Corporate & Commercial

Katja Šumah Attorney-at-law Partner Telehpone:  +386 (0)1 252 80 00 E-mail:  katja.sumah@senica.si Foreign languages: German, English

Fields

Q&A

Payment deadlines

Q: An invoice for a service provided by a public company was issued with a payment deadline of 30 days from the date of issuing the invoice. Due to current exceptional circumstances, we are or will be in liquidity problems – is it possible to extend the payment deadline due to current exceptional circumstances?

A: The payment deadline between economic operators is set out in the contract, but it may not be longer than 60 days, or may be longer only exceptionally, if the length of the deadline is agreed in writing and such deadline does not constitute an unfair agreement.

Notwithstanding the foregoing, the intervention act provides that payment deadlines are 60 days when the creditor is a public authority (which includes majority state-owned legal entities) and the debtor is a company, sole proprietor or other person, who is entered in the Slovenian business register and performs a gainful activity, and at the same time the contract concerns such activity.

The 60-day payment deadline remains in effect for one year after the epidemic is over.

Public procurements

Q: Our company has entered into a contract with the municipality to supply roofing for the purpose of renovating one of the municipal facilities. Due to the epidemic, supply is delayed on our part as the roofing manufacturer in Italy shut down its production. Can we be concerned about the payment of the contractual penalty for the delay as set out in the contract?

A: In contracts for the supply of goods or provision of services or execution of works concluded between private-law entities and public-law entities that are users of the state public budget (state, municipalities, public agencies, funds, etc.) provisions on contractual penalties for delays do not apply during the duration of the epidemic and all contractually agreed deadlines are extended for the duration of the epidemic.

This does not apply where the procurement relates to the supply of goods constituting the protective equipment necessary to fight the epidemic.

Q: Does the local community need to engage the municipality to perform a public procurement for the supply of goods or services?

A: If the contracting authority is a constituent part of a municipality (local, village or district community), the public procurement contract may be concluded independently, since the intervention act stipulates that the provision regulating public procurement procedures for the needs of the constituent parts of the municipality does not apply until April 15, 2021. Also, the constituent part of the municipality is considered as an independent contracting authority for the purpose of calculating the estimated value of public contracts until April 15, 2021.

Q: A company involved in the supply of goods and services has received an order from a procurement contractor with a value of 38.000 EUR (VAT excluded). Are the provisions of the Public Procurement Act (ZJN-3) applicable to the conclusion of the contract and the potential supply in view of the value of the contract?

A: In the present case, the provisions of the Public Procurement Act do not apply, since the intervention act has intervened on the field of public procurements of goods and services and stipulated that until December 31, 2021, the Public Procurement Act in the general field would apply only to public procurement contracts, the assessed value of which excluding VAT is equal to or higher than 40.000 EUR for the public supply or service contract or project contest and 80.000 EUR for the public works contract (the general rule in Article 21 of the Public Procurement Law sets these thresholds at 20.000 EUR and 40.000 EUR respectively).

Enforcement procedures

Q: Prior to the adoption of the intervention act, our company received an enforcement order from another company as a creditor. We did not file an objection against the order and the order became enforceable on February 15, 2020, which is why our transaction account was blocked. Does the epidemic affect the enforcement procedure?

A: In enforcement proceedings under the Claim Enforcement and Security Act, the enforcement of such orders was postponed from the day the intervention act entered into force. The enforcement was thus halted by the bank and was continued after the end of the validity of the measures, i.e. on May 31, 2020.

The execution of enforcement orders has not been postponed if it is an execution for the purpose of a claim for legal maintenance and compensation for lost maintenance due to the death of the person who was providing it.

Q: Before the intervention measures were put into force, I received an enforcement order. Because of the epidemic, I applied for extraordinary assistance in the form of monthly basic income. Has the enforcement order also applied to the extraordinary assistance income?

A: All income paid under the intervention act (basic income, wage compensation for temporary waiting for work, etc.) were exempt from enforcement under the Claim Enforcement and Security Act and also from tax enforcement.

