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
3.1.1   COVID I and COVID II
3.1.2   COVID Prague
3.1.3   COVID III
3.1.4   COVID Plus

3.2      Effects on existing loan financing
3.3      Temporary statutory moratorium (Lex Covid Loan Moratorium)
3.4      Non-repayment, insolvency

4.        Labour Law
4.1      Obstacles on the part of an employee
4.2      Obstacles on the part of an employer
4.3      Work outside of the workplace (home office), forced leave and temporary allocation of an employee to another employer
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
4.6.2   Employee support measures – caregivers' allowance

5.        Tax
5.1      Tax packages
5.2      Measures relating to self-employed persons
5.3      The "Pětadvacítka" support program for self-employed persons, shareholders of limited liability companies and employees working on the basis of certain specific contracts
5.3.1   "Pětadvacítka" for self-employed persons
5.3.2   "Pětadvacítka" for shareholders of limited liability companies
5.3.3   "Pětadvacítka" for employees working on the basis of certain specific contracts
5.4      Real estate acquisition tax 
5.5      Deferral of insurance payments for employers 
5.6      Deferral of the Electronic Sales Records program (in Czech: elektronická evidence tržeb)

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 

7.        Real Estate
7.1.     Effect of the extraordinary measures on the relations between lessors and lessees 
7.2      COVID Rent Program

8.        Public Procurement

9.       Justice Lex Covid
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 or Ministries, 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 (including interest-free loans, deferral of tax obligations, etc.) should be considered and pursued, if possible.

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 23 September 202

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 program 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 still being reviewed and processed. A second round of this program has not been announced yet. Any further rounds could be announced through decisions of the Ministry of Industry and Trade. However, nothing to that effect has been announced and any other rounds under this program seem unlikely; further support from the CMGDB is likely to be provided only through the COVID III program.

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. The last applications under this program are currently being reviewed and processed. 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  COVID III

The COVID III national program is valid during the period from 18 May 2020 until 30 June 2024. The program is aimed at supporting entrepreneurs and companies with less than 500 employees, whose business activities are restricted as a consequence of COVID‑19, through portfolio guarantees of operating bank loans. The guarantee is provided by the CMGDB to banks, which have concluded an agreement on portfolio guarantees for the COVID III program with the CMGDB; a list of these banks can be accessed through the CMGDB website at www.cmzrb.cz. The loan provided to a business may not exceed CZK 50 million and, at the same time, twice the amount of the business' annual wage costs in 2019 and 25% of the business' total turnover in 2019. The maximum guarantee period is three years.

3.1.4   COVID Plus

The COVID Plus program is intended for export companies that are, at the same time, large employers. It is supposed to help them retain the liquidity needed for maintaining operation and for possible further development. The amount of the loan must be between CZK 5 million and CZK 2 billion with the maximum amount corresponding to 25% of the company's annual turnover. The loan under the COVID Plus program is guaranteed by the Export Guarantee and Insurance Corporation (EGIC, in Czech: Exportní garanční a pojišťovací společnost), which covers 70% or 80% of the loan amount depending on the rating of the given company as determined by the EGIC.

In order to be eligible for the guarantee under the COVID Plus program, the company has to have at least 250 employees and export must represent at least 20% of its total turnover in 2019 (though this includes also manufacturing supply for a different exporter). Companies that had existential problems even before the state of emergency was declared are excluded from the program. It is also not intended for companies whose business activity consists of accommodation or gambling.

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 23 September 2020

Act No. 177/2020 Coll., 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 were able to defer the repayment of their loans for a period of up to six months, became effective on 17 April 2020.

