COVID-19 FLASH

Contents

1.        Commercial Law and Contracts
1.1      Force majeure
1.2      Release from liability for damage
1.3      Substantial change in circumstances
1.4      Refusal of performance
1.5      Subsequent inability to perform

2.        Corporate Law
2.1      Obligations of statutory body members
2.2      Measures preventing a corporation from being paralysed

3.        Financing
3.1      Loan financing in connection with damage caused by the COVID-19 pandemic (Up-to-date as of 21 April 2020)
3.1.1   COVID I and COVID II
3.1.2   COVID Prague
3.1.3   EGIC Guarantee Program
3.2      Effects on existing loan financing
3.3      Temporary statutory moratorium (Lex Covid Loan Moratorium) (Up-to-date as of 20 April 2020)
3.4      Non-repayment, insolvency
3.5      Impact on AML obligations

4.        Labour Law
4.1      Obstacles on the part of an employee
4.2      Obstacles on the part of an employer (Up-to-date as of 7 April 2020)
4.3      Work outside of the workplace (home office), forced leave and temporary allocation of an employee to another employer (Up-to-date as of 7 April 2020)
4.4      Refusal to perform work
4.5      Cross-border workers
4.6      State support measures
4.6.1   Employer support measures – the Antivirus program (Up-to-date as of 7 April 2020)
4.6.2   Employee support measures – caregivers' allowance

5.        Tax
5.1      Tax packages (Up-to-date as of 15 June 2020)
5.1.1   Tax package I
5.1.2   Tax package II
5.1.3   Tax package III 
5.2      Measures relating to self-employed persons (Up-to-date as of 16 April)
5.3      The "Pětadvacítka" support program for self-employed persons
5.3.1   "Pětadvacítka" for self-employed persons
5.3.2 
 "Pětadvacítka" for shareholders of limited liability companies
5.4      Real estate acquisition tax (Up-to-date as of 20 May 2020)
5.5.     Deferral of insurance payments for employers (Up-to-date as of 22 May 2020)

6.        Damages
6.1      Damages under the Crisis Act
6.2      Damages after 24 March 2020
6.3.     Court cancels measures issued by the Ministry of Health (Up-to-date as of 24 April 2020)

7.        Real Estate
7.1.     Effect of the extraordinary measures on the relations between lessors and lessees (Up-to-date as of 27 April 2020)
7.2     COVID Rent Program (Up-to-date as of 20 May 2020)

8.        Public Procurement
8.1      Extraordinary circumstances – extreme urgency – negotiated procedure without prior publication
8.2      State of emergency – general statutory exemption

9.       New law concerning the Effects on Court Proceedings (Justice Lex Covid) (Up-to-date as of 20 April 2020)
9.1      Procedural deadlines
9.2      Insolvency
9.3      Insolvency – extraordinary moratorium
9.4      Insolvency – obligation of the members of a statutory body to file an insolvency petition
9.5      Insolvency – ineffectiveness of a creditor's petition
9.6      Insolvency – performance of a reorganisation plan
9.7      Bodies of legal entities and their management
9.8      Special measures in relation to the enforcement of judgments and execution proceedings
9.9      Modification of the consequences of the maturity of receivables

1. Commercial Law and Contracts
The current situation that has arisen as a consequence of the COVID-19 pandemic and the related restrictive measures adopted by the Czech Government, which have a direct economic impact in many areas of business, bring numerous questions and raise novel issues that need to be addressed and resolved.

The relationship between contracting parties will always be primarily governed by the contract itself. The following information is therefore more of a general overview applicable in cases where the situation at hand is not specifically dealt with in the particular contract.

1.1      Force majeure
While the concept of force majeure (higher power) is not expressly defined in Czech law, it is generally understood to mean an extraordinary and unforeseeable event.

The assessment of whether force majeure is applicable in a given situation is not always clear-cut and has often resulted in lengthy litigation. If a person (the debtor or obliged party under a contract) believes that they are released from an obligation under a contract due to force majeure, they must notify their counterparty and outline the specific circumstances (and ideally legal basis) they are relying upon, preferably in writing. It is always advisable to attempt to resolve the situation amicably, openly communicate with the other party and, if possible, conclude an amendment to the contract, or otherwise agree on how the situation is to be resolved.

It is necessary to communicate with the other contracting party as soon as possible after a default or inability to perform is identified. The law requires a party, which is aware that it will breach a contract, to notify any person who may incur damage as a consequence of such breach.

1.2.     Release from liability for damage
One of the most common situations, which will likely occur in the current circumstances, is the inability of one party to perform its contractual obligations due to the pandemic and its counterparty incurring damage as a consequence. A person that has caused damage to another party by failing to comply with their obligations may be released from the obligation to compensate such damage if they were prevented from complying with their obligations by an unexpected and insurmountable obstacle that occurred regardless of their own will. It is worth noting that the burden of proof in these situations lies with the obliged party. Moreover, this general rule regarding release from liability may be contractually waived and thus will not necessarily apply in all cases.

The potential release from liability set out above does not, unless otherwise agreed, have an effect on any obligation to pay contractual penalties.

1.3     Substantial change in circumstances
Force majeure may serve as a legal reason for renegotiation of existing contractual arrangements, provided however that there has been a substantial change in circumstance when compared to the state of affairs at the time the contract was concluded. The change in circumstance must be substantial and of such magnitude that it creates a serious disproportion in the rights and obligations originally intended by the parties.

It should be noted that most commercial contracts contain a provision whereby each party assumes the risk of a substantial change in circumstance, rendering the above rule inapplicable.

1.4      Refusal of performance
In the event that it becomes clear that a party may not be able to provide performance under a contract due to unforeseen circumstances which are beyond its control, its counterparty may refuse to perform until the first party either provides, or otherwise secures, performance thereunder (aka: anticipated breach).

This rule does not apply to separate and independent obligations.

1.5      Subsequent inability to perform
In certain cases force majeure may also lead to the termination of a contractual relationship if performance under the contract becomes impossible.

It should be noted that this does not apply to cases where performance simply requires additional resources or effort; in such cases performance would not be determined impossible.

The inability to perform must always be demonstrated by the obliged party. Even though the inability to perform may in many cases only be temporary, performance under a contract cannot always be indefinitely suspended as many contracts are time-sensitive. Consequently, if the obliged party can provide performance only after the commercial purpose of the contract no longer exists, such performance would be deemed impossible (frustrated).

Contractual parties may agree on alternative performance (including monetary compensation), but the obliged party cannot be forced to provide the original, impossible, performance.

2.   Corporate Law

2.1     Obligations of statutory body members
Members of statutory bodies have a general obligation to act with due managerial care. There are certain steps and procedures which may be recommendable in order to ensure compliance with this obligation in the current situation. The fact that insolvency is triggered after a default in payments for the duration of three months provides some room for the implementation of remedial measures.

Such measures can relate to, inter alia:

  • limiting or suspending payments of the corporation's own resources both with respect to shareholders and the group;
  • not returning contributions outside of registered capital;
  • not paying bonuses or extraordinary remuneration.

The current circumstances will also likely satisfy the legal requirements for convening an extraordinary general meeting and thereby involve the shareholders in addressing the situation (assuming, however, that the statutory body not only presents an overview of the situation at hand but also proposes measures for its mitigation). A general meeting can be convened using technical means and per rollam.

The statutory body should also prepare a recovery plan and, should the corporation find itself in a state of imminent insolvency, consider providing proportional (pro-rata) payments to its creditors in order to minimise the risk of being accused of preferential treatment towards selected creditors.

Last but not least, all forms of state assistance (interest-free loans, deferral of tax obligations, etc.) should be pursued, and the newly introduced extraordinary moratorium under Lex Covid should be considered (for more information, see Chapter 9 below).

2.2     Measures preventing a corporation from being paralysed
One of the potential pressing issues at this time is that people in a company may become infected with the coronavirus (SARS-CoV-2) or be quarantined. If this happens to a member of the company's statutory body, it may have a significant impact on the operation of the company as well as the performance of the body's obligations.

It may therefore be advisable in the current climate to consider taking certain measures to ensure sufficient availability of personnel and necessary flexibility in the company's management and basic operation. These measures may include appointing one or more company proxys (in Czech prokurista) or the shareholders granting powers of attorney with respect to their attendance at general meetings.

