Category: Czech Republic

Since this spring, the Czech Republic has been struggling with the coronavirus SARS CoV-2. The response to the pandemic in the field of labour law was the creation of the so-called Antivirus programme, which aimed to mitigate the economic impact of the pandemic by providing a state-backed financial contribution to salary costs. This should prevent mass redundancies and keep unemployment levels under control. Schemes A to C of the Antivirus programme were created on an ad hoc basis as an immediate response to the negative effects of the pandemic.

What is kurzarbeit?

Simultaneously with the launch of the Antivirus programme, the so-called kurzarbeit (short-time work) system began to be discussed. Kurzarbeit is a systemic legal regulation designed to enable the state to provide financial support to the private sector in any serious situation; the aim is to compensate for wage costs (or their parts), prevent collective redundancies of employees and thereby reduce the negative effects of the emergency on the economy. The current Employment Act already contains some regulation of this institute; however, due to the wording of the provision, it is virtually unusable in practice. This should be resolved by a newly prepared amendment, which will adjust kurzarbeit comprehensively. Thus, unlike the Antivirus programme, kurzarbeit is intended to function as a general solution for several emergencies and not as a one-off programme to help respond to the current pandemic. In principle, however, the two institutes are similar, and operation of kurzarbeit is in some respects the same as running the Antivirus schemes.

Legislative process

The kurzarbeit amendment will be included in the Employment Act as a so called partial unemployment benefit. The relevant amendment was submitted by the government in September this year. As originally intended, the amendment was to be effective as early as November, therefore following up seamlessly on the Antivirus programme. However, as the law could not be discussed in a state of legislative emergency, this deadline is already completely unrealistic. The amendment is currently in the second reading in the Chamber of Deputies of the Czech Republic and almost 40 amendatory proposals have already been submitted to it. Due to the delay in the passing of this amendment, it has already been decided to extend further support under the Antivirus programme (Scheme A has already been extended until the end of this year).

Basic parameters

According to the government’s proposal, the kurzarbeit should be applied as follows:

• the government will decide on the use of the kurzarbeit and its provision, including specific conditions to be set out in a government regulation;

• it will be possible to provide support if the state’s economy is seriously threatened due to a natural disaster, epidemic, cyberattack or other emergency – the list is very broad and the government is given considerable discretion in using this tool;

• the aid may be granted for a maximum of 12 months (within a 24-month period);

• the aid is intended only for employees with a contract of indefinite duration after the expiry of three months of employment (i.e. typically after the end of the probationary period);

• the amount of support is 70 % of the average hourly net earnings but not more than one times the average wage in the national economy for the 1^st to the 3^rd quarter;

• the employer is obliged to inform the employee in writing that there has been an obstacle to work on the part of the employer;

• support may be limited to a part of the territory of the Czech Republic or to a particular sector of the economy;

• the support can be used only for obstacles to work specified in Sections 207 to 209 of the Labour Code, if the scope of the assigned work is in the range of 20 – 80 %;

• the support is provided by the employment office based on an electronic submission by the employer.

The proposal also stipulates that in some cases no financial support is provided; employees working under a working time account scheme, or if sickness or maternity allowance has been provided, should be excluded.

The employer is obliged to provide related documents for the request for the support. It cannot be overlooked that the employer is obliged, among other things, to provide an oath declaration that it will not pay extraordinary profit shares to shareholders or distribute its equity in any way or provide shareholders with any other extraordinary performance, including early repayment of loans. I consider this provision to be quite problematic. On the one hand, it may lead to a situation where the company may not pay the share on profit to the shareholder who personally participates on the business activity of the company and who has no other contract with the company (i.e. no employment or other contract) and whose only income is represented by such share on profit; such shareholder will therefore remain completely without resources (typically this problem will concern smaller companies and start-ups). At the same time, this provision can be seen as a punishment for the success of previous years, when, for various reasons, equity may have accumulated, for example for a planned investment, which cannot be implemented precisely because of the extraordinary event triggering the kurzarbeit.

Current status

As mentioned above, the kurzarbeit, which would reasonably set the conditions for state support for business in relation to labour costs and employment, has not yet been amended. However, its intention is clear and meaningful: to support the private sector and to actively contribute to job retention. Given the state of the legislative process and the high number of amendments, it is clear that the discussion on this institute will take place over a longer period and the planned effectiveness on 1 November 2020 is not achievable. After all, the Antivirus A programme has already been extended until the end of this year. We eagerly await further developments and hope that the final scheme will provide sensible and effective assistance to businesses and their employees in this difficult time.

