Extraordinary circumstance COVID – 19

COVID-19: CURRENT ECONOMIC AND LEGAL IMPACTS

The extraordinary social and economic circumstances caused by the outbreak of COVID-19 have confronted the entire society and business sector with various challenges and complex problems. Due to the uniqueness of this new situation, a series of regulations and state measures have been passed, which require correct interpretation.
Our law firm actively monitors the current affairs in relation to the abovementioned issues.
Bellow you can find an overview of separate legal chapters in which we have shortly presented the consequences of the new situation in relation to the legal and economic framework of business operations.

  • COURT PROCEEDINGS
  • ENFORCEMENT PROCEEDINGS
  • MEASURES TO HELP THE ECONOMY
  • PUBLIC PROCUREMENT
  • LEGAL AND LABOUR RELATIONS
  • LEASE ARRANGEMENTS
  • ADDITIONAL INFORMATION

COURT PROCEEDINGS

After almost two months of extremely restricted and slow activity, at the end of April numerous courts passed decisions to prepare for the relaxation of measures and the holding of hearings under special conditions.
Courts will primarily hear urgent cases, those in which the proceedings have lasted for too long, as well as cases with a lower number of participants.
Court offices will continue to have limited working hours, without seeing parties, and all submissions will be delivered by mail or e-mail communication until further notice.

ENFORCEMENT PROCEEDINGS

The new situation has caused the suspension of enforcement proceedings during these extraordinary circumstances, with certain exceptions (proceedings for the collection of child support, unpaid salaries or severance pay etc.)
The duration of extraordinary circumstances has been determined for the period of three months, with the option of extension for another three months.
Although the Financial Agency (FINA) has suspended enforcement over monetary assets, it still receives new bases for payment and records them in payment orders for the acquisition of a payment priority rank. The same procedure is also applied by employers for the implementation of enforcement over employees’ salaries during extraordinary circumstances.
Limitation periods for the initiation of court, enforcement and other proceedings before competent authorities, as well as all time limits indicated by the competent authorities in the already initiated proceedings, have not been suspended, but are still running.
Enforcement proceedings are to be initiated prior to the expiry of the limitation period in order to ensure its interruption, and to prevent the loss of the right to claim the fulfilment of obligation.

MEASURES TO HELP THE ECONOMY

1) AID FOR PRESERVATION OF JOBS
Since March 2020, the measures of job preservation aid have been in force, which include financing of 100% of the minimum net salary for three months.

2) WRITE-OFF OF CERTAIN TAX LIABILITIES AND CONTRIBUTIONS
Entrepreneurs that generate a turnover of less than HRK 7.5 million per year (excluding VAT), and have recorded a certain income drop, are entitled to complete exemption of certain tax liabilities or deferral of tax liability payment during April, May and June 2020, while entrepreneurs that generate more than HRK 7.5 million per year (excluding VAT) are entitled to the write-off of their tax liabilities in proportion to the decrease in their revenue in April, May, and July.

3) POSTPONEMENT OF SUBMISSION DEADLINE FOR FINANCIAL STATEMENT
Among the measures from the April package is also the extension of the deadline for the submission of annual financial statements for 2019, under which the deadline for the submission has been extended until 30 June and businesses are exempt from paying a fee for the publication of financial statements to the Financial Agency.

4) COMMERCIAL BANKS ARE FREEZING LOAN PAYMENTS
Most commercial banks have introduced standstill measures, i.e. suspension of all compulsory collection against all debtors (legal entities and natural persons) for three or more months. Additionally, banks are issuing loans for liquidity and working capital with up to three-year maturity and are rescheduling existing loans.

5) MEASURES OF THE CROATIAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (HBOR)
HBOR has enabled entrepreneurs to introduce a moratorium on and reschedule their existing loan obligations towards HBOR, and has offered new liquidity loans in cooperation with commercial banks.

6) E-COURT REGISTER EXCERPT
As of April 2020, the official court register excerpt from commercial courts can be obtained via web page sudreg.pravosudje.hr.

7) EXEMPTION FROM THE PAYMENT OF LEASE AND MUNICIPAL CHARGES (THE CITY OF ZAGREB MEASURE)
The City of Zagreb has exempted entrepreneurs performing their activities in business premises owned by the city from paying lease for April, May and June 2020.
Entrepreneurs paying municipal charges for business premises and building land used for business activities have had the amount of municipal charges reduced by 30% for the period from April to June 2020.

PUBLIC PROCUREMENT

Since the use of funds provided for by the state budget of the Republic of Croatia has been restricted as of April 2020, under the decision of the Government all public calls, public procurement procedures and simple procurements have been suspended and new public calls, public procurement procedures and simple procurements will not be initiated, save for those essential for the execution of basic operations and functions of the contracting entity.
Public procurement procedures, as well as simple procurements, may be continued or initiated only:
• if the procurement is necessary for the implementation of measures to help the economy due to the COVID-19 epidemic;
• if the procurement is carried out to remedy the damage caused by the earthquake;
• if the procurement of materials, equipment etc. is necessary to combat the COVID-19 epidemic and
• if there is a justified and elaborated reason for it, in which case the approval of the Ministry of Finance must be obtained prior to adopting the decision on the selection for on-going procedures, i.e. prior to initiating a procurement procedure

LEGAL AND LABOUR RELATIONS

Although the new situation presents a great challenge for both employers and employees, there have been no amendments of labour regulations. The employer must take into account which decisions may be carried out unilaterally, and for which the consent of the parties is necessary, whereby he cannot disregard the role of the works council. i.e. of the union representative (if they operate with the employer).
It is important not to leave the full potential of labour law regulations unutilized, but for it to be thoroughly applied by the involved parties, not only during the COVID-19 outbreak, but also during the drafting of employment contracts and internal regulations, i.e. during the comprehensive regulation of employment relations, which is only possible if the legislation takes account of the reality and practical requirements of business operations.

LEASE ARRANGEMENTS

Contractual relationships in Croatian law is largely determined by the legal principle that agreements need to be adhered to (Latin pacta sunt servanda), i.e. that contractual parties are obliged to meet their contractual obligations.
The problem is that as of the conclusion of an agreement until its application, the legal and economic environment may drastically change due to extraordinary circumstances which could not have been foreseen at the time of the conclusion of the agreement, as is the case with this pandemic, and due to which the fulfilment of obligations has become overly hindering for one party or would incur extremely large damage to it. The law stipulates an option for the inflicted party to request for the agreement to be amended or even cancelled (Latin rebus sic stantibus).
The fulfilment of legally stipulated requirements is appraised on a case-by-case basis, taking into account the contractual obligations and particular circumstances of the lessee, since this provision could not be applied to lessees whose business had not been significantly affected by the extraordinary circumstances arising from this socio-economic crisis.
Apart from the aforementioned legal instrument, the lessee could also invoke force majeure, to try to exempt himself from the liability for the damage caused to the lessor by the non-payment of lease.
In any event, the specific contractual relationship and the situation of the parties need to be reviewed in order to establish their positions in the new situation and to find an appropriate solution.

ADDITIONAL INFORMATION

Hanžeković & Partners continuously monitors the decisions of the Government, along with the legislative amendments passed in order to mitigate the consequences of the COVID-19 epidemic. Despite the extraordinary circumstances our law firm is available to its clients during usual business hours, while strictly abiding by the recommendations of the National Civil Protection Headquarters and using online platforms to hold meetings.

We are at your disposal for all legal issues arising from the current socio-economic situation, as well as all legal issues in relation to the aforementioned, so feel free to contact us at: hanzekovic@hanzekovic.hr.

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