Corporations may further consider making use of distance voting (per rollam) or voting using technical means and generally minimising the need for meetings requiring attendance in person. Distance voting may be used in individual cases even if the company's current bylaws do not allow for such form of voting provided that all the shareholders have been demonstrably notified thereof.

It is also recommended to review (and amend, if need be) applicable rules governing access of members of the statutory body and other persons to important documents and resources (including the company's official data box) should authorised individuals be temporarily unavailable.

3. Financing

3.1 Loan financing in connection with damage caused by the COVID-19 pandemic

Up to date as of 2 April 2020

3.1.1  COVID I and COVID II
On 9 March 2020, the Czech Government approved the COVID Loan program (also referred to as COVID I). The Czech-Moravian Guarantee and Development Bank (CMGDB, in Czech: Českomoravská záruční a rozvojová banka) suspended the acceptance of new applications for this interest-free loan on 20 March 2020 as the applications greatly exceeded the CZK 5 billion allocated to the program.

A follow-up COVID II program has also been introduced under which the CMGDB provides bank guarantees in the total amount of up to CZK 30 billion to help and support small and medium-sized entrepreneurs and businesses. Loans under the COVID II program (in amounts of up to CZK 15 million) are provided by commercial banks and the CMGDB provides a guarantee for such loans in the amount of up to 80% of the principal sum; the maximum guarantee period is three years. Under the program, eligible entrepreneurs and businesses are also able to obtain a financial contribution (up to CZK 1 million) to cover interest rate payments pertaining to such loans. The funds obtained under the program can be used to finance e.g. wage costs, energy bills, rent, payments to suppliers, etc. The program can, however, only be used to finance operating needs relating to activities outside of Prague. It should be noted that when applying for a guarantee under the COVID II program, an applicant should either already have concluded the respective loan agreement with a commercial bank or at least have the loan pre-approved by such bank. Aid under this programme is to be provided in individual rounds announced on the CMGDB website in accordance with the decision of the Ministry of Industry and Trade. Applications under the COVID II program could be submitted from 2 April 2020 onward. The original allocation of CZK 1.5 billion was used up almost immediately, and was therefore increased to CZK 5 billion on the same day. Applications for the first round of this program could be filed until 3 April 2020, and the submitted applications are currently being reviewed and processed. A second round of this program has not been announced yet.

The Ministry of Industry and Trade is currently also preparing another program (COVID III). The details of this most recent program are not publicly available yet and we recommend checking the Ministry's website regularly.

3.1.2   COVID Prague
On 20 April 2020 a new guarantee program ('COVID Prague') for companies affected by the COVID-19 pandemic was announced. The parameters of the program are identical to the COVID II program with one exception – as the name suggests, COVID Prague is intended for applicants that will use the funding for their business activities in Prague. The announced capacity is restricted by the total sum of the requested guarantees in the amount of CZK 1.5 billion. Applications under the program were accepted from 8 a.m. on 21 April 2020, but this lasted only ten minutes as the program's allocation had already been exhausted by then. No increased allocation of funds or other rounds of the program have been announced yet.

It should be reiterated that one of the conditions of receiving aid under the COVID Prague program (as with COVID II) is a pre-approved loan from a commercial bank.

3.1.3  EGIC Guarantee Program
In addition to programs for small and medium-sized entrepreneurs, the government and the Export Guarantee and Insurance Corporation (EGIC, in Czech: Exportní garanční a pojišťovací společnost) are preparing a program for the provision of a system of guarantees for the repayment of loans aimed at large corporations. The Senate of the Parliament of the Czech Republic approved a draft bill on 17 April 2020 inter alia amending the Act on Export Insurance and Financing – the amendment will allow the EGIC to provide guarantees for the repayment of loans and enable the establishment of a guarantee program, which will offer assistance to corporations with 250 or more employees. The specific parameters of the program (purpose and scope of guarantees, the conditions for their provision, etc.) will be set out in a government decree and more detailed information regarding the program will be published on the EGIC website. It is anticipated that the program will be launched at the end of April or beginning of May.

3.2    Effects on existing loan financing
Given the growing economic uncertainty loan agreements should be reviewed with a view to determining if the current situation will impact the rights and obligations of either the lender or borrower. In particular, the following topics should be considered:

  • Binding representations, which are included in loan agreements and are usually repeated and confirmed at the end of each interest period.
  • Financial indicators. Borrowers may be under the obligation to meet certain financial indicators and criteria, or to provide projections and predictions in relation thereto, which may in many cases be impossible in the current circumstances.
  • Information obligations in relation to, e.g., the borrower's economic and financial situation or events of default.
  • General obligations, the nature of which generally depends on the purpose of the loan. These should be also reviewed in light of the potential or requirement to utilise available government measures by the borrower.
  • Repayment.
  • Event of default. An event defined as such in a loan agreement generally constitutes an event of default regardless of whether it occurred due to reasons on the part of the borrower or reasons objectively beyond the borrower's control. Upon an event of default occurring, a lender may be entitled to declare all amounts due under a loan agreement to be immediately payable, the lender's obligation to provide additional funds under the loan agreement may cease to apply and the borrower's bank accounts may even be frozen.
  • Other provisions of a loan agreement, which may concern damages, force majeure or the relationship of the loan agreement to the Civil Code.
  • Default, bankruptcy. If a borrower faces significant financial problems, possibly leading to default under the loan agreement or even bankruptcy, it is important for all the parties involved to be prepared and acquainted with their rights and obligations as well as any measures or solutions available to them.

3.3  Temporary statutory moratorium (Lex Covid Loan Moratorium)

Up to date as of 20 April 2020

On 1 April 2020, the Government approved a draft law on certain measures in the area of loan repayment in connection with the COVID‑19 pandemic ('Lex Covid Loan Moratorium') on the basis of which debtors will be able to defer the repayment of their loans for a period of up to six months.

Applicability. The moratorium applies to all loans concluded and drawn down before 26 March 2020, regardless of their governing law or whether any of the parties is e.g. a foreign entity; with regard to loans intended for the acquisition (construction, etc.) of real estate, it suffices if the corresponding loan agreement had merely been concluded by 26 March 2020 (no drawdown before that date is necessary). While the law is intended to apply to non-consumers as well, there are still a few exceptions – the law will likely not apply to investment instruments, revolving loans, overdraft facilities, operating leases, credit cards, etc. (the law should, however, apply to loans where a debtor's interest rate risk is secured through interest rate hedging, including interest rate swaps) The law will also not apply to debtors that were in default with their payments under a loan agreement for more than 30 days as at 26 March 2020.

Opt-in and period of protection. The law is based on the underlying concept that any debtor that would be interested in deferring repayment must inform the creditor (the bank) thereof. The obligation to repay is thus not deferred automatically, but debtors are legally entitled thereto. When informing the creditor of the repayment deferral (this must generally be done in writing), the debtor must also state that such deferral is due to the negative economic effects of the COVID‑19 pandemic (though there is no obligation to prove that it is actually the case).  The creditor must inform the debtor that it has received the corresponding notice, of the period of protection and the total amount owed, and may not charge any fees in relation to the deferral. The period of protection runs from the first day of the month following the month in which the debtor's notice was delivered until 31 October 2020 (or 31 July 2020, should the debtor choose to make use only of the shorter period of protection). The duration of the loan (and any security thereunder) is extended by the duration of the period of protection. Repayment of interest is also deferred in relation to individuals, and a limit has been imposed on interest accrued during the period of protection for consumer loans. Legal entities and entrepreneurs on the other hand must continue to pay interest. Regardless of whether a debtor (an individual) decides to opt-in, creditors do not have any right to any payment in the event of a debtor's default during the period from the month following the month when the law comes into effect until 31 October 2020. If a legal entity decides to make use of the moratorium, it will generally not be able to dispose of assets, which could be used to satisfy its creditors.