By Helena Hangler, Attorney at Law, Schoenherr

The Czech office of Kinstellar has advised Kemp Technologies on its acquisition of Czech Republic-based Flowmon from unspecified sellers. Forlex advised the sellers.

Kem Technologies is owned by Mill Point Capital, and Kinstellar reports that the sellers included “universities, individuals, and private investors.” According to the firm, “the acquisition brings together application delivery and security services with deep network visibility and automated security incident response. Flowmon’s machine learning-driven behavior analysis and anomaly detection provide the necessary early detection of the most subtle exploits by malicious actors before they have a negative impact.”

Kinstellar’s team was led by Partner Jan Juroska and included Counsel Zdenek Kucera, Senior Associate Martina Mazurkova, and Junior Associates Matej Vecera, Sabina Skoumalova, Stepanka Havlikova, and Igor Sebo.

Forlex’s team was lead by Partner Ivan Barabas and included Senior Associates Dominik Solc and Lukas Marek.

Former Kocian Solc Balastik Counsel Rainer Frank has joined Dentons to lead the Czech-German collaboration group in the firm’s office in Prague.

According to Dentons, Frank, who joins as a partner, “brings more than 25 years of experience in Restructuring, Banking and Finance, and Real Estate law. He advises German-speaking clients, as well as domestic subsidiaries of German or Austrian-based groups, operating primarily in the financial sector. In this new role, he will strengthen the firm’s offering to German-speaking clients operating in the Czech Republic, in close cooperation with Dentons’ offices in Berlin, Frankfurt, Munich, and Dusseldorf.”

Frank is a law graduate from the University of Tuebingen. Prior to joining Dentons, he spent four years with White & Case, a year with Wolf Theiss, and almost four years with Kocian Solc Balastik.

“Dentons’ Restructuring, Insolvency, and Bankruptcy and Real Estate practices are ranked among the very top in the Czech market, so I am excited to be joining such a great team,” said Frank. “With a strong presence in both CEE and Germany and unmatched global coverage, Dentons will provide an ideal environment to serve the complex needs of my German-speaking client base.”

“Germany and Austria are among the most important foreign investors in the Czech Republic, so enhancing our offering to German-speaking clients is an important step forward in our strategy,” said Michal Hink, Dentons’ Czech Republic Managing Partner. “Rainer has a proven track record working with leading German and Austrian companies on the Czech market. This, combined with his broad legal experience in restructuring, banking, and real estate, will make him a strong addition to our team.”

The Czech office of Schoenherr has advised the Auto Palace Group, a Czech subsidiary of the Dutch AutoBinck Group, on the acquisition of car dealerships in Prague and Karlovy Vary from CarPoint Karlovy Vary s.r.o., which was advised by Baroch Sobota.

According to Schoenherr, “with this expansion, Auto Palace acquires two more dealerships with an investment value of almost EUR 6 million, and will expand its offer with five new brands, namely Audi, Volkswagen, Volkswagen Commercial Vehicles, SEAT, and Cupra.”

CarPoint Karlovy Vary s.r.o. has been an authorized dealer of the Audi, Volkswagen, and Volkswagen Commercial Vehicles brands since 2003, and it services all Skoda Group brands.

Schoenherr’s team was led by Partner Vladimir Cizek and Attorney Ondrej Havlicek and included Attorney Jiri Marek and Associate Jachym Bem.

Baroch Sobota’s team included Partner Oldrich Baroch and Attorneys Marketa Srbova and Pavel Pejchal.

Kinstellar’s Prague office has advised Veolia on its acquisition of Prazska Teplarenska from EP Energy, a subsidiary of the EPH Group.

Financial details of the transaction were not disclosed.

Veolia is a French provider of water and waste management and energy services.

EPH Group is a Prague-based investor in efficient cogeneration, power generation, natural gas transmission, gas storage, and gas and electricity distribution and supply sectors across Europe.  

Prazska Teplarenska supplies heat to more than 230,000 households, offices, industrial enterprises, schools, and healthcare facilities in Prague.

Kinstellar’s team was led by Partner Kamil Blazek, Counsel Jan Lehky, Managing Associate Michal Forytek, and Senior Associate Adam Nemec.

The political landscape in the Czech Republic might soon see a change, Schoenherr Partner Vladimir Cizek says, as “the recent regional elections shook the position of the leading party.” Still, he doesn’t expect it to have much impact on foreign investment. He notes that previous political changes have not dissuaded investors from coming to the country, and their stream has been constant for decades.

“The regional elections are usually the test before the parliamentary ones,” says Cizek of the recent elections, in which the opposition parties won almost double the seats of the ruling coalition. 