Applicability. The moratorium applied to all loans concluded and drawn down before 26 March 2020, regardless of their governing law or whether any of the parties was e.g. a foreign entity; with regard to loans intended for the acquisition (construction, etc.) of real estate property, it sufficed if the corresponding loan agreement had merely been concluded by 26 March 2020 (no drawdown before that date was necessary). While the law is intended to apply to consumers (and mortgages) as well as non-consumers, a few exceptions remain – the law does 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 also does 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 was interested in deferring repayment must have informed the creditor (the bank) thereof. The obligation to repay was thus not deferred automatically, but debtors were legally entitled thereto. When informing the creditor of the repayment deferral (this must have generally been done in writing), the debtor also had to state that such deferral is due to the negative economic effects of the COVID‑19 pandemic (though there was no obligation to prove that that was actually the case).  The creditor must have informed the debtor that it had received the corresponding notice, of the period of protection and the total amount owed, and could not have charged 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 if the debtor chose to use only 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 came 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.

Lex Covid Loan Moratorium also addresses certain issues relating to interest accrued during the period of protection. 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.

Moreover, if a debtor decided to opt into the Lex Covid Loan Moratorium and informed 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) has 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.

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.

4.  Labour Law

Up‑to‑date as of 23 September 2020

The ongoing COVID-19 pandemic is, once again, starting to interfere with the area of labour law, and – with regard to the current circumstances – we can only expect that the pandemic will continue to have an effect in this area of law for the weeks and months to come.

In particular, it can be assumed that the number of employees absent from work will increase significantly – whether because they tested positive for COVID‑19 and are thus in mandatory isolation, or because they came into contact with a person who tested positive for COVID‑19 and are thus subject to a mandatory quarantine. It is further likely that a large number of employees will be absent due to having to take care of their children whose schools will be closed down due to the spread of COVID‑19. Employers, whose employees travel abroad as part of their work, will also be significantly affected – from mid‑September the Czech Republic has been included on the list of "high‑risk" countries by most European states, and crossing their borders is either completely prohibited or connected with certain restrictions (generally a quarantine or a negative test for COVID‑19). We discuss obstacles on the part of employees in section 4.1 below.

Understandably, the first wave of the COVID‑19 pandemic led to a decrease in demand for employers' services or goods or a significant disruption to supply chains with the effect that numerous employers have insufficient amounts of entry materials. We discuss these obstacles on the part of employers in section 4.2 below.

Employers also feel the impact of extraordinary measures of the Ministry of Health. Currently these include in particular measures ordering employees to wear a face mask or other covering. We discuss this and other measures in section 4.3 below.

Working from home (if permitted by the nature of the work) became more common during the first wave of the pandemic; some employers have supported working from home even during the summer months, while some have now returned to this concept in light of the second wave of the pandemic in the Czech Republic. We discuss this topic in more detail in section 4.4 below.

The last part concerning labour law relations (section 4.5) concerns state support programs, which employers can make use of in connection with the negative effects of the COVID‑19 pandemic.

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. The basic rules relating to quarantine and isolation are set out in extraordinary measure of the Ministry of Health ref. no. MZDR 15757/2020-32/MIN/KAN dated 24 August 2020 (effective from 1 September 2020 until its cancelation).

If a doctor or the Regional Health Authority imposes a quarantine on an employee (currently, quarantine is ordered for a minimum of ten days from the last contact with a person who has tested positive for COVID‑19), 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 Czech Social Security Administration (the same regime should apply if the quarantine was ordered in another EU Member State). During quarantine, two PCR tests should be undergone; if even the second of the two tests is negative, and the person in question does not have clinical symptoms, the quarantine may end.

If the nature of the work allows the employee to work during quarantine, and if the employee agrees thereto (and works from home or any other address designated by the decision ordering the quarantine), the employee is entitled to receive their standard wage (i.e. not wage compensation or sick pay).

In the event an employee tests positive for COVID‑19, the Regional Health Authority decides on the person's isolation for the duration of 10 days after they underwent the test. Should a person suffer from more serious clinical symptoms, this constitutes a temporary incapacity to work and the employee has similar rights as if they were in quarantine. From the perspective of the Labour Code, isolation falls under the same regime as quarantine if it prevents the person from performing work.