The draft law was approved by the Chamber of Deputies on 7 April 2020 and reflects certain amendments to the original draft, including the following:

  1. Certain issues relating to interest accrued during the period of protection have been addressed. It is now stated explicitly that no interest should be charged on interest accrued during the period of protection. Moreover, with respect to individuals, interest accrued during the period of protection will become payable only after all monetary debts (i.e. the principal of the loan), the repayment of which had been deferred, have been repaid.
  2. If a debtor decides to opt into the Lex Covid Loan Moratorium and informs their creditor of their intention to make use of the period of protection, any contractual deferral of repayment (if any such deferral had been agreed between the creditor and the debtor prior to 12 March 2020) will have no effect on debts payable during or after the period of protection under the Lex Covid Loan Moratorium. Any such agreement on deferral will only have effect with respect to debts payable before the start of the period of protection.

Current state of the legislative process. The draft law was approved by the Senate of the Parliament of the Czech Republic on 16 April 2020 and thereafter signed by the President of the Czech Republic. The law was published in the Collection of Laws on 17 April 2020, and came into effect on the same date.

3.4     Non-repayment, insolvency
If a debtor finds themselves in significant financial trouble, it is important that both the debtor and the creditor are aware of their rights and obligations as well as the instruments available in such a situation to mitigate the effects on all parties.

Through a measure dated 16 March 2020 the Czech National Bank provided banks with flexibility when allowing deferred loan repayments by clients affected by the COVID-19 pandemic; under this measure the Czech National Bank expressly declared that a deferral will not necessarily result in the bank's corresponding receivable being reassigned as a so-called classified or non-performing receivable. A particular bank's approach and attitude will however be the result of a careful case-by-case analysis on the part of such bank.

You can find more information regarding the pandemic's effect on court proceedings (and related legislation) in the Czech Republic in Chapter 9 below.

3.5   Impact on AML obligations
The COVID-19 pandemic and the resulting measures (in particular the prohibition on gathering or crossing the state border) complicate the conclusion of agreements by financial institutions not only from a practical point of view (as it may be difficult for all parties to be present at signing), but also with respect to compliance with obligations under Act No. 253/2008 Coll., on certain measures against money laundering and terrorist financing (the AML Act), which imposes an obligation on financial institutions to identify their clients in cases stipulated by law (and generally requires that the client is physically present).

While the Financial Analytical Office has not announced any relief in this respect yet, it should be noted that the AML Act allows for other alternative client identifications methods as well.

4.  Labour Law
The COVID-19 pandemic also has an unprecedented effect in the area of labour law. It affects a significant number of employees (whether this is due to the quarantine of employees, their incapacity to work or taking care of family members) as well as employers who are facing a shortage in the supply of resources and materials, or a decline in demand, and are often even considering closing down their business or operations (temporarily or permanently). The use of a home office is expanding dramatically, and the issue of cross-border workers is also frequently discussed following the closure of the borders of the Czech Republic.

If you are interested in up-to-date information from the area of labour law, check out our LinkedIn profile at https://www.linkedin.com/showcase/prklabourlaw/.

4.1     Obstacles on the part of an employee
Various cases and scenarios can occur in the current circumstances.

If a doctor or the Regional Health Authority imposes a quarantine on an employee, this constitutes an obstacle to work on the part of the employee. During the first 14 days, the employee has the right to wage compensation from his employer in the amount of 60% of reduced average earnings; thereafter, the employee is entitled to sickness benefits from the state. This also applies to a 'mass quarantine'.

If an employee becomes ill with the coronavirus disease, this constitutes a temporary incapacity to work and the employee has similar rights as in the event of quarantine. COVID-19 may, under certain conditions, be considered to be an occupational disease.

If an employee becomes stranded abroad on vacation (or for another private reason), this also constitutes an obstacle to work on the employee's part. In this case, however, the employee is not entitled to any wage compensation (the employer is only obliged to excuse the employee from work).

4.2    Obstacles on the part of an employer

Up to date as of 7 April 2020

In the context of the COVID-19 pandemic, certain obstacles to work on the part of employers may also occur. A majority of them should constitute grounds for compensation from the state in particular under the approved employment support program of the Ministry of Labour and Social Affairs Antivirus (for more information see point 4.6.1 below but it should be noted that all the terms of this program are not entirely clear yet and the materials made public by the Ministry may still be amended and specified further).

Probably the most common obstacle to work will be so-called partial unemployment, where the employer is faced with a reduced demand for its goods or services and it will thus not be able to assign work to its employees to a full extent. In such case, employees are entitled to wage compensation in the amount of at least 60% of their average earnings. For employers with trade unions, an agreement on the amount of wage compensation is required; if there is no trade union in place, the employer must set down the lower level of wage compensation in its internal regulations. Moreover, it is not entirely clear whether this category (i.e., partial unemployment) also covers cases where employers are in fact unable to operate (or had to significantly restrict their operation) as a result of the state's emergency measures even though their activity was not expressly prohibited by such measures. In light of such businesses being explicitly mentioned, we would generally favour the interpretation that the regime governing general obstacles to work, as outlined below, will apply to such cases as well. The classification of the obstacle in question can then be of key importance when requesting state compensation under the Antivirus (or other) program.

Some employers may be unable to assign work to their employees due to a lack of entry materials or resources or a temporary defect caused by other operating reasons. Such cases will be classified as downtime and employees will be entitled to wage compensation in the amount of 80% of their average earnings.

Should some employers be forced to shut down their operations by an emergency measure issued by state authorities, this would also constitute an obstacle to work, which state authorities perceive as an obstacle to work on the part of the employer under section 208 of the Labour Code with employees being entitled to wage compensation in the amount of 100% of their average earnings. An employer choosing to shut down its business on precautionary grounds (when working from home is not an option) undoubtedly amounts to a general obstacle on the part of the employer with an employee being entitled to compensation of 100% of their average wage. The same would apply if, for example, an employer could not send an employee on a business trip abroad due to closed borders.

4.3     Work outside of the workplace (home office), forced leave and temporary allocation of an employee to another employer

Up to date as of 7 April 2020

The solution to limit the spread of COVID-19 preferred by the Government is the use of home offices. However, working from home is only possible if the nature of the work permits it and the employee consents to it. When working from home, employees are entitled to their regular wage and, possibly, to compensation for certain costs (both must be covered by the employer as the Antivirus program does not apply in such cases). If an employee is to work from home (i.e., a place different from that agreed upon in the employment contract), an amendment to the employment contract may be required from a technical perspective.

An employer may also order employees to take forced leave, though this must be done in writing, at least 14 days in advance and the employee will be entitled to 100% of their average earnings. Certain conditions also apply if a trade union has been set up.

We have also recently seen that many employers have started offering their employees, for whom they currently do not have any work, on loan to other companies. This is possible provided that certain basic conditions are satisfied – an agreement must be concluded with each employee and the original employer may invoice only its actual costs related to the assignment (wages, travel expenses, mandatory contributions, etc.) to the 'borrowing' company, but not a margin. It should be noted that, according to the Labour Code, an employee cannot be assigned within the first six months of their employment.

4.4    Refusal to perform work
Under the Labour Code, an employee has the right to refuse work which they reasonably consider immanently or significantly threatening to life or health of themselves or others. Such refusal will not be deemed to constitute a breach of the employee's obligations, but the employee will not be entitled to receive wages or other compensation during their period of absence.

4.5      Cross-border workers
Currently, the rules for cross-border workers commuting from the Czech Republic to work in a neighbouring country differ depending on the country in which they work.

Workers crossing the border with Poland or Slovakia must work within a radius of 100 km from the state border and must cross the border at least 3 times a week. They must also have (and present for review) a certificate for cross-border workers and a cross-border worker's log.

Workers crossing the border with Germany or Austria have to stay abroad for at least 21 days after leaving the Czech Republic and are subject to a 14-day quarantine upon their return to the Czech Republic. While there is no limit as to the distance of their place of work from the border, they must also produce a certificate for cross-border workers.

Workers in the areas of health care, social services and integrated rescue system services are exempt from the above measures and may cross the border under less stringent conditions.

4.6   State support measures

4.6.1 Employer support measures – the Antivirus program

Up to date as of 7 April 2020

As part of the fight against COVID-19, the Ministry of Labour and Social Affairs has been preparing an employment support program called Antivirus, which was approved by the Government on 31 March 2020. Despite such approval, it should be reiterated that, as of the writing of this document, all the conditions of the program have not been finally decided on yet and there are still many uncertainties and controversial interpretations surrounding it (even the guidelines published on the Ministry's website on 2 April 2020 state that changes can still be made thereto). The below overview of the program's main conditions should therefore be treated merely as an indicative guide at this time.