The Czech parliament is expected to vote soon on another set of Covid-related support measures, Cizek says. In addition, he says, important amendments to the Business Corporations Act passed in February of this year are expected to enter into force on January 1, 2021, “and will bring many changes in terms of the general corporate matters and the provision of financing, among other things.” 

“We are also eagerly expecting the introduction of a new FDI regulation in the Czech Republic,” Cizek says, referring to the Bill on Screening of Foreign Direct Investments. The bill, which is expected to enter into force by the end of 2020, will enable the Czech Ministry of Industry and Trade to screen investments made by entities registered outside of the EU. Under the bill, investments made in the country’s critical sectors, such as energy, health care, or defense from foreign investors would require approval from the ministry in a screening procedure.

According to Cizek, the amendments to the Business Corporations Act have been welcomed by the business sector, which has been “riddled with hesitation” as of late. According to him, “some large deals were put on hold and there have been a number of postponements.” Of course, like elsewhere, the IT industry is thriving, and Cizek points to the recent sale of Socialbakers to Astute, as well as the acquisition of Integromat by Celonis (as reported by CEE Legal Matters on October 20, 2020) as significant recent examples.

PRK Partners has advised Euroserum on the sale of its international operations to the Czech Republic-based Eligo. Kocian Solc Balastik reportedly advised Eligo.

Euroserum, which is fully-owned by French dairy cooperative Sodiaal, is specialized in whey and milk drying and processing with applications in infant formula and food processing. The company operates nine facilities in France and, until August 2020, one in the Czech Republic. According to PRK Partners, Euroserum has decided to sell that latter facility “to simplify its industrial footprint and to focus on high value-added nutritional ingredients.” 

Eligo also engages in the drying & processing of dairy products.

The PRK Partners team included Partner Veit Francois and Senior Counsel Marta Donizeau.

Clifford Chance’s Prague office has advised sole lead manager J&T Banka and arranger J&T IB Capital Markets on Energo-Pro Green Finance’s issuance of bonds valued at CZK 530 million.

The bonds are secured by a guarantee provided by DK Holding Investments. They were admitted to trading on Prague Stock Exchange on October 30, 2020, and they will have an interest rate of 6.5% with the possibility of an increase in value up to CZK 1.06 billion.

Energo-Pro Green Finance, a member of the The Energo-Pro Green Group, focuses on distribution, supply, and generation of energy from renewable resources, in particular hydropower energy. The group operates nearly 40 hydropower plants in Central and Eastern Europe, the Caucasus, and the Black Sea Region.

The Clifford Chance team consisted of Partner Milos Felgr, Senior Associate Vladimir Rylich, Associate Pavel Bogusky, and Junior Lawyer Katerina Slapakova.

KSB has successfully represented Czech railway carrier Leo Express in a complaint filed against competitor Ceske Drahy before the European Commision.

Based on a complaint prepared by the KSB team, the European Commission began inspecting the Czech railway market as early as 2016 after carrying out inspections at the premises of Ceske Drahy. On October 30, 2020, the Commission concluded in its Statement of Objections that Ceske Drahy abused its dominant position by below-cost pricing in the period between 2011 and 2019. The aim of this anticompetitive conduct was to harm its competitors, including Leo Express.

The Statement of Objections is a procedural step that precedes the final decision of the European Commission.

European Commissioner Margrethe Vestager said, “Competition in the rail passenger transport sector can drive prices down and service quality up to the benefit of consumers. It benefits the environment too as travelers shift to rail in line with the Green Deal objectives. In the present case, we have concerns that Ceske Drahy was involved in predatory pricing which is against the EU competition rules.”

KSB’s team consisted of Partners Pavel Dejl and Sylvie Sobolova and Lawyers Martin Vrab and Hana Dejlova.

KSB has been representing Leo Express in its claims against Cesky Drahy for many years, including a 2014 unfair competition claim lodged against it in the Czech courts (as reported by CEE Legal Matters on July 9, 2014).

Kinstellar has helped Nexen Tire Europe lease a 12,000-square-meter warehouse in CTPark Zatec, about 80 kilometers northwest of Prague, from CTP Bohemia North.

Financial details of the transaction were not disclosed.

According to Kinstellar, the warehouse, which is located in the Triangle Strategic Industrial Zone, will be used by Nexen Tire Europe, “as a central distribution warehouse … to supply tires for passenger cars and commercial vehicles across the European market.” The company already owns a production plant near the new warehouse.

Kinstellar’s team was led by Counsel Jan Lehky.