9 April 2020 – The Chamber of Deputies of the Parliament of the Czech Republic, in response to the economic impact of the current crisis resulting from the government measures related to the COVID-19 epidemic, adopted an act on certain measures to mitigate the effects of the SARS CoV-2 coronavirus epidemic on parties involved in legal proceedings, harmed persons, crime victims and legal entities, and to amend the Insolvency Act and the Civil Procedure Code (hereinafter the "Act on the Mitigation of the Impact of an Epidemic"). – Pro českou verzi dokumentu klikněte zde.
The Act on the Mitigation of the Impact of an Epidemic contains a number of significant changes, particularly in the areas of procedural, insolvency and corporate law. The changes seek to respond to the consequences of the emergency measures taken by public authorities as a result of the Coronavirus COVID-19 (hereinafter the "Coronavirus") epidemic (hereinafter the "Epidemic").
Most of the proposed changes will be temporary for the duration of (i) the economic and social consequences of the Epidemic, (ii) the state of emergency declared by the Government of the Czech Republic due to health threats associated with the occurrence of Coronavirus (hereinafter the "State of Emergency") and (iii) related to the emergency measures taken by public authorities.
Emergency measures, according to the draft of the proposed Act on the Mitigation of the Impact of an Epidemic means:
i. measures taken by the Government of the Czech Republic during the State of Emergency;
ii. emergency measures by the Ministry of Health enacted in 2020 to protect the population and prevent the risk of the spread of Coronavirus; and
iii. emergency measures of the Regional Hygiene Authority enacted in 2020 to prevent the further spread of Coronavirus,
(hereinafter the "Emergency Measures" or individually the "Emergency Measures").
Consequently, the proposed amendment does not contain generally applicable measures. Relief granted to its recipients merely aims to mitigate the situations caused by the Epidemic for the duration of its consequences.
Below is an overview of selected legal areas related to the Act on the Mitigation of the Impact of an Epidemic, together with a summary of the relevant points.
The Act on the Mitigation of the Impact of an Epidemic responds to the increased insolvency of debtors resulting from the Epidemic and introduces that no default penalties exceeding the statutory default interest (i.e. 10 per cent. p.a.) may be imposed on a debtor for the duration of a default in payment. The foregoing shall apply provided that the debtor proves, however, that the Emergency Measure has prevented him or substantially made it difficult to pay its monetary debt.
The alleviation applies only to payment defaults occurring as of 12 March 2020 and will expire no later than on 30 June 2020. This regulation cannot be excluded by an agreement between a creditor and a debtor and does not apply to agreements concluded after the Act on the Mitigation of the Epidemic becomes effective.
Changes in the area of procedural law are particularly related to the remission of currently unremittable procedural deadlines which were missed due to the Extraordinary Measures. Furthermore, in most cases the courts will not have to provide reasoning for the remission of missed deadlines.
Below is a selection of the most important changes:
Civil procedural law
- the possibility to apply to a court for the remission of procedural deadlines, provided that the procedural action is missed for an excusable reason based on the Extraordinary Measures where the Civil Procedure Code otherwise prohibits the remission (e.g. a deadline to submit an extraordinary appeal or a deadline to submit an action under Part V of the Civil Procedure Code);
- the application for remission must be submitted to the court together with the missed act within 15 days from the date of the termination of the relevant Emergency Measures, but the period for the submission will not end earlier than 15 days after the end of the State of Emergency;
- the possibility to seek the revocation of a judgment for recognition if the deadline to respond to a so-called qualified summon has been missed.
- the possibility to apply to an administrative court for the remission of procedural deadlines, provided that the procedural act is missed for an excusable reason based on the Extraordinary Measures where the Administrative Judiciary Procedure Code otherwise prohibits the remission (e.g. a deadline to submit an appeal in cassation, an action against the decision of an administrative authority, an action for protection against an administrative failure to act, or an application for the annulment of a measure of a general nature);
- the application for remission must be submitted to the court together with the missed act within 2 weeks from the date of termination of the relevant Emergency Measure, but the period for the submission will not end earlier than 2 weeks after the end of the State of Emergency.
The Act on the Mitigation of the Impact of an Epidemic similarly regulates the remission of deadlines in enforcement and execution proceedings, in proceedings before the Constitutional Court and in criminal proceedings.
Due to the significant negative economic impact of the Epidemic, the Act on the Mitigation of the Impact of an Epidemic largely concerns insolvency law. Below is a summary of its relevant points:
- the obligation of the insolvency court to remit a procedural deadline, provided that the procedural act is missed for an excusable reason based on the Extraordinary Measures, unless the case has already been decided. The application for remission must be submitted to the court together with the missed act within 7 days from the date of termination of the relevant Emergency Measure, but the period for the submission will not end earlier than 7 days after the end of the State of Emergency;
- abolition of the obligation to file a debtor's insolvency petition as of the effect of the Act on the Mitigation of the Impact of an Epidemic and until 6 months after the termination of the Emergency Measures (however, no later than by 31 December 2020), if the insolvency occurred as a result of such a situation;
- it will not be possible to effectively file a creditor's insolvency petition (petitions will have no legal effect) as of the effect of the Act on the Mitigation of the Impact of an Epidemic up to 31 August 2020;
- possibility to apply for a temporary suspension of a reorganisation plan during the effectivity of the Emergency Measures. The application is only possible in the event that a plan has been approved by 12 March 2020 at the latest and has not yet been fully performed. If granted, the reorganisation cannot be turned into bankruptcy proceedings during this period;
- excluding the duration of the Emergency Measures and a further 6 months from their termination to the relevant period with regards to action for the relative ineffectiveness of an act (Actio Pauliana);
- a debtor-business operator who is not insolvent as at 12 March 2020 will have the opportunity to file a proposal for an extraordinary moratorium which can last (if extended) up to 6 months (hereinafter the "Extraordinary Moratorium");
Below is a summary of the main differences between the Extraordinary Moratorium and an ordinary moratorium:
- a proposal for an Extraordinary Moratorium may be submitted by 31 August 2020 at the latest and the reason for its proposal must be based on the Extraordinary Measures;
- the scope of documents necessary for the approval of the Extraordinary Moratorium is limited compared to an ordinary moratorium;
- it will not be necessary to approve the Extraordinary Moratorium by an absolute majority of creditors (however, an extension of up to 6 months is subject to the consent of the majority of creditors);
- with some exceptions, most of the effects normally associated with the initiation of insolvency proceedings are suspended (generally only effects that are for the benefit of the debtor remain in place).
Corporate Business Law
The changes in Corporation Business Law are mainly focused on the possibility of decision-making by business corporation bodies during the restrictions on movement and the gathering of persons imposed by the Extraordinary Measures.
The alleviations will only be effective for the duration of the Emergency Measures however will expire on 31 December at the latest.
Below is a summary of the main amendments:
- the possibility of business corporation bodies to resolve per rollam even if such manner of conduct is not allowed by its constitutional documents;
- automatic extension of the term of office of a member of a body of a business corporation until the expiry of 3 months from the termination of the Emergency Measures, provided that the member of the body consents thereto;
- extension of the deadline for the approval of the financial statements of a limited liability company, joint-stock company and cooperatives, if such a period expires earlier than 3 months after the termination of the Emergency Measures.
On 9 April 2020, the draft of the Act on the Mitigation of the Impact of an Epidemic was adopted by the Chamber of Deputies in an abbreviated procedure under a State of Legislative Emergency and was submitted to the Senate. The adoption of the Act on the Mitigation of the Impact of an Epidemic can therefore reasonably be expected to occur during the first half of April 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.