Employers can, in any case, submit their applications under the Antivirus program from 6 April 2020 onward; they can apply for support retroactively for March (that is for the period from 12 to 31 March 2020, i.e. for the period during which the state's extraordinary measures were in place). The program is currently envisaged to be in place until 30 April 2020 but may be extended.

Basic principles of the program
The aim of the program is to overcome the negative effects of the state's extraordinary measures (and of the more general slowdown of practically all activity in the Czech Republic due to the COVID‑19 pandemic) on employers who are still under the obligation to pay wages (or wage compensation) to their employees even though their employees might not currently have enough work or even be able to work.

The program concerns employees with an employment contract governed by Czech law provided that such employee is a part of the pensions and health insurance system in the Czech Republic. The program, on the other hand, does not include employees working on the basis of a contract on the performance of work (in Czech: dohoda o provedení práce) or a contract for work (in Czech: dohoda o pracovní činnosti) and no compensation will be provided to employers that have been fined for illegal work of foreigners, that receive other support from the state in respect of a certain employee or are in liquidation. Certain public organisations are also exempt from the program.

The Antivirus program has two regimes (A and B), with each covering different situations and providing different levels of state compensation. An employer may apply for compensation under either of the regimes depending on the circumstances of a particular employee.

Regime A – extraordinary emergency measures – restricted operation and quarantine

The first situation covered by this regime is when an employee could not have carried out their work due to a business closing down or restricting its operation in accordance with the state's emergency measures (i.e. measures of the Government, Ministry of Health or Regional Health Authorities) in connection with COVID‑19.

It is not entirely clear which employers actually fall within this regime. We are, however, of the view that the regime should apply not only to employers whose business operation had been explicitly prohibited but also to employers that are not explicitly mentioned in a given government measure (even though they were able to operate at a very restricted, often minimum, level) and employers (retailers) that e.g. closed down their stores and sell their products via the internet. When applying for the subsidy, an employer must state what its business activity is and which government measure led to them shutting down or restricting their operation.

Under the program, employees, for the duration of the obstacle when they do not have any work, should receive wage compensation in the amount of 100% of their average earnings.

The second case, which is covered by Regime A, is when quarantine has been imposed (or the Regional Health Authority has ordered the isolation of an entire area). An employer is obliged to pay wage compensation in the amount of 60% of reduced average earnings to such employees for the duration of the first 14 days of quarantine (or isolation).

Under Regime A, employers can apply for a subsidy in the amount of 80% of the paid wage compensation and contributions with a monthly maximum of CZK 39,000 per employee.

Regime B – other obstacles to work under sections 207 to 209 of the Labour Code

Regime B can be used in the event of other negative effects of the COVID‑19 pandemic on employers and will typically concern partial unemployment, downtime or the absence of a significant part of one's employees in the workplace due to quarantine measures or having to care for their children.

Partial unemployment (as outlined above) will likely be the most common reason for an employer's use of Regime B of the Antivirus program. While it is not a requirement when applying for or obtaining the subsidy, it is still in the interest of the employer to record the extent and nature of the obstacle to work as well as any reduction in demand (cancelled orders, projects, etc.) from the very beginning as this will help to avoid issues during inspections of state administration bodies (if, or rather when, these occur in the future). If an employee is not working, they are entitled to wage compensation in the amount of at least 60% of their average earnings. For employers with trade unions, an agreement on the amount of wage compensation is required; if a trade union is not in place, an employer must set the level of wage compensation in its internal regulations.

Other cases explicitly mentioned in the Ministry's guide for employers include downtime (when there is a lack or shortage of entry materials or resources) or when an employer must restrict its operation because of the absence of a large number of employees that are quarantined, ill, taking care of their children or cannot come to work from a different country (the restriction of operation then consists of the fact that other employees are also without work, even though they could otherwise work if the absenting employees were also at work). In the event of downtime, employees are entitled to wage compensation in the amount of at least 80% of their average earnings; if operation is restricted due to other employees being absent, employees are entitled to wage compensation in the amount of 100% of their average earnings. We are further of the view that Regime B should also cover cases where employees would not be able to work as a consequence of the COVID‑19 pandemic and would be entitled to wage compensation in the amount of 100% of their average earnings (pursuant to section 208 of the Labour Code).

Under Regime B the state will contribute 60% of the paid wage and contributions with a monthly maximum of CZK 29,000 per employee.

Applying for and receiving the subsidy

Employers can apply for support under the Antivirus program from 6 April 2020 onward by submitting an online request through a web application set up by the Ministry specifically for this purpose. They will then need to conclude an agreement with the Labour Office, which will be generated automatically by the web application.

The employer can submit records of the paid wage compensation for March 2020 when submitting the application for the subsidy (if the relevant payments have already been made). Records of the paid wage compensation for each month can be submitted to the Labour Office by the end of the calendar month immediately following the month that the records relate to at the latest.

As has already been mentioned, it is not required to prove the specific amount of requested compensation in the application nor the submitted records; it is only necessary to specify the state measure that led to the business closing down or restricting its operation when applying under Regime A.

According to the Ministry, after carrying out basic checks in relation to the employees, the compensation should be transferred to the employer's account within a few days.

4.6.2    Employee support measures – caregivers' allowance
Certain changes have also been made to the payment of caregivers' allowance for the duration of the emergency measures to combat the coronavirus disease. Caregivers' allowance will be paid to employees (generally parents of children under the age of 13 or handicapped children) for the entire period during which schools and other similar facilities will be closed.

5.   Tax

5.1     Tax packages

Up-to-date as of 15 June 2020

The below measures have been adopted by the Government with regard to all taxpayers of personal income tax and corporate income tax.

5.1.1 Tax package I

  • General waiver of fines for the late filing of personal and corporate income tax returns and default interest for the late payment of tax for the 2019 tax period, provided that such tax returns are filed and taxes are paid by 1 July 2020 at the latest. There is no need to prove reasons related to COVID-19.
  • Waiver of fines for late tax return statements in all other cases where the taxpayer individually requests a waiver of default interest on late payment, deferral of payment or a repayment schedule and demonstrates reasons in any way related to COVID-19.
  • General waiver of fines for the late filing of control reports in the amount of CZK 1,000, which arose between 1 March and 31 July 2020.
  • Individual waiver of fines for not filing a control report for the period between 1 March and 31 July 2020 on the basis of a request, provided that a connection with COVID-19 can be demonstrated.
  • General waiver of administrative fees for the filing of applications or requests pertaining to the above measures until 31 July 2020.

5.1.2  Tax package II

  • Waiver of the June advance on personal and corporate income tax;
  • Introduction of the concept of 'tax loss carryback' for personal and corporate income tax for the year 2020, i.e. losses reported for this year will be recoverable through (additional) income tax return statements for 2019 and 2018;
  • General waiver of fines for the late filing of real estate acquisition tax returns for all late tax return filings with an original filing deadline between 31 March and 31 July 2020 provided such tax returns are filed no later than 31 August 2020. The corresponding default or deferral interest will also be waived if the tax is paid by the aforementioned date;
  • Suspension of the obligation to electronically record sales for entities in all phases of the 'Electronic Sales Records' program (in Czech: elektronická evidence tržeb) for the duration of the state of emergency and three months thereafter;
  • General deferral of the road tax advance payments payable in April and July until 15 October 2020 at the latest (accessories of the tax will be waived with respect to all such delayed payments);
  • General waiver of VAT with respect to the provision of basic protective equipment free of charge (aimed at reducing the effects of the spread of COVID‑19) in the period from 12 March 2020 until the end of the state of emergency.