Insolvency proceedings

Q: A creditor has filed a proposal to start a bankruptcy procedure. The debtor has proposed to delay the decision on the initiation of the bankruptcy procedure. For how long was the decision regarding the creditor’s proposal delayed if the insolvency of the company is the result of the declaration of an epidemic?

A: The court may have postponed ruling on the creditor’s proposal for the start of the bankruptcy procedure for 4 months.

The measure was used in bankruptcy proceedings proposed by the creditor, which were filed by the creditor no later than two months after the termination of the measures, i.e. until July 31, 2020.

The insolvency of a company was deemed to be the result of the declaration of an epidemic if the company carried out an activity for which it has been declared with a governmental, ministerial or municipal regulation or act that the carrying out of the activity (services or sale of goods) is temporarily prohibited or substantially restricted due to the epidemic.

Q: In accordance with the report on financial restructuring measures, an increase of the share capital of the company with new cash contributions must be made within the company, therefore the management must publish a call for subscription and payment for shares on the basis of an increase of the share capital with contributions in three business days. Did the intervention act regulate this obligation differently?

A: If the company bodies were due to the objective consequences of the declaration of an epidemic unable to publish a call for subscription and payment for shares in a timely manner, they had do so at the latest within one month after the termination of the measures, i.e. until June 30, 2020.

Q: Did the intervention act amend the presumptions of insolvency of a company, sole proprietor or private individual in the applicable law?

A: The intervention act set forth that a legal person, sole proprietor or private person has become permanently illiquid also in the case that the payment of wages and social contributions to employees has been delayed by more than one month since the reimbursements of wages and social contributions under the intervention acts have been received.

The presumption of insolvency was applicable for four months after the termination of the measures, i.e. until September 30, 2020.

Q: Our company has become insolvent. As the company’s manager, I believed that the insolvency is temporary because it was caused by the consequences of the epidemic and that we will remedy it after the epidemic is cancelled. Was I obliged to file a proposal to start a compulsory settlement or a proposal to start the bankruptcy procedure of the company?

A: If the insolvency occurred as a result of the declaration of an epidemic, you were not obliged to file a proposal to start a compulsory settlement or a proposal to start the bankruptcy procedure of the company. The aforementioned was applicable for three months after the cessation of measures under the intervention act, i.e. until August 31, 2020.

The insolvency of a company was deemed to be the result of the declaration of an epidemic if the company carried out an activity for which it has been declared with a governmental, ministerial or municipal regulation or act that the carrying out of the activity (services or sale of goods) is temporarily prohibited or substantially restricted due to the epidemic.

Distribution of profits

Q: Despite the fact that we have benefited from the extraordinary assistance provided by the intervention act, can the management be paid a reward for business performance and can the generated profits be distributed among shareholders in the year 2020?

A: If you have exercised the right to reimbursement of wage compensation for employees on temporary waiting for work, the right to reimbursement of wage compensation for employees, who cannot perform work due to force majeure, an exemption from payment of social contributions or extraordinary assistance in the form of monthly basic income, it is necessary to return these received funds, together with statutory late interest, in case that you have in the year 2020 since the day of entry into force of the intervention act, distributed profits, paid out parts of salaries for business performance or paid out rewards to the management.

State guarantee for credit obligations

Q: On March 20, my company entered into a loan agreement with a bank to finance the manufacturing process. Does my company employing less than 10 workers qualify as a borrower able to obtain a guarantee of the Republic of Slovenia for a credit obligation?

A: Any legal or natural person pursuing an activity (including sole proprietors and private persons engaged in performing business activities) and classified as a micro, small, medium or large company with its registered office in the Republic of Slovenia is considered as a eligible borrower.

 

The guarantee of the Republic of Slovenia can be obtained for credit agreements concluded after March 12, 2020 and no later than December 31, 2020 with a loan maturity not exceeding five years and intended solely to finance the borrower’s primary business activity, either financing new ones or completing already performed investments (investments), financing of working capital or financing the repayment of obligations arising from credit agreements concluded in the period from March 12, 2020 until the law enters into force if they meet the conditions under the ZDLGPE law. The loan should not be intended for financing affiliated companies or companies domiciled abroad.

