At ARROWS, we are currently dealing with various situations of all our clients that relates to all areas of law.
In this article, we would like to highlight 10 areas you should focus on in order to protect your business from the adverse effects of the COVID-19 epidemic.
1. BE PROACTIVELY INFORMED
This principle applies in general to all other areas. Inform yourselves and be active. Passivity does not help you in this situation. If you are a statutory body, it is not only your natural interest but it is also part of your duty to act with due care. It is therefore also your personal responsibility.
A. Advise with an expert, ideally with a lawyer;
B. Set a clear strategy and follow it;
C. Be active in relations with government institutions, your contract partners and inside the company;
D. PREVENTION is always the most effective measure;
Members of the statutory body are obliged to act with due care of a proper manager - for example, such a care certainly includes to evaluate customer-supplier relationships and to establish an appropriate reaction.
Amendments to contracts, termination of contracts, to arrange collateral + ensure financing (banks vs. private equity - members or shareholders).
Prevention of bankruptcy, damages actions for breach of due care, liability for debts of a business corporation, etc.
2. ENSURE YOU HAVE ENOUGH CASH FLOW
It is important that your company has the necessary cash flow to prevent insolvency and therefore bankruptcy situations, which we are discussing in section 8 below.
A. Use all available options to secure your cash flow. This interest-free loan may cover up to 90% of the applicant's eligible expenditure;
B. If you have a capacity, do not hesitate to use the extraordinary COVID state loan as soon as possible; However, keep an eye on current events. Obviously, the amount of bank credit provided by Czech government will never be fully sufficient, as it is apparent at the date this article is written. The question is whether it will be increased;
C. Use private funding possibilities. We also recommend to proceed without undue delay.
3. AS AN EMPLOYER - ORDER A LEAVE TO YOUR EMPLOYEES IN TIME
One of the many recommendations of our specialist in labour law Mgr. Jakub Oliva is that:
A. If you already know the situation is going to complicate due to coronavirus very soon, order a leave to your employees as soon as possible;
B. Otherwise, you will have to pay your employees regular remuneration due to obstacles at work on your side which will be significantly more expensive than compensatory wage or salary for leave;
C. You will not act immorally but cautiously and in order to maintain your business;
D. If the situation improves, the leave can be cancelled;
E. ATTENTION: If you fulfil conditions for state aid in case of a forced 'closure', obstacles to work may be more beneficial for you;
4. BE CAUTIOUS AND ACTIVE IN CONTRACTUAL RELATIONSHIPS
Be cautious and active in contractual relationships.
A. Map your contractual relationships carefully and negotiate with contract partners;
B. Be very cautious when you enter into new contractual relationships;
C. Focus on liability for damages and contractual penalties;
D. Check the provision related to force majeure;
E. In case of any doubt, consider a new agreement or amendment to the contract;
Are you a supplier and you do not manage to perform your contractual obligations on time?
A. Announce delivery delays;
B. Report the existence of force majeure without delay;
C. Demand a conclusion of the amendment regulating the deadlines;
D. Gather evidences and prepare for future disputes;
E. Consider an application of the institute of change of circumstances;
5. MONITOR YOUR BUSINESS PARTNERS
It is necessary to monitor and resolve any financial or operational problems of your business partners in a timely manner.
A. Monitor the financial situation of your business partners;
B. Keep track of the Cadastre of Real Estate, the Central Register of Executions, Commercial or Insolvency Register;
C. Respond to warning signals immediately. Do not rely on promises;
D. Cooperate with a counsel actively;
6. SOLVE YOUR CLAIMS AND DEBTS WITH DUE CARE AND ACTIVELY
Especially in times of great uncertainty about the fate of some of your business partners, it is important to control your claims.