5.1.3   Tax package III

  • Deferral of the deadline for the filing of income tax returns, notification of tax-exempt income and the supplemental payment of tax obligations until 18 August 2020 (i.e. three months after the end of the state of emergency) including the waiver of sanctions associated with the late filing of tax returns and the payment of income tax (the deferral of the deadline relates to both natural persons as well as legal entities, with the exception of tax payers that file their tax returns with a specialised financial authority);
  • Automatic waiver of default interest and interest on deferred payments arising in the period from 12 March 2020 to 31 December 2020 in cases where the tax administrator individually approved payment deferral or the payment of tax in instalments due to reasons connected to the coronavirus;
  • Deferral of the deadline for the filing of tax returns and the payment of real estate acquisition tax until the end of this year including the waiver of sanctions associated with the late filing of tax returns and the payment of tax in connection with the draft law on the complete abolition of (real estate) acquisition tax;
  • Waiver of VAT on the free supply of basic protective equipment (in particular face masks, respirators, disinfectants, etc.) with respect to which  the obligation to declare tax arose in the period from 18 May 2020 to 31 July 2020;
  • A general waiver of the administrative fee for the filing of applications to the financial or customs authorities before the end of the year 2020;
  • Waiver of penalties for the late filing of an employer's accounts statement (personal income tax from dependent activity) if such an accounts statement was filed by 31 May 2020;
Deferral of the deadline for the filing of an additional income tax return statement for 2018 for those persons that changed the method of accounting for expenses, maintaining account records, etc. during the course of the year 2019 until 18 August 2020 including the waiver of any sanctions associated with the late filing of tax returns and the payment of income tax.

5.2      Measures relating to self-employed persons

Up-to-date as of 16 April

The following relief is available for self-employed persons:

  • Complete waiver of the obligation to pay monthly pension contributions with respect to contributions for March 2020 until August 2020.
  • Complete waiver of the obligation to pay monthly public health insurance contributions with respect to contributions for March 2020 until August 2020;
  • Financial contribution for self-employed persons in the amount of CZK 424 per each day of quarantine / taking care of a family member. Such income is exempt from income tax.
  • The "Pětadvacítka" ("25") program providing a compensatory bonus to self‑employed persons under certain conditions; the measure (including associated conditions) is described below in more detail.

5.3     The "Pětadvacítka" support program for self-employed persons and shareholders of limited liability companies

Up-to-date as of 2 June 2020

5.3.1    "Pětadvacítka" for self-employed persons

The Act on the Compensatory Bonus in connection with the Emergency Measures in connection with the Coronavirus (in Czech also referred to as "Pětadvacítka") came into effect on 9 April 2020. Self-employed persons that satisfy the conditions set out in the Act will be entitled to a compensatory bonus payment in the amount of CZK 500 per day of every 'bonus period'. The first bonus period started running on 12 March 2020 and will last until 30 April 2020 (the maximum claimable amount is therefore CZK 25,000), the second bonus period (as established by an amendment to the Act) will run from 1 May 2020 until 8 June 2020 (with a maximum claimable amount of CZK 15,000) and the third bonus period will run from 9 June 2020 until 31 August 2020 with respect to days when emergency measures will be in effect.

A self-employed person must satisfy the following conditions to be eligible for the "Pětadvacítka" bonus:

  • they are a self-employed person within the meaning of Act No. 155/1995 Coll., on pension insurance, as amended;
  • their business activity constitutes their main activity or their secondary activity provided that the self-employed is not employed at the same time;
  • they were active as of 12 March 2020 (or their activity was suspended at any point after 31 August 2020);
  • they declare that they were unable to carry out their business activity during the relevant period (whether entirely or to a significant extent) as a consequence of government emergency measures or a threat to their health in relation to COVID‑19;

The self-employed person applying under the "Pětadvacítka" program demonstrates the satisfaction of the above requirements in an affidavit, which forms a part of the application for the provision of the compensatory bonus. The application can be accessed through the website of the Ministry of Finance of the Czech Republic and needs to be submitted to the relevant financial authority within 60 days of the end of each bonus period, otherwise one's entitlement to the compensatory bonus ceases to exist.

5.3.2   "Pětadvacítka" for shareholders of limited liability companies

As a consequence of the amendment to the Compensatory Bonus Act, which came into effect on 2 June 2020, the compensatory bonus was also extended to shareholders of small limited liability companies. The amount of the compensatory bonus is the same as with respect to self‑employed persons – CZK 500 per day for one shareholder and can amount up to a total of CZK 44,500, i.e. CZK 25,000 for the first bonus period from 12 March until 30 April 2020 and CZK 19,500 for the second bonus period from 1 May to 8 June 2020.

The compensatory bonus applies to shareholders of active limited liability companies, which were forced to restrict their activity as a consequence of the emergency measures; the emergency measures must have had the same effect on the company's business activity as is required with respect to the compensatory bonus for self‑employed persons. The right to the compensatory bonus arises with respect to a shareholder of a limited liability company (a natural person) only in the below cases:

  • they are the sole shareholder of the limited liability company;
  • they are a shareholder of a limited liability company with only two shareholders;
  • they are a shareholder of a limited liability company with more than two shareholders all of which are members of the same family;
  • the shareholder of the limited liability company must have been an active shareholder as of 12 March 2020;
  • the share of the shareholder cannot be represented by a common certificate;
  • the limited liability company reports a turnover of at least CZK 180,000 for the 2019 accounting period (if the limited liability company in question began its operation in 2020, the quoted minimum turnover must be achieved in the year 2020; an application for the compensatory bonus would then be assessed on the basis of the presumed amount of turnover for that period);
  • the shareholder of the limited liability company (the applicant) is a Czech tax resident and the economic activity of the limited liability company is tied to the Czech Republic;
  • the shareholder of the limited liability company (the applicant) is not at the same time an employee subject to health insurance with the exception of employment in the given limited liability company and is not receiving support under the Antivirus program or the compensatory bonus as a self‑employed person;
  • the limited liability company is not in liquidation, does not have economic problems (e.g. insolvency, bankruptcy, etc.) and the limited liability company is not an unreliable payer for the purposes of VAT;

the limited liability company is a tax resident of the Czech Republic, the European Union or the European Economic Area.

5.4    Real estate acquisition tax

Up-to-date as of 20 May 2020

On 13 May 2020 the government submitted a draft bill to the Chamber of Deputies, which, among other things, repeals the Senate's Statutory Measure No. 340/2013 Coll. and related legal regulations concerning real estate acquisition tax. If the Act is approved, tax on the acquisition of real estate in the Czech Republic will be abolished retroactively for all entries of real estate transfers recorded in the Real Estate Cadastre on or after 1 December 2019, i.e. for those entries for which the obligation to file a tax return for real estate acquisition tax and to pay real estate acquisition tax arose on 31 March 2020 and later.

The draft law also includes an amendment to Act No. 586/1992 Coll., on income taxes, which would inter alia implement two fundamental changes in the area of personal income tax:

  1. the possibility to deduct interest paid on a mortgage used to secure the payer's own housing needs from the personal income tax base for real estate acquired from 1 January 2022.
  2. the time exemption test for natural persons would be extended from five years to ten for income from the sale of real estate not intended for the payer's own living. This would apply to any such real estate acquired from the date of entry into force of this Act.

The draft bill is expected to be discussed by the Chamber of Deputies at their next plenary session, which begins on 26 May 2020.

5.5.   Deferral of insurance payments for employers

Up-to-date as of 22 May 2020

Under the new act on the reduction of penalties in relation to social security insurance payments and contributions to the state employment policy paid by employers as payers in connection with the extraordinary measures during the epidemic in the year 2020 and on the amendment of certain acts, which was approved by the Senate on 20 May 2020, employers will be able to defer insurance payments, which the employer pays from the assessment base (i.e. at the rate of 24.8%) by the 20th day of the following calendar month to the account of the relevant district social security administration under the condition that the owed insurance payments will be paid within the set extended deadline by 20 October 2020 at the latest, and the employer will pay only 20% of the total penalty it would have paid under normal circumstances for the late payment of insurance payments. The regulation relates to social security insurance payments (the part paid by the employer) payable by 20 June 2020, by 20 July 2020 and by 20 August 2020. The employer's obligation to deduct the employee's insurance payment from the employee's assessment base (i.e. at the rate of 6.5%) and to pay this part of the insurance payment as the payer by the 20th day of the following calendar month to the account of the relevant social security administration however remains in place. Should the employer not pay such insurance payment within the set deadline, the employer will be obliged to pay a penalty in the amount of 0.05% for every calendar day after the maturity of the insurance payment.

This Act is connected to the earlier and significantly more favourable stabilising regulation in the area of public health insurance under the amendment to the Act on Public Health Insurance approved already in March 2020 (Act No. 134/2020 Coll.), according to which all employers can generally defer the payment of public health insurance payments for the period from March to August 2020 until 21 September 2020 at the latest without the payment deferral being penalised in any way by the health insurance companies.