Q: Does the guarantee obtained mean that we will not have to repay the loan?

A: No. A guarantee obtained allows you to obtain credit on more favorable terms or to obtain a loan that you would not otherwise be able to obtain.

Q: Are there any additional conditions for obtaining a state guarantee?

A: The law sets certain limits, namely that the maximum allowed total amount of the principal amount of a loan of an individual borrower responsible for the fulfilment of which the Republic of Slovenia is responsible can be up to 10% of sales revenue in 2019 and may not exceed the amount of labor costs for 2019.

 

In the event that the borrower is granted a deferred payment of obligations for newly concluded credit agreements in accordance with the law governing the emergency measure of deferred payment of borrowers (ZIUOPOK), the amount of his deferred payments shall be included in the maximum allowed total amount of obligations of an individual borrower.

Q: As of January 31, 2020, my company has negative equity. Do we still qualify for a state guarantee for a company credit obligation?

A: The Republic of Slovenia accepts the guarantee only if the borrower was not considered as a firm in difficulty on 31 December 2019 and that after 31 December 2019 the borrower is faced with liquidity problems for business reasons related to the consequences of COVID-19 in the Republic of Slovenia. Likewise, a borrower must not be considered a defaulter on March 12, 2020, and a borrower must not have significant delays in settling its obligations to the bank as of March 12, 2020.

 

The lender must also not do business or be registered in a country from the European Union’s list of jurisdictions that are not willing to participate for tax purposes (e.g. Cayman Islands, Fiji, Panama) and also must not have an owner from such country and as of the date of submission of the application must have settled outstanding obligations arising from compulsory contributions, taxes and other charges and must also be included in the system of compulsory multilateral offsetting.

 

In the above case, despite the negative capital, an entity may apply for a guarantee for its credit obligation if it also fulfils the other legal requirements.

Q: What does the company have to submit together with the application?

A: In applying for credit, the borrower must provide the bank with the most recent financial statements and a description of its business position due to the consequences of COVID-19, together with an indication of the total proceeds of the borrower’s sales in 2019 and the amount of labor costs for 2019. The Borrower must determine the amount, maturity and purpose of the credit required. The lender must also provide a statement that the loan will be used to fund the core business.

 

In the event that the borrower also has a loan that is subject to a deferral under the law governing the emergency measure of deferring the payment of the borrower’s obligations, the borrower must also provide information on the amount of the borrower’s obligations under this loan.

Q: Does the state guarantee obligation apply to the full amount of the principal amount of the loan?

A: No. The amount of the guarantee for an individual loan is 70% of the loan principal given to a company classified as large, or 80% of the loan principal given to a company classified as micro, small or medium-sized enterprises.

 

In the case of the gradual repayment of the borrower’s obligations, for which the Republic of Slovenia has assumed a guarantee obligation, the liability of the RS as a guarantor shall also be reduced proportionally.

Q: Is obtaining a state guarantee free of charge?

A: No. An annual premium is calculated on the basis of the guarantee obtained. One basis point equals 0.0001 of the amount of the outstanding principal amount of the loan at the relevant time.

 

If the borrower is classified as micro, small and medium-sized enterprises, the annual premium for the first year is 25 basis points; 50 basis points for the second and third years and 100 basis points for the fourth and fifth years.

 

If the borrower qualifies as a large company, the annual premium for the first year is 50 basis points; 100 basis points for the second and third year; 200 basis points for the fourth and fifth years.

Q: Does the borrower have any restrictions on the payment of profits during the state guarantee?

A: For a borrower who has been granted a loan by a bank that receives measures under the ZDLPE law, the following prohibitions apply from the time the loan application is submitted to the expiration of the bank’s right to exercise the right to a guarantee:

– prohibition of payment of profits,

– prohibition of payment of business performance awards to members of management,

– the prohibition on the purchase of own shares or shares, and

– prohibition of payment of other financial liabilities to parent or affiliated companies or owners.

Screening of foreign direct investments

Q: A foreign investor wants to make an investment in our company, whereby it would gain a 10% share in the capital of our company. Does the intervention act provide for any restrictions to carry out the investment?