It should further be noted in the present context that COVID-19 may, under certain conditions, be considered to be an occupational disease; in our view, this should however only apply with respect to employees in certain sectors which expose such employees to infected persons.

During the first wave of the pandemic in the Czech Republic, employers had to deal with extensive absences of employees that stayed at home so that they could take care of their children whose schools closed down on the basis of extraordinary measures issued by the state. With the aim of supporting employees, a legislative change was subsequently adopted whereby caregivers' allowance was increased to 80% of reduced average earnings, the period of the provision of the caregivers' allowance was extended and the age limit with respect to the child was increased to 13 years of age. All these changes were, however, temporary and ceased to apply at the end of the academic year (i.e. on 30 June 2020). The standard rules apply now and it remains to be seen whether any more support will be available should primary schools close down on a larger scale.

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). Should an employee be stranded abroad during a business trip, such business trip would be extended until their return to the Czech Republic. The employee would be entitled to their wage if they continue to work and, in any event, to compensation of their travel expenses (including inter alia food allowance).

The Ministry of Health issued a protective measure for protection against the introduction of COVID‑19 into the Czech Republic (ref. no. MZDR 20599/2020‑25/MIN/KAN), which sets out certain rules that can also have an effect on employees of Czech employers; these rules relate to inter alia obligations pertaining to persons crossing Czech borders and/or visiting high risk countries.

4.2    Obstacles on the part of an employer

In the context of the COVID-19 pandemic, certain obstacles to work on the part of employers may also occur. Most of these should constitute grounds for compensation from the state in particular under the employment support program of the Ministry of Labour and Social Affairs Antivirus (for more information see section 4.5 below), or the new regulation of so‑called kurzarbeit (short‑time work), which is currently being prepared.

Currently, probably the most common obstacle to work is 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. For the period that the employees are 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; without such an agreement, the employees are entitled to 100% of their average earnings. If no trade union is in place, the employer may set down the lower level of wage compensation (i.e. wage compensation between 60% and 100% of an employee's average earnings) in its internal regulations.

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 earnings. 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    Extraordinary measures of the state and other measures adopted by employers

The Ministry of Health adopted extraordinary measure ref. no. MZDR 15757/2020‑33MIN/KAN on 9 September 2020 whereby it ordered that, as of 10 September 2020, all individuals are obliged to wear a face mask or other covering in all indoor areas of buildings. This obligation (with certain limited exceptions) also applies to employees in the workplace. On the other hand, the extraordinary measure does not provide for any direct obligations on the part of the employer, and employers should generally be under no risk of sanctions if their employees do not comply with the aforementioned extraordinary measure. We are further of the view that an employer is generally not under an obligation to provide its employees with face masks or similar coverings as these do not constitute personal protective equipment under work health and safety regulations, though specific situations would of course need to be assessed on a case‑by‑case basis.

Generally speaking (though this also depends on the industry and other factors), employers are not currently under the obligation to adopt further measures in the workplace or vis-à-vis their employees in connection with the COVID‑19 pandemic; any special measures aimed at protecting employees and/or an employer's assets in the current situation would, however, be recommended.

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

The solution for limiting the spread of COVID-19 preferred by the Government is the use of the home office concept. However, working from home is only possible if the nature of the work permits this 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), a written amendment to the employment contract may be required from a technical perspective. It may also be appropriate for the employee to undergo work health and safety training before starting to work from home (and working from home should only be possible if the conditions there are suitable and compliant with applicable health and safety regulations).

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.

During the first wave of the pandemic, many employers started offering their employees, for whom they did not have any work at the time, on loan to other companies. This solution 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.

4.5      State programs providing support to employers

The basic program through which the Government tried to provide compensation to employers in connection with the COVID‑19 pandemic is the Antivirus program. This program was approved by the Government on 31 March 2020 and employers could apply for support retroactively from 12 March 2020 (i.e. from the beginning of the initial state of emergency declared by the Government). The program was extended on numerous occasions and should definitely terminate on 30 October 2020.

