The epidemic of COVID-19 led to the adoption of number of crisis measures in the Czech Republic, which, for obvious reasons, also had indirect effects on specific areas of everyday life. Impacts on the area of judicial, administrative, criminal and other proceedings, executions, insolvencies and the functioning of legal entities were taken into account by the Act No. 191/2020 Coll. on Certain Measures to Mitigate the Effects of the SARS CoV-2 Coronavirus Epidemic on Litigants, Victims, Victims of Crime and Legal Persons and on Amendment of the Insolvency Act and the Execution Code, also known as Lex Covid or Lex Covid of justice. The Act was promulgated in the Collection of Laws of the Czech Republic on 24 April 2020 and entered into force on the same day.
The Act regulates four main areas of law in which changes had to be made in the light of measures in relation to the COVID-19 epidemic so as to minimize the effects that the emergency measures could have had. Specifically, it concerns the regulation of legal matter concerning legal entities, execution and insolvency law and the waiver of missed procedural deadlines in selected proceedings.
New measures in relation to the functioning of legal entities
Lex Covid establishes rights and obligations in relation to legal entities only for the duration of an emergency measure during the epidemic which makes it impossible or significantly difficult for a meeting of a body of legal entity to take place, however, no longer than until 31 December 2020, unless otherwise specified.
Decision – making by the bodies
Decision-making can be made using technical means or per rollam in writing, regardless of whether the founding legal act allows it. As far as per rollam decision-making is concerned, provisions of Act No. 90/2012 Coll., on Business Companies and Cooperatives (the Business Corporations Act) shall apply. The cooperative or authorized person will send a draft decision to all members of the meeting. The deadline for members to comment on the proposal is determined by the articles of association, otherwise it is 15 days from delivery. If a member of a body does not comment on the proposal by the end of the period, it is deemed that he does not agree with the proposal. The decisive majority is calculated from the total number of votes of all members in a meeting of a cooperative.
Extension of the term of office of members of the bodies
In the event that the term of office of a member of the body expires, it shall be extended by 3 months from the date of termination of the extraordinary measures, unless the member of the body expresses its disagreement in writing. The extension of the term of office shall also apply if the term of office expires within 1 month from the day following the date of termination of the emergency measure in the event of the epidemic.
Co-optation of members of the bodies
If the number of members of an elected body does not fall below half, so-called co-optation may occur. According to the law, it is possible to subsequently elect or appoint individual members, but the election of a new member must be approved by all remaining members of the body, until the next meeting of the body that is entitled to elect them.
Deadline for discussing the financial statements of the business corporation
If the statutory deadline for discussing the annual financial statements of a limited liability company, joint-stock company or cooperatives should elapse earlier than 3 months after the end of the emergency measure in the event of an epidemic, it will elapse after 3 months of the end of such emergency measure, but no later than on 31 December 2020.
Impact on executions
As part of the amendment to the execution rules, the sale of movables is regulated. Bailiffs may not carry out the sale until 30 June 2020, unless it is a claim in connection with maintenance or compensation for damage caused by personal injury or other intentional criminal offenses. However, the debtor himself may expressly consent to the sale of his movables. At the same time, as of 30 June 2020, sales of real estate are suspended, with the exception of the debtor’s permanent residence. However, even in this case, there is an exception related to maintenance, compensation for damage to health and intentional crimes.
The debtors will also receive new adjustments in connection with the decision to assign a receivable from an account with a financial institution. During the period from the entry into force of the act until 31 December 2020, the prohibitions referred to in Section 304(1) of Act No. 99/1963 Coll., the Code of Civil Procedure, do not apply to funds up to four times the subsistence level of an individual according to a special legal regulation. The amount of the individual’s subsistence minimum is then determined in accordance with a special legal regulation effective at the time of delivery of the resolution on the order for the enforcement of the decision to the financial institution. These measures also apply to proceedings initiated before the date of entry into force of the Act, but the legal effects of acts that occurred in the proceedings before the date of entry into force of this Act shall be maintained.