A: The Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the COVID-19 Epidemic has introduced the measure of review of foreign direct investments, which introduces the obligation to notify foreign direct investments to the ministry responsible for the economy for investments in certain critical areas.

A foreign direct investment means an investment made by a foreign investor (including EU investors) and the purpose of which is to establish or maintain permanent and direct links between a foreign investor and an economic operator established in the Republic of Slovenia, by acquiring at least 10% equity or voting rights.

The Ministry decides whether a foreign direct investment is approved, determines the conditions for its implementation, prohibits it or cancels it if it poses a threat to security or public order of the Republic of Slovenia. A foreign direct investment poses a threat to the security and public order of the Republic of Slovenia, especially in cases where it affects (risk factors):

– critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure or land and real estate located near such infrastructure;
– critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies and healthcare, medical and pharmaceutical technologies;
– supply of critical inputs, including energy or raw materials, food security, medical and protective equipment;
– access to sensitive information, including personal data, or the ability to control such information;
– the freedom and pluralism of the media;
– projects and programmes of European Union interest, as defined in Annex I of Regulation/2019/452/EU.

A foreign direct investment in the field of the above activities must be notified by the foreign investor or target company or the acquired company to the Ministry no later than in 15 days after the conclusion of the merger agreement or the publication of the takeover bid or no later than in 15 days after the establishment of the company in Slovenia.

The foreign direct investment screening measure will be in force until June 30, 2023.

Legal consequences for rent agreements

Q: As a tenant I am a party of a lease agreement based on which I am conducting my only business activity in the leased business premises. Due to the COVID-19 epidemic I am unable to conduct my business, therefore, I am not generating any revenue. The landlord did not agree to exempt me from paying the rent, nor did he agree to lower the rent. Am I still obligated to pay the rent, although I am not using the business premises?

A: In principle the answer to your question is yes, unless the lease agreement explicitly regulates such a situation differently.

If the lease agreement regulates a situation in which due to force majeure, state measures, epidemics, etc. the tenant is unable to use the space, the terms of the lease agreement are primarily applicable. Otherwise, the applicable legislation governing lease relationships, as well as case law, must be considered. The Business Buildings and Business Premises Act (ZPSPP) and the Obligations Code (OZ) do not explicitly stipulate the legal consequences for cases where the lessee cannot carry out business activities in the leased premises without his fault (as well as without the fault of the lessor). Thus, in our opinion, the legislation does not provide a direct basis for non-payment of rent. Generally, none of the statutory provisions that would justify a lessee’s claim for a reduction in rent would be applicable in our opinion as well. OZ namely foresees a reduction in rent only for the following cases, i.e. if the object of the lease is partially destroyed or damaged, if the lessee’s right to lease the property is restricted due to a right of a third party, if the object of the lease is defective at delivery or if a defect occurs during the lease term, etc.

Notwithstanding the above, it is of course necessary to take into account all circumstances of each individual case, as situations may vary significantly and legal assessment of the case could, due to materially different facts of the case, also be different.

Despite of this, tenants of office buildings and business premises, that are owned by the Republic of Slovenia or self-governing local communities, whose business activity is prevented or significantly impeded due to government measures or due to the spread of the disease, were exempt from paying rent or part thereof in the period of the declared epidemic of COVID-19 in the territory of the Republic of Slovenia, i.e. from March 13, 2020 until the cancellation of the declaration of the epidemic, i.e. until May 31, 2020. Entitled persons had to submit an application for approval of non-charging of rent or part of rent by August 31, 2020. Although the Government of the Republic of Slovenia adopted the Decree on declaring the epidemic of the infectious disease COVID-19 on the territory of the entire country on October 18, 2020, once again declaring an epidemic of COVID-19 on the territory of the Republic of Slovenia, no legal basis has yet been adopted to enable rent exemption or partial rent exemption to mitigate the effects of the COVID-19 epidemic also in the second wave of the declared COVID-19 epidemic.