The aim of the program is to maintain employment; employers can apply for partial compensation of paid wage compensation as well as mandatory social and health insurance contributions.

The Antivirus program has two basic 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. For a limited time, regime C was also in place, under which social security contributions for the period from June to August 2020 were waived for small employers (with a maximum of 50 employees) in the private sector without any sanctions being applied provided certain conditions were satisfied. However, all small employers must now pay social security contributions again (payments for September 2020 are payable by 20 October 2020).

Regime A covers situations 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.

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 covered by Regime A is when quarantine or isolation has been ordered. 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 can be used in the event of obstacles to work on the part of an employer and will typically apply to 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) is, in practice, 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.

Currently discussions are ongoing in the Government in relation to the conditions of so‑called kurzarbeit (short‑time work), which should replace the Antivirus program, or rather Regime B of the Antivirus program (at the moment there are no plans to replace Regime A with new measures). This instrument should apply in the future regardless of the COVID‑19 pandemic and is to be included in the Employment Act. No official details of the new regulation have been revealed yet though it is understood that the Government proposes that the state will cover employees' lost earnings should their working hours be shortened.

5.   Tax

5.1     Tax packages

Up-to-date as of 23 September 2020

Measures adopted by the Government as part of its tax packages are, to a large extent, no longer relevant as these measures (e.g. extensions of deadlines or waivers of sanctions) concerned predominantly the period from March until August 2020. The government measures which remain in effect, or are currently going through the legislative process, are set out below. No new tax‑related measures relating to the COVD‑19 pandemic are currently being discussed.

  • 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 December 2020 (for more information in this regard and with respect to the abolition of the real estate acquisition tax, please see section 5.4 below);
  • 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);
  • 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 (for more information in this regard, please see section 5.4 below);

5.2      Measures relating to self-employed persons

The "Pětadvacítka" support program for self-employed persons and, shareholders of limited liability companies Relief was offered to self‑employed persons (in Czech: osoby samostatně výdělečně činné) in the form of a waiver of the obligation to pay monthly pension and public health insurance contributions for the period from March until August 2020. All self‑employed persons should therefore start paying pension and public health insurance contributions from September 2020 again.

Self‑employed persons will be able to claim the reduction in mandatory pension and public health insurance contributions in the period from March 2020 until August 2020 in their statements of income and expenditure for the year 2020.

The "Pětadvacítka" ("25") program for self‑employed persons is currently coming to a close. The underlying Compensatory Bonus Act (Act No. 159/2020 Coll.) has already been amended on several occasions and now also applies to shareholders of small limited liability companies and certain 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). The measure (including associated conditions) is described below in more detail.

5.3    And employees working on the basis of certain specific contracts

5.3.1    "Pětadvacítka" for self-employed persons

The Compensatory Bonus Act (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.

5.3.3   "Pětadvacítka" for employees working on the basis of certain specific contracts"

As a consequence of the amendment to the Compensatory Bonus Act, which came into effect on 7 August 2020, 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) are also eligible for a compensatory bonus, provided health insurance was paid on their behalf and they were prevented from working as a consequence of COVID‑19. The compensatory bonus for such employees amounts to CZK 350 per day and may be claimed for the period of 12 March 2020 until 8 June 2020.

An employee is entitled to the above compensatory bonus if they worked for at least four out of six months prior to the onset of the pandemic (i.e. in the period from 1 October 2019 until 31 March 2020) on the basis of an insured contract.

5.4      Real estate acquisition tax

Up-to-date as of 23 September 2020

On 18 September 2020 the President signed a bill repealing, among other things, the Senate's Statutory Measure No. 340/2013 Coll. and related legal regulations concerning real estate acquisition tax. The Act retroactively abolishes tax on the acquisition of real estate in the Czech Republic for all entries of real estate transfers registered 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 or later.

