On 14th September 2022, the Government of the Czech Republic approved the Program of support for the increased costs of gas and electricity as a result of the exceptionally rapid increase in their prices (hereinafter the “Program”), after which the Ministry of Industry and Trade of the Czech Republic (hereinafter the “MPO”) subsequently announced Call No. 1 (hereinafter the “Call”) for the submission of applications for support from the Program; as of the date of this article, the Call is valid in its updated version as of 11th November 2022.
The support according to the Call will be provided on the basis of the so-called “Temporary crisis framework for state aid measures to support the economy following the aggression against Ukraine by Russia” adopted and frequently updated by the relevant communications of the European Commission from March[1], July[2] and most recently in October of this year[3] (hereinafter the “Temporary Crisis Framework”), while the basis for the provision of this support is in particular its Section 2.4.
The Call contains basic information on the method and possibilities of obtaining support from the Program and, among other things, also the conditions that eligible applicants must meet. However, in this article we will deal with one of these conditions listed in Article 8.11. of the Call, namely the obligation of the statutory body to waive an increase in its remuneration, which in practice can cause interpretation difficulties.
The aim of this article is therefore not to provide a comprehensive analysis of the mentioned article, but rather to point out specific interpretation difficulties that potential applicants may encounter, even taking into account the currently available MPO methodology.
Determination of the condition and the person concerned
According to the above-mentioned the current wording of Article 8.11. of the Call, includes the following requirement among the so-called other conditions for awarding the support: “At the time of submitting the application for support, the recipient’s statutory body completely and not only temporarily waives any increase in its remuneration (including all components of the remuneration) and the variable part of the remuneration for the current fiscal year, nor does it receive any direct or indirect compensation for this waiver.”
It is appropriate to add to the above, that compared to the original wording of the Call, the article in question was narrowed by the mentioned update, as the final sentence was omitted from it: “To the extent that the recipient is part of a group of companies, this exemption must include the remuneration received by the recipient’s management from all subjects in the group.”
Considering the current wording of Article 8.11. of the Call, the question of the personal applicability of this provision, i.e. which persons and their remuneration, may cause partial interpretation difficulties.
The persons who are affected by the ban on increasing the remuneration are only members of the statutory body of the support recipient and it will be their incomes typically based on a performance contract. However, we believe that the restriction in question will also apply to other income of these persons from employment contracts, which, in addition to the performance contract, may have been concluded with the company in another position in its management.
Income of other persons in the management of the company by limitation according to Article 8.11. of the Call are not affected (this typically applies to both management and ordinary employees); likewise, the restriction does not apply to proxy and members of the company’s supervisory board.
Contractual remuneration and incentive schemes
Another issue, which is important not only from an interpretative point of view, but especially on a practical level, is the determination of the period to which the limitation of increasing the remuneration of the persons concerned applies.
According to the current wording of Article 8.11. of the Call this period is the current fiscal year. The member of the statutory body must therefore waive any increase in his remuneration for the entire fiscal year in which the application for the grant of support was submitted (i.e., if the application is submitted in December 2022, it will be the year 2022; in the case of an application submitted in January 2023, it will be the year 2023).
An equally important point that can cause interpretation problems in practice is the question of increasing the contractually agreed remuneration and its payment.
In this respect, the restriction regarding the increase of the remuneration of a member of the statutory body does not apply to the previously contractually agreed conditions for awarding his remuneration, and therefore such remuneration can be paid; the member of the statutory body of the support recipient only waives the increase or extension of this remuneration or its variable part for the current fiscal year (as of the date of application).
In other words, if a member of the statutory body already has a contractually determined remuneration (including the variable part of the remuneration – e.g. incentive scheme), restrictions according to Article 8.11 of the Call will not apply to such remuneration and the remuneration may be paid even higher than the previous fiscal year; however, this agreed remuneration may not be increased or expanded to new levels that have not yet been negotiated through new arrangements.
On the contrary, in the event that the remuneration of a member of the statutory body is not given contractually, it can be granted in the relevant period at most in the amount in which it was granted in the previous fiscal year; therefore, the not yet contracted remuneration may not be increased to a new higher level compared to last year.
Note on legal compliance with Article 8.11. of the Call
As mentioned in the introduction, the Temporary Crisis Framework adopted at the level of the European Union establishes the framework for the provision of public support from the Program.