Q: As a tenant I am a party of lease agreement based on which I am conducting my only business activity in the leased business premises. Due to the COVID-19 epidemic I am unable to conduct my business, therefore, I am not generating any revenue. The landlord did not agree to exempt me from paying the rent, nor did he agree to lower the rent. As I am not using the business premises, am I still obligated to pay the rent? Can I request that the lease agreement is terminated?

A: In principle the answer to this question is yes, however for a definite answer the provisions of the lease agreement and all of the circumstances of the particular case need to be considered.

The lease agreement usually stipulates in which cases the lease relationship may be terminated at the will of the lessee. The Business Buildings and Business Premises Act (ZPSPP) must also be taken into consideration, as it contains a number of obligatory provisions regarding the leasing of business premises and termination of the lease relationship between the parties. In view of the obligatory provisions of the ZPSPP, it is also important whether the lessee has concluded a lease agreement for a fixed or for an indefinite period, since the ZPSPP regulates the respective types of contracts differently.

As ZPSPP stipulates that a lease agreement which is concluded for an indefinite period must be judicially terminated with a one-year notice period and that a lease agreement which is concluded for a fixed term generally cannot be terminated before the expiration of the term for which it is concluded, it is from the lessee’s point of view due to the consequences of the declared epidemic all the more important that the Obligations Code (OZ) regulates the legal construct of changed circumstances.

This legal construct allows that in case if after the conclusion of a contract circumstances arise that render the performance of obligations by one party more difficult or owing to which the purpose of the contract cannot be achieved and in both cases to such an extent that the contract clearly no longer complies with the expectations of the contracting parties and in the general opinion it would be unjust to retain it in force as it is, the party whose obligations have been rendered more difficult to perform or the party that owing to the changed circumstances cannot realise the purpose of the contract may request the rescission of the contract.

However, the lessee can only invoke the legal construct of changed circumstances if he at the conclusion of the lease agreement could not have foreseen or taken into account the occurrence of the current circumstances or could not have avoided them or could not have prevented the consequences thereof.

The key question that the court will have to answer in such disputes is therefore whether the occurrence of an epidemic and the inability to conduct business activity are risks that the lessee would have to take foresee and take into account when concluding the lease agreement. It is equally as important whether the lessee during the epidemic did everything to avoid or mitigate as much as possible its negative consequences.

Legal effects on contractual obligations

Q: Due to the outbreak of the COVID-19 epidemic and preventive measures established by the Slovenian government our company can no longer provide certain services as agreed upon with our business partner. Can we claim that this epidemic represents a circumstance which justifies rescission of the contract?

A: The COVID-19 epidemic will undoubtedly raise questions for a lot of companies whether the provisions of the Obligations Code regulating change of circumstances and (Article 112), force majeure (Article 116) and uncertainty of performance (Article 102) could be relied on in cases where the fulfilment of contractual obligations will become difficult, uncertain, delayed or altogether impossible or prevented due to the COVID-19 epidemic and the strict measures adopted in its response.

Although the Obligations Code represents the general law applicable to all contracts it needs to be considered that the Obligations Code in line with the principle of contractual freedom gives a lot of options to the contracting parties to regulate their contractual relationship as they wish. This means that although the COVID-19 epidemic might represent a circumstance which could justify rescission of a contract or its amendment, deferment of performance, an objection of threatened performance or expiry of obligations, the exact terms of each particular contract need to be examined thoroughly before any conclusion on the fulfilment of conditions for these possibilities on the basis of general principles of the law of obligations can be made.

Deferral of loan payments

Q: My business is paying off a loan, which was used to for the purchase of one of our machines. Can we apply for a deferral of loan payments?

A: In the area of loans, the Intervention Measure of Deferral of Borrower’s Obligations Act orders banks to grant deferrals of payments (repayments of principal, interest, default interest, costs, etc.) from credit agreements for 12 months to all borrowers who apply for a deferral and fulfil certain conditions. This Act is applicable for all banks with registered seat or with branch office in Slovenia as well as for all foreign banks which perform bank services in the territory of Slovenia directly.

 

An application for deferral of loan payments will have to be submitted to the bank no later than six months after the end of the epidemic.