The approved law also includes an amendment to Act No. 586/1992 Coll., on income taxes, through which the following two major changes in the area of personal income tax have been introduced:

  • a reduction in the maximum tax deduction of interest paid on mortgage loans obtained for own housing needs, provided they were procured for this purpose from 1 January 2021. For interest paid on older mortgage loans procured until 31 January 2020, the limit of CZK 300,000 remains;
  • an extension of the time test from five to ten years for a tax exemption on income from the sale of immovable property not intended for own residence with respect to such immovable property acquired on or after 1 January 2021. The five-year time test remains in place for such immovable property acquired before 31 January 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 are 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.

5.6.   Deferral of the Electronic Sales Records program (in Czech: elektronická evidence tržeb)

On the basis of an amendment to Act No. 112/2016 Coll., on sales records, businesses are now to (re)start keeping electronic sales records from 1 January 2021, extending the original deferral further.

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 23 September 2020

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 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 below comments in connection with the cancellation of the Measures by the Municipal Court in Prague and the consequences the Judgment may have.

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 were intended to come into effect without any disruption as to the effects of the restrictions imposed by the cancelled Measures.

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

Up‑to‑date as of 23 September 2020

The impact of the COVID‑19 pandemic was evident quite quickly in the area of real estate. During the months of spring, we were dealing with specific issues encountered by our clients in relation to the pandemic and the related emergency measures adopted by the Government – this included 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 therefore have experience with 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 continue to 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 COVID‑19 pandemic also has a significant effect on construction works and contractual relations related thereto. Due to the adopted emergency measures and the 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.

Taking into account recent developments, it is probable that it will be necessary to deal with the effects of the COVID‑19 pandemic and related restrictive measures for months to come.

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

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 was 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 covered 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 was 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 the following:

         /    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

Up‑to‑date as of 23 September 2020

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. It is evident from practice that even the less formalistic negotiated procedure without prior publication under section 63(5) of the Public Procurement Act has formal barriers, which slow down the supplier selection process, despite allowing for faster procurement procedures in urgent situations of a certain level of intensity. The Ministry of Regional Development consequently prepared an amendment to the Public Procurement Act, which is currently being debated in the Chamber of Deputies of the Czech Republic in a state of legislative emergency. This amendment is intended to further speed up and simplify the supplier selection process; it is however viewed as somewhat controversial as it is seen by some as providing too much freedom.

Most of the changes proposed in the aforementioned amendment relate to negotiated procedure without prior publication, specifically with respect to cases where only one supplier exists (under section 63(3) of the Public Procurement Act) and instances of extremely urgent circumstances (under section 63(5) of the Public Procurement Act). Should the amendment be approved, the procuring entity would no longer need to:

  • establish whether the selected supplier, which is a joint stock (or similar) company, has issued exclusively dematerialised shares, and such participants would no longer need to be excluded from the procurement procedure;
  • require evidence of basic and partially professional competence;
  • verify beneficial owners.

Other changes set out in the aforementioned amendment include (i) the removal of the obligation to set up a committee for the purpose of assessing proposals only on the basis of parameters which may be expressed in numbers with respect to public tenders with a presumed value of more than CZK 300 million (excluding VAT), and (ii) the removal of the obligation to send a notice on the selection of a supplier in procurement procedures with a single participant.

9.     Justice Lex Covid

Up-to-date as of 23 September 2020

The Act 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") came into effect on 24 April 2020.

The provisions contained in the aforementioned 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 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

Up‑to‑date as of 23 September 2020

The possibility of relief from sanctions with respect to missed procedural deadlines was 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 does 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

Up‑to‑date as of 23 September 2020

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 was 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 offered greater relief and allowed for quicker protection; this new regulation was, however, only temporary and may have been invoked only until 31 August 2020.

An extraordinary moratorium application could have been 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 have been 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 was not subject to the approval of creditors.

Together with the standard requirements, an application for an extraordinary moratorium had 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 were met, the court approved the extraordinary moratorium without examining the application on its merits.

An extraordinary moratorium could have been issued for a period of three months, and then 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 were aimed at stimulating the economy and concerned 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 was disregarded. This provided 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.