Although these conditions do not include the condition according to Article 8.11. of the Call, i.e. the obligation of a member of the statutory body to waive an increase in his remuneration, the Temporary Crisis Framework does not contain an exhaustive method and rules for providing support, but rather contains a list of conditions, the fulfillment of which in the case of a specific measure of a Member State may constitute permitted support.
Therefore, it is not excluded in advance that, beyond the scope of the conditions expressly established under the Temporary Crisis Framework, the Member States may establish additional conditions and rules for obtaining public support within the framework of a specific measure of public support.
In this regard, it should also be noted that in the case of public support referred to in Section 2.4 of the Temporary Crisis Framework, it is public support falling into the category of discretionary so-called exceptions pursuant to Article 107 (3) of the Treaty on the Functioning of the European Union from the otherwise general EU ban on public subsidies distorting economic competition in the EU internal market.
In the case of public support in question based on Section 2.4 of the Temporary Crisis Framework, the general requirement that the Member State is obliged to notify such support in advance to the European Commission, which will assess its compatibility with the internal market (i.e. its admissibility) based on its discretionary power, continues to apply. In this regard, the subject Section 2.4 of the Temporary Crisis Framework contains a list of conditions, upon fulfillment of which the European Commission will consider the support compatible with the internal market.
Nevertheless, we consider that the requirement set out in Article 8.11. of the Call, as a limitation of a general nature, the aim of which is apparently not an artificial limitation of potential recipient’s support, are within the limits allowed by Union law, or Temporary Crisis Framework; moreover, the above is also confirmed by the fact that the European Commission has already approved the aid measure notified by the Czech Republic.
From the standpoint of the Czech legal system, the subject support is provided on the basis of Section 14 to Section 14 (q) of Act No. 218/2000 Coll., on budget rules and on the amendment of some related laws, as amended. In Section 14 (4) (g) of the Act is stated the possibility for the support provider to set any additional conditions that the recipient must fulfill in connection with the use of the support. In our opinion, the restriction on increasing the remuneration of the statutory body according to Article 8.11 of the Call can also fall into this category.
Conclusion
The declared objective of the Program is to mitigate the consequences of the increase in natural gas and electricity prices on the operational capabilities and possibilities of entrepreneurs, to prevent further deterioration of their business situation and position on the market, to increase their liquidity and to create prerequisites for the preservation and recovery of their business activities. Applicants for support under the Program must nevertheless fulfill a number of conditions, one of which is the discussed restriction on increasing the remuneration of members of the statutory body according to Article 8. 11. of the Call.
This specific requirement demanding the members of the recipient’s statutory body to waive any increase in their remuneration at the time of submitting the application for support, in practice, nevertheless, may bring with it a number of interpretative difficulties in view of the wording used. This article therefore analyses at least those known so far, the resolution of which we consider important from a practical point of view, whether it concerns the personal scope of the provision in question only for members of the statutory body and their remuneration, the scope of the provision in terms of the time limitation of increasing their remuneration, and last but not least also about the effects of existing contractual arrangements on the possibility of payment of remuneration to the persons concerned. With regard to the diversity of practice, there is no doubt that additional points can be added.
Regarding possible doubts concerning the admissibility of the restriction in question according to Article 8.11. of the Call for its possible contradiction with EU legislation or legislation according to the Czech legal system, we have not found reasons for such a conclusion, and we consider that the condition set out in Article 8.11. of the Call are within the limits allowed by Czech law, as well as by EU legislation, which in general in relation to the support was also confirmed by the European Commission by its approval.
If you have any questions about the topic or are interested in our support in relation to the Program, do not hesitate to contact us.
JUDr. Miloš Kulda, Ph.D., attorney – kulda@plegal.cz
Mgr. Kateřina Roučková, junior lawyer – rouckova@plegal.cz
30. 11. 2022
[1]Communication from the Commission “Temporary crisis framework for state aid measures to support the economy following the aggression against Ukraine by Russia” of 03/23/2022, (2022/C 131 I/01)
[2]Communication from the Commission “Amendment of the temporary crisis framework for state aid measures to support the economy following the aggression against Ukraine by Russia “, dated 07/20/2022 [C(2022) 5342 final]
[3]Communication from the Commission “Temporary crisis framework for state state aid measures to support the economy following the aggression against Ukraine by Russia” dated 10/28/2022 (2022/C 426/01)