 30% of employees” (an obstacle under Section 208 of the Labour Code), whereas the amount of wage compensation provided by the employer is 100% of the employee’s average earnings; or
“Limitation of the availability of inputs, i.e. material, products and services which are necessary for its activities” (an obstacle under Section 207 of the Labour Code), whereof the amount of wage compensation provided by the employer is 80% of the employee’s average earnings; or
“Reduced demand for services, articles and other products of the company” (an obstacle under Section 209 of the Labour Code), whereas the amount of wage compensation provided by the employer is at least 60% of the employee’s average earnings.

The maximum amount of the contribution in this case is approximately CZK 29,000.


The conditions for obtaining the above contributions are as follows:

• the employer operates in the business sphere;
• the employer strictly complies with the Labour Code;
• the employees are in an employment relationship and participate in sickness and pension insurance;
• the employees have not been served with a termination notice and are not in the notice period as of the accounting date (with the exception of termination pursuant to Section 52 (g) and (h) of the Labour Code); and
• the employer pays the wages and social and health insurance contributions.

For the sake of completeness, we add that the contributions will also apply to agency workers, provided that the employment relationship with the employment agency was entered into before the day of the declaration of a state of emergency (i.e. 12 March 2020) and lasts for the entire duration of the Antivirus Programme.

The above contributions shall be provided to employers on the basis of an agreement concluded with the respective Labour Office of the Czech Republic retroactively. Employers shall be entitled to submit their applications for the contributions for March from 6 April 2020 (the expected launch date of the web application). All necessary operations between the employer and the labour office will be carried out remotely in electronic form.

If you have any questions regarding the state compensation in the area of employment or regarding other measures that an employer can use in the current difficult situation, please do not hesitate to contact us. More specifically, please contact our attorney-at-law, Lenka Droscová, who specialises in labour law.