6.   Damages
One of the frequently discussed issues is the compensation of damage incurred by individuals as well as legal entities as a result of government measures adopted in response to the COVID-19 pandemic.

The aforementioned measures were issued in part (for the period until 6:00 a.m. on 24 March 2020) by the Government of the Czech Republic under the Crisis Act, and in part (for the period from 6:00 a.m. on 24 March 2020) by the Ministry of Health in the form of emergency measures under the Public Health Protection Act. This change in the underlying statutory basis led some to the view that it will no longer be possible to claim compensation under the Crisis Act in relation to the period from 24 March 2020 on.

6.1     Damages under the Crisis Act
The Crisis Act grants both individuals and legal entities the right to compensation for restrictions of property rights, the provision of material resources and the performance of work duties and assistance (which is likely to be less significant and applicable in the present situation). More importantly in the current context, the Crisis Act also provides for the right to compensation of damage caused by emergency measures.

The state's liability for such damage is strict, i.e., the state is liable for damage regardless of fault or the lawfulness of the measures. It should also be noted that both the damage actually incurred as well as lost profit should be compensated under generally applicable legal regulations. In principle, the only requirement is a causal link between the emergency measures and the damage arising provided that the injured party did not cause the damage itself.

It should however be noted in this context that demonstrating the occurrence of damage and the causal link can prove to be very problematic in practice. The burden of proof lies with the injured party and since the damage must have been caused by the emergency measures themselves (and not by the crisis or emergency being addressed, i.e., by the COVID-19 pandemic itself), the injured party – when proving damage – will not be able to compare the real state of affairs to normal circumstances but to the hypothetical situation that would have arisen if the COVID-19 pandemic existed, but the emergency measures had not been adopted. It will be very difficult for the injured party not only to quantify such damage, but possibly even to prove its existence.

6.2     Damages after 24 March 2020
As indicated above, as of 24 March 2020, the restrictive measures are based on extraordinary emergency measures issued by the Ministry of Health under the Public Health Protection Act. Unlike the Crisis Act, the Public Health Protection Act does not contain any special rules on compensation of damage caused by such measures. Consequently, the right to claim damages with respect to measures issued under the Public Health Protection Act will in principle only apply if the extraordinary emergency measures are unlawful or have been issued unlawfully.

There are, however, also opposing opinions and interpretations, which support the view that even though the relevant restrictive measures are currently being issued as extraordinary emergency measures of the Ministry of Health, they still constitute "emergency measures" as defined by the Crisis Act and the provisions of the Crisis Act pertaining to compensation of damage will thus still apply.

This question will likely need to be resolved by courts in due course.

It is, in any case, advisable to follow the below basic recommendations in relation to any potential claims for damages:

  • keep all documents (receipts, invoices, e-mail or other written communication, etc.), which could be useful when proving the damage incurred;
  • try to prevent damage from occurring as much as possible;
  • claim any compensation within 6 months after learning of the damage.

6.3.  Court cancels measures issued by the Ministry of Health

Up-to-date as of 24 April 2020

On 23 April 2020 the media reported that the Municipal Court in Prague cancelled (with effect as of 27 April 2020) certain measures issued by the Ministry of Health of the Czech Republic in relation to the free movement of persons and restrictions imposed on retail businesses (the relevant Municipal Court judgment is available in Czech here). In addition, a judgment of the Constitutional Court of the Czech Republic was published on 28 April 2020, whereby the Court dismissed a complaint concerning the resolution of the Government of the Czech Republic on the state of emergency and certain other measures (the Constitutional Court judgment is available in Czech here).

The Municipal Court arrived at the conclusion that the Ministry of Health did not have the authority during the declared state of emergency to restrict fundamental rights and freedoms to such a large extent through extraordinary measures issued under the Public Health Protection Act. This could have been done only by way of emergency measures issued by the Czech Government under the Emergency Act.

The aforementioned judgment of the Municipal Court (the "Judgment") concerns four measures issued by the Ministry of Health at the end of March 2020 and during the course of April 2020, which relate to restrictions of retail sales and restrict the free movement of persons (the "Measures").

The Judgment reportedly came into effect and the Measures have been cancelled as of 27 April 2020.

The aforementioned judgment of the Constitutional Court rejected a broad constitutional complaint. The main reasons for the rejection are of a procedural nature (lack of standing of the complainant, the complainant not using all remedies available, etc.). Nevertheless, it is significant that the Constitutional Court found that government emergency measures are specific legal regulations, and as such cannot be challenged before administrative courts.

We would like to make the following comments in connection with the cancellation of the Measures by the Municipal Court in Prague and the consequences the Judgment may have:

  1. First and foremost, it was evident that the Government needed to react promptly to the COVID 19 situation. In accordance with the above conclusions of the Municipal Court, the Government issued new emergency measures under the Emergency Act in the evening of 23 April 2020. These new measures are in principle very similar to the cancelled Measures, though the scope of the restrictions has been narrowed a little. They are intended to come into effect without any disruption as to the effects of the restrictions imposed by the cancelled Measures.
  2. The Government has also requested that the Chamber of Deputies approve an extension of the state of emergency, which would allow it to continue to issue emergency measures. This has now been approved and the state of emergency has been extended until 17 May 2020.

One of the issues that arises is whether the Judgment will have an effect on potential claims for compensation of damage caused by the Measures and on the way these claims will be made. In the Judgment the Municipal Court in Prague inter alia agreed with the view that the Measures constitute so-called measures of a general nature (in Czech: opatření obecné povahy). This means that it may be possible to claim damages under the Act on Liability for Damage Caused by the Performance of Public Authority through a Decision or Mal administration (the "State Liability Act"). It should be noted in this respect that the procedure of claiming compensation under the State Liability Act differs from the procedure under the Emergency Act. Under the State Liability Act, any right to compensation of damage becomes statute barred three years after the date when the decision in question (the Measures in the present case) is cancelled. The claim for compensation of damage must further be submitted to the relevant authority (most likely the Ministry of Health in the current circumstances) – should this not be done, the claim, if rejected by the authority, cannot be pursued before the court.

7. Real Estate
The impact of the current situation was evident quite quickly in the area of real estate. We are therefore dealing with specific issues encountered by our clients in relation to the COVID-19 pandemic and the related emergency measures adopted by the Government – this includes inter alia providing advice on the implementation of the government measures or who is responsible for implementation and compliance as well as preparing analyses of the impacts on specific contractual relationships and the possibility to claim damages.

We are addressing specific issues with landlords (especially owners and operators of shopping centres) as well as tenants who have been significantly affected by restrictions on retail and catering services. Rent and other payments under lease agreements, tenants' insurance or liability for compliance with the government measures represent only a handful of other topics, which are of crucial importance to our clients.

Another area that was affected by the COVID-19 pandemic almost immediately and on many different levels is the accommodation services industry; we therefore provide our clients with advice regarding inter alia reservation cancellations (whether by individuals or in relation to larger events) or claims for compensation of damage incurred as a consequence.

The current situation will undoubtedly also have a significant effect on construction works and contractual relations related thereto. Due to the adopted emergency measures and the current circumstances in general, problems can be expected in relation to the supply of construction materials and the provision of adequate numbers of construction workers in order to meet agreed deadlines. Potential non-compliance with agreed schedules also represents a significant problem for any construction project, and can lead to contractual penalties and, as with any breach of contractual obligations, claims for damages.

The current situation also has an impact on the functioning of all state administration authorities (including cadastral offices and construction planning authorities), which will in turn likely influence the periods of processing of individual applications, proposals and other submissions. This situation may affect both the ability to meet contractual obligations as well as the conclusion and completion of real estate transactions.

7.1    Effect of the extraordinary measures on the relations between lessors and lessees

Up-to-date as of 27 April 2020

On 22 April 2020, the Chamber of Deputies again discussed (i) the government proposal of the act on certain measures to mitigate the effects of the COVID‑19 epidemic on lessees of business premises and (ii) the government proposal of the act on certain measures to mitigate the effects of the COVID‑19 epidemic on lessees of premises used for residential purposes, after these had been returned from the Senate with certain amendments. The Chamber of Deputies rejected all the proposed amendments and approved both acts in the wording originally submitted to the Senate. Both acts came into effect on 27 April 2020 upon their publication in the Collection of Laws.