At the same time, with this law comes a change in the Code of Civil Procedure, in relation to the increase in the limit of receivables for the issuance of an execution order by the sale of immovable property, from the current 30 thousand to 100 thousand czech crowns.
Repayment of monetary debt
Lex Covid also introduces provisions for the (non) fulfillment of monetary debt in connection with emergency measures issued in connection with the current epidemic.
If the debtor proves that the restriction resulting from the emergency measure prevented or significantly impeded the timely performance of the monetary debt, the debtor may be required to pay penalties in the event of default only up to the amount specified by the law governing interest on arrears.
The application of these provisions applies to delays that have occurred since 12 March 2020. However, it does not apply to obligations under contracts concluded after the date of entry into force of this Act. The effects of these provisions shall expire on 30 June 2020 at the latest.
Measures in relation to insolvency law
Lex Covid brings significant changes in relation to insolvency law and insolvency proceedings.
Significant is the temporary abolition of the obligation to file a debtor’s insolvency petition for debtors whose bankruptcy occurred after the beginning and in direct connection with the adoption of extraordinary measures, which will last for 6 months from the end of extraordinary measures, but no later than 31 December 2020.
According to this Act, creditors do not have the opportunity to file a creditor insolvency petition until 31 August 2020. Creditors will not be able to open insolvency proceedings, even in the case of claims without a pandemic. They will not be able to file a new insolvency petition again until 31 August 2020.
The Act introduced directly into the Insolvency Act the possibility of exempting the debtor from the payment of receivables, the so-called institute of an extraordinary moratorium. From the date of promulgation of the law in the Collection of Laws until 31 August 2020, debtors may file a petition with the insolvency court, which may grant the debtor exemption from payment of receivables included in debt relief to the extent that they have not yet been satisfied if the debtor proves that he was not at fault, because it results directly from the circumstances which arose as a result of the restriction resulting from the emergency measure during the epidemic, which made it impossible or significantly more difficult to fulfill the obligations under the approved method of debt relief.
Impact on periods
The Act has an impact on the running and missing of selected procedural periods in the interest of the participants in the proceedings, especially where the law does not currently allow it.
The possibility of waiving the missed period also applies to the return of the period in criminal proceedings for the performance of acts by judicial entities or persons participating in the proceedings. The waiver applies to civil, administrative and criminal proceedings. The Act also does not forget to waive missed periods in enforcement proceedings, and also provides an opportunity to waive period for execution and insolvency proceedings, not excluding proceedings before the Constitutional Court of the Czech Republic.
It should be noted that the waiver of the period for the participants in the proceedings will not be granted automatically. Following the termination or cancellation of an emergency measure or the termination or cancellation of a state of emergency resulting in a limited impossibility or substantial difficulty in performing the act, the waiver will have to be requested by application only for reasons directly arising from the impossibility of the procedural act due to the emergency measure. The time limits for filing an application for remission of procedural periods vary according to the type of proceedings. The longest period for filing a motion to miss period is set at 15 days in civil court proceedings and proceedings before the Constitutional Court. In administrative courts, the period for filing is two weeks. In proceedings on the enforcement of decisions on execution and insolvency proceedings, the time limit is set at 7 days. The shortest period is, of course, set in criminal proceedings, where the party to the proceedings has only three days to file a petition.
Conclusion
The Act was submitted by the Government of the Czech Republic and approved by the Parliament of the Czech Republic in a relatively short period of time in order to respond to the most fundamental problems that subjects of court proceedings, legal entities and insolvency and execution entities may now face.
Many obstacles can be overcome by the current approach of courts or other bodies in proceedings or by the interpretation of the law or by agreement of the parties involved, yet there are cases where none of these paths are possible. The Act primarily targets those cases which, if the legal matter were not amended in connection with the adopted extraordinary measures, could have an adverse effect on persons within the Czech Republic.
If you have any questions regarding the topic of this article or emergency measures in general, we are at your disposal – do not hesitate to contact us.
Mgr. Jakub Málek, partner – malek@plegal.cz
Eliška Vetýšková, legal assistant – vetyskova@plegal.cz
Veronika Pečová, legal assistant – pecova@plegal.cz
24.04.2020