A. If possible, do not provide services or goods without an advance payment;
B. Try to secure your claims as soon as possible and as much as possible, for example in the form of surety, a pledge, a notarial deed with direct enforceability or other means;
C. Do not stay among unsatisfied creditors. Enforce your claims actively through your counsel without delay;
D. If possible, try to approach to set-off the claims;
E. Do not hesitate to apply for interim measures;
F. Assert your claims in court in time;
If you are in the position of the debtor
A. Act with creditors actively and try to resolve the situation by agreement;
B. Be cautious when you dispose with property; your conduct may be considered unlawful from a criminal perspective as well;
C. Beware of the so-called damage caused to a creditor and advantaging of a particular creditor.
Precaution when you conclude "advantageous" transactions, especially when you know that the debtor has more creditors and discharge his debts in your favour primarily. Keep in mind that once the insolvency proceedings have been initiated the insolvency trustee may contest a legal act favouring the creditor over other creditors (i.e. one creditor has been satisfied with his claim exclusively, the debtor has sold out his property at a bargain price, debts have been set-off and the debtor did not receive "real" consideration, etc.). In such cases, always insist on adequate security - it does not have to be real estate necessarily, but accounts, claims etc.
7. TRY TO TERMINATE PENDING DISPUTES BY AN AGREEMENT
A. Pending legal disputes mean time and financial burden for both parties.
B. Currently, there is a frequent adjournment of ordered court hearings.
C. Thus, the disputes will get even longer.
D. Try to propose a peaceful settlement of dispute.
E. A compromise can be a win for both sides.
The advisable legal institute to resolve a complex dispute is to conclude a settlement agreement in which both parties stipulate that the original claims are still contentious between them however both parties agreed to replace the contentious claims with a new ones. At the same time, both parties agree to take joint steps to terminate the pending court proceedings.
8. DO PREVENT AND FACE UP YOUR OWN INSOLVENCY
You can never exclude the possibility that your business will be in a state of impending insolvency or insolvency. Even two creditors can constitute a problem. It is important to know what insolvency is, how to prevent it and how to defend against it.
A. Keep an eye on the number of your creditors and the length of time your debts are overdue;
B. Inform yourselves about your company's assets and liabilities;
C. If you are in state of impending insolvency, you are obliged to convene the Company's General Meeting;
D. If you learn of your insolvency, you are legally obliged to file an insolvency petition;
E. If you are in the uncertain situation, always consult with a lawyer to prepare a strategy for insolvency proceedings;
Consider submitting an insolvency petition in conjunction with a moratorium proposal. The moratorium serves as a protective pillow of the debtor against his creditors. The moratorium can be declared for up to 3 months. Insolvency cannot be declared during the moratorium. The creditor's insolvency petition can also be “defended” by the moratorium. For the duration of the moratorium, you can consolidate your obligations and, thus, successfully prevent to initiate insolvency proceedings, and then continue with your business.
In emergency cases, consider to file an insolvency petition. The late or not filed insolvency petition is the responsibility of the statutory body, so to file the insolvency petition timely is able protect your personal property.
9. USE ALL TAX MEASURES SUPPORT
We recommend to use all tax measures support to protect your business. Which are they for example?
A. Remission of default interest and interest on the amount retained and the fine for failure to submit a control statement;
B. Deferment of payment of certain taxes and fees through a request to retain a payment, reductions or exception of the duty to pay taxes may be applied for, remission from sanctions may be applied for in the event of late payment or the time period for some tax return may be extended;
C. Reductions or exception from advance payments of income taxes may be requested;
In all abovementioned cases, it is necessary to actively submit a request to the Tax Administration, as soon as possible, and not to wait for the situation to "blow over". We always recommend to cooperate with your tax advisor!
10. IT IS NOT IMMORAL TO ASSERT A CLAIM FOR COMPENSATION FOR DAMAGES AGAINST THE STATE. BE READY IN TIME.
It is not immoral if you, as an entrepreneur, claim for compensation for the damage caused by the crisis measures taken in the fight against the COVID 19 epidemic. The state cannot exist without entrepreneurs and, therefore, it is better if it "compensate" entrepreneurs than to lose them. Therefore, the law provides for the right to compensation.
A. To assert claim successfully, it is necessary to fulfil legal requirements.
B. BE PREPARED IN TIME.
C. Be careful to document the entire situation, especially the evidence of the origin and amount of damage.
D. Advise with a lawyer and proceed necessary steps already now to be successful with your claim.
The Crisis Act makes it possible to claim damage suffered by the injured parties in connection with the adopted crisis measures. It is necessary to prove a causal link between the occurrence of the damage and the adopted crisis measure. This is a legally complicated area which has not yet been explored in detail which requires to take active and legally qualified steps.
The ARROWS team wishes everyone good luck, and especially good health.
ARROWS advisory group
partner and attorney
T: +420 702 090 747