We provide below some thoughts and comments regarding the Act on the Protection of Lessees of Business Premises and the Act on the Protection of Lessees of Residential Premises (hereinafter in this section 7.1 together the "Acts" or the "Laws"). We will be happy to discuss any issues you may have in this context as it is evident that the new regulation is likely to increase legal uncertainty and disputes, rather than provide any relief in the current circumstances.

The Acts prohibit unilateral termination on the part of the lessor of a lease (including usufructuary leases and subleases) of premises used for business, or of an apartment, house or any part thereof if used for residential purposes, on the basis of unpaid rent in the relevant period. The relevant period with respect to business leases runs from 12 March 2020 until 30 June 2020 and with respect to residential leases, the relevant period is understood to be the period from 12 March 2020 until the end of the extraordinary measures relating to the epidemic, however no later than 31 July 2020. In light of the extremely chaotic and unclear situation with respect to the extraordinary measures, it will always be necessary to carefully assess whether and when the period of protection has expired in individual cases.

A lessee is protected from termination of their lease if their default in payment of rent, in the aforementioned period was demonstrably caused by the restrictions under the extraordinary measures relating to the epidemic. The Acts do not apply to other payments under the relevant lease agreements, such as payments for services associated with the leased premises or common areas, marketing fees and any other agreed payments, which the lessee must continue to pay within the deadlines set out in the lease agreement.

The Laws do not provide for a waiver of rent payments, or any discounts thereon, but instead limit the effects of a rent payment default. Accordingly, the lessor should continue to issue invoices to the lessee in accordance with the relevant lease agreement. The lessee must pay any unpaid rent by 31 December 2020; if they fail to do so, the lessor will be entitled to terminate the lease agreement with a five-day notice period with respect to business premises, or with immediate effect with respect to residential premises. It appears that a lessor will be entitled to terminate the lease agreement (almost) immediately without regard to the provisions of the relevant lease agreement if the lessee fails to fully repay all past due rent.

The lessee will be deemed in default for the entire duration of the period of protection and the lessor will be able to enforce any rights they may have in connection with the breach, under applicable law or the lease agreement. However, claims for default interest will be limited to statutory default interest rates.

The lessor will continue to have other termination rights set out in the lease agreement or applicable law. Should the lease terminate before 31 December 2020, a lessee of business premises will be obliged to pay any unpaid rent for the period from 12 March 2020 to 30 June 2020 within 30 days of the termination of the lease; the Act on the Protection of Lessees of Residential Premises does not contain any such provision.

We are of the view that should a lessee be in default with payments before 12 March 2020, such lessee is obliged to make such payments in accordance with the lease agreement and no protection will be afforded on the basis of the Laws. Such default may therefore even lead to the termination of the corresponding lease.

Both Acts contain major flaws, both conceptually and in practical application.

7.2     COVID Rent Program

The Government of the Czech Republic approved the COVID Rent Program on 18 May 2020 and allocated financial resources in the amount of CZK 5 billion for the program. It is intended to provide support to businesses and entrepreneurs that were prohibited from selling goods and services in rented premises for at least a part of the period from 13 March 2020 to 30 June 2020. We provide a brief summary of the program's conditions and requirements below.

Requirements:

  • The applicant must be a natural person or legal entity that carries out a business activity.
  • The applicant must be using business premises on the basis of a valid lease or sublease agreement concluded before 12 March 2020 and, at the same time, cannot be a related person (in Czech: spřízněná osoba) of the relevant lessor. The program does not apply to usufructuary leases.
  • The prohibition of the sale of goods and services in the relevant premises applied to the applicant.
  • The applicant is not in default with payments to selected institutions and authorities (in particular the financial authority, the Czech Social Security Administration, and health insurance companies).
  • The applicant has concluded an agreement with the lessor on a 30% discount on rent for the months of April, May and June 2020 (provided the lessor is not the state).
  • The applicant paid 50% (or 80% if the lessor is the state) of monthly rent for the months of April, May and June 2020 in accordance with the relevant lease agreement (or alternatively under the COVID related payment deferral permitted by law) and 70% of VAT from the original amount of monthly rent.

Support provided:

  • The support covers 50% of monthly base rent (variable rent components are disregarded), which may not (for the purposes of the program) be higher than the rent for January and February 2020 (any increase would be disregarded).
  • VAT is not covered by the program; the amount of support is calculated on the basis of rent excluding VAT.
  • In cases where the leased premises are owned by the state, support amounts to 80% as the state does not provide discounts on rent.
  • Support is provided solely for the months of April, May and June 2020 (provided the lease was ongoing).
  • The maximum amount of support is CZK 10 million per recipient.

Application:

  • The application may be filed electronically (once the relevant announcement of the Ministry of Industry and Trade is made).
  • Only one application is to be filed per premise, unless there are more lessees operating in such premises.
  • The application must include:

         /    Affidavit of the applicant

         /     Affidavit of the lessor

         /     Document evidencing the payment of rent for January and February 2020

         /     Document evidencing the payment of 50% of rent for April, May or June 2020

         /     Signed proposal of an agreement settling the applicant's claims for damages towards the state (this will probably be prepared by the subsidy provider).

         /     Document evidencing the payment of VAT with respect to rent, which is to be subsidised.

8.   Public Procurement
Generally, procuring entities must adhere to a formalised procedure when securing supplies, services and construction work under Act No. 134/2016 Coll., on public procurement, as amended (the "Public Procurement Act"), and this process can often be quite lengthy. The Public Procurement Act, however, allows for exceptions to this procedure during extraordinary circumstances, such as the current COVID‑19 pandemic.

8.1    Extraordinary circumstances – extreme urgency – negotiated procedure without prior publication
The purchase of all the equipment necessary to protect citizens' health from COVID‑19 cannot be carried out in these circumstances, with regard to the extreme urgency of the situation, under standard procurement procedure due to the lengthy nature of such procedures and procuring entities may therefore proceed under the regime of negotiated procedure without prior publication pursuant to section 63(5) of the Public Procurement Act.

Even though the Public Procurement Act itself does not define the concept of 'extreme urgency', we can use the previous opinions and practice of the Office for the Protection of Competition as well as the interpretation of the former public procurement act (Act No. 137/2006 Coll.) to conclude that the current COVID‑19 pandemic can be understood as urgent and reaching a certain level of intensity. The shortage or lack of medical equipment may undoubtedly be designated as a situation threatening the health and life of people, which needs to be resolved immediately. A further condition that must be satisfied in such a case is the fact that the procuring entities did not cause such a situation and could not have foreseen it.

It should however be noted that this procedure is available only for the purchase of goods that are necessary for the fight against a particular extraordinary situation (i.e. the COVID‑19 pandemic in the present case). Whether or not this requirement was satisfied will be assessed on a case-by-case basis, but it should be kept in mind that the burden of proof will lie with the contracting entity. It is therefore important that the contracting entities keep sufficient records to prove that the application of the aforementioned exemption under the Public Procurement Act was justified in the specific extraordinary circumstances.

8.2 State of emergency – general statutory exemption
The declaration of a state of emergency in the Czech Republic on 12 March 2020 satisfied the statutory reasons for a general exemption from the procedure pursuant to section 29(c) of the Public Procurement Act. Contracting entities can, within special safety measures established inter alia under Act No. 240/2000 Coll., on crisis management and on the amendment of certain laws (crisis act), as amended, proceed entirely outside the regime of the Public Procurement Act not only with respect to performance under already realised public procurement but also new procurement of such supplies, services or construction work, provided that, at the same time, measures cannot be taken to allow for standard procurement procedure.

9.   New law concerning the Effects on Court Proceedings (Justice Lex Covid)

Up-to-date as of 20 April 2020

The Ministry of Justice prepared a draft law on certain measures to mitigate the effects of the COVID‑19 pandemic on persons participating in court proceedings, injured parties, victims of criminal acts and legal entities and on the amendment of the Insolvency Act and the Execution Code ("Justice Lex Covid"), which was debated and approved within the regime of shortened procedure. Proceeding in this manner in a state of legislative emergency is permitted under section 99 of Act No. 90/1995 Coll., on the rules of procedure of the Chamber of Deputies. Bohumil Havel, who cooperates with our law firm, is a member of the Ministry's working group and was involved in particular in the proposals relating to the Insolvency Act and the Business Corporations Act.

The draft was first approved by the Chamber of Deputies, subsequently also by the Senate on 17 April 2020 and has now also been signed by the President. The law will become effective upon its publication in the Collection of Laws.

The provisions contained in the act can, for convenience, be divided into five areas – procedural law, insolvency law, the Business Corporations Act, execution proceedings and substantive civil law regarding the maturity of receivables.

The following are, in our view, the most significant changes that are to be brought about by Justice Lex Covid (these are then further discussed in a little more detail below):

  1. Possibility of relief with respect to missed procedural deadlines.
  2. Insolvency;
  1. The courts will not cancel previously ordered debt relief if mandatory instalments are not being paid due to the extraordinary measures;
  2. With respect to previously ordered debt relief, release from debts will be possible even if repayment will be lower than 30%, and debt relief will be simplified for debtors in other ways as well;
  3. Deferral of a debtor's obligation to file an insolvency petition with respect to themselves;
  4. Disregard of any creditor's petitions filed by 31 August 2020;
  5. Extraordinary moratorium established allowing one to continue in their business activity;
  6. Possibility to suspend the performance of an approved reorganisation plan;
  1. Bodies and management of legal entities;
  1. Adoption of general meeting decisions by distance voting (per rollam) or using technical means;
  2. Possibility to automatically extend or renew the term of office of members of an elected body if such term had expired during the effectiveness of the extraordinary measures;
  3. Possibility to appoint substitute members of an elected body (co-opting);
  4. Extension of deadlines for a corporation's financial statements to be discussed.
  1. Special measures in relation to the enforcement of judgments and execution proceedings;
  1. Disallowing certain methods of enforcement;
  2. Restriction on the enforcement of judgments by way of attachment of a bank account at a financial institution;
  1. Modification of the consequences of the maturity of receivables.

9.1.    Procedural deadlines
The possibility of relief from sanctions with respect to missed procedural deadlines is being extended to practically all types of proceedings, i.e. civil (including insolvency and execution proceedings), criminal and administrative proceedings but also with respect to proceedings before the Constitutional Court. Justice Lex Covid allows for relief from sanctions with respect to missed procedural deadlines provided such deadlines had been missed due to a measure relating to the emergency situation.

Applications for relief will need to be paired with the relevant act (with respect to which the relevant deadline had been missed) and submitted to the court that would have been deciding on the act, with the exception of decisions on remedial measures. The deadline by which the application for relief will need to be filed will depend on the type of proceedings (as is the case now with respect to relief under standard conditions). Applications for relief will be assessed on a case-by-case basis and individual circumstances will be considered; the relevant deadlines and associated conditions will depend on the type of proceedings in question.

9.2      Insolvency
The highest number of changes relate to insolvency. This approach is motivated by an effort to preserve the economy and maintain the operation of production businesses, services and the like.

If a debtor will not make any payments in accordance with the relevant payment schedule, the court will not cancel the corresponding approved debt relief. Release from debt will be awarded in 'old' debt relief arrangements even if the debtor repays less than 30% as a consequence of the COVID‑19 pandemic.

9.3.     Insolvency – extraordinary moratorium
While current insolvency regulations allow for a moratorium to protect entrepreneurs from creditors and ensure temporary basic operation of their business, the extraordinary moratorium under Justice Lex Covid is devised as one of the responses to the government measures imposing restrictions on entrepreneurs and the anticipated economic crisis connected to the COVID‑19 pandemic. The extraordinary moratorium will offer greater relief and allow for quicker protection; it should, however, be kept in mind that this new regulation is only temporary and may be invoked only until 31 August 2020.

An extraordinary moratorium application can be filed even without commencing insolvency proceedings with respect to a debtor who had not been insolvent as of 12 March 2020. An application for an extraordinary moratorium may be filed only by entrepreneurs (businesses) whose main centre of interest is in the Czech Republic and their general court is also located in the Czech Republic. The approval of an extraordinary moratorium is not subject to the approval of creditors.

Together with the standard requirements, an application for an extraordinary moratorium has certain special requirements as well (e.g. providing information about the number of employees or the debtor's turnover and an affidavit containing specific declarations). When the set formal requirements have been met, the court approves the extraordinary moratorium without examining the application on its merits.

An extraordinary moratorium may be issued for a period of three months, and may be extended by another three months with the consent of creditors.

A debtor may also make use of state support intended for the mitigation of the effects of the COVID‑19 pandemic during the extraordinary moratorium. A debtor may further, as priority, pay all its obligations, which are immediately connected to ensuring the continuance of their business operation. During the extraordinary moratorium, a debtor may not take any steps which would change the value or structure of its assets and must protect the interests of creditors.

9.4      Insolvency – obligation of the members of a statutory body to file an insolvency petition
Further measures are aimed at stimulating the economy and concern in particular legal entities and their statutory bodies. The main measure in this respect is the deferral of a debtor's obligation to file an insolvency petition with respect to itself if it becomes insolvent. Such deferral is possible for a period of six months after the end of the extraordinary measures, i.e. until 31 December 2020.

9.5      Insolvency – ineffectiveness of a creditor's petition
A creditor's petition filed by 31 August 2020 will be disregarded. This will provide entrepreneurs with more time to resolve their problematic situation caused by the COVID‑19 pandemic without the risk of insolvency proceedings being initiated with respect to them in the meantime.

9.6     Insolvency – performance of a reorganisation plan
The last measure relating to insolvency law is the possibility to temporarily suspend the performance of a reorganisation plan for six months after the emergency measures are no longer in effect (in any event until 31 December 2020 at the latest). The court will decide on such a request on the basis of a statement from the insolvency administrator and the creditors' committee; the decision cannot be appealed. The court will also be able to adopt measures to protect the interests of creditors and even to cancel or amend the decision ex officio due to serious reasons.

9.7      Bodies of legal entities and their management 
Justice Lex Covid also addresses the situation of members of bodies of legal entities being unable to meet, which could mean that the terms of office of the entities' management could expire in the meantime or certain acts necessary for the entity's operation cannot be carried out.

Justice Lex Covid therefore allows the governing bodies of cooperatives, business corporations or other legal entities to make decisions using distance voting (per rollam) or technical means even though their foundation documents do not currently allow therefor. The law further includes the option of automatically extending or renewing the term of office of members of a corporation's elected body (with such member's consent), if such term had expired during the effectiveness of the extraordinary measures, and co-opting, i.e. appointing members of a body by the members of that body themselves. The deadline for discussing a corporation's financial statements has also been extended to three months after the end of the extraordinary measures, however, no later than 31 December 2020.

These options are available only for the duration of extraordinary measures, which prevent the bodies of legal entities from meeting or make such meetings substantially more difficult. This consideration may be significant in the context of the gradual easing of individual measures.

9.8    Special measures in relation to the enforcement of judgments and execution proceedings  
The draft of Justice Lex Covid also contained an amendment to the Execution Code, which was extensively discussed and amended during the course of the legislative process as it was not, in part, directly connected to the previous measures and, at first sight, there was no evident connection with the current emergency situation.

Justice Lex Covid does not, in the end, contain a direct amendment of the Execution Code but instead only includes certain special measures in relation to the enforcement of judgments and execution proceedings. It in particular prohibits performance of judgment enforcement (and therefore also execution proceedings) by way of sale of moveable and immoveable property until 30 June 2020, provided the obliged party has their permanent residence in such immoveable property. One of the special measures relates to the enforcement of judgments by way of attachment of a bank account at a financial institution. The prohibition on the use of funds in a bank account is being restricted and does not newly apply to funds up to the amount of four times the minimum subsistence level. This measure will apply until 31 December 2020.

9.9    Modification of the consequences of the maturity of receivables
A provision, which applies to all receivables and is referred to as "A special measure in relation to default", has been included in Justice Lex Covid rather illogically. Under this provision, if a debtor will be able to demonstrate that they were unable to pay their monetary debt as a consequence of the emergency measures, any sanctions for such default will be limited to statutory default interest.

The effects of the measure will cease to exist on 30 June 2020 at the latest.