Category: Slovakia

Slovakia’s biggest challenges, in light of the ongoing war in the neighboring country, are dealing with sanctions and seeking alternative sources of supplies for its automotive industry, and implementing renewable energy projects, according to Eversheds Sutherland Managing Partner Bernhard Hager.

“The recent war has created different challenges for Slovakia,” Hager explains. “First of all, we are dealing with the sanctions-related implications. In addition, the country recently adopted new labor regulations, authorizing refugees to work here. Both the state and companies are trying to adapt to the new reality.”

According to Hager, a recent major change is related to renewable energy. “Slovakia recently amended the law, which might lead to renewable energy projects being finished in seven to eight years,” he says. “The law lifted the limitation on the size of projects, creating a new wave of renewable energy. We already had a proposal, before the war, as we witnessed increased electricity prices all over Europe, which led to the canceling of many contracts. However, the recent developments accelerated the process.”

“Another recurring issue is companies’ inability to undertake contractual obligations under the agreed price,” Hager points out. “The increase in prices, for instance due to suppliers’ inability or unwillingness to deliver products at the agreed price, leads to disputes. Companies frequently opt to declare bankruptcy or pay the penalty, rather than comply with the terms of the original contracts. As a result, we see many cases of contracts being renegotiated or tenders being reopened by public bodies.”

“This affects real estate as well,” he adds. “Construction companies are frequently not able to finish the construction of a property and, as a result, that affects developers, who have already sold the house.”

Hager says that the automotive sector is also suffering, due to recent developments. “Slovakia remains a champion in the automotive sector per capita,” he points out. “While the automotive industry is still operating as usual, the recent sanctions have raised the question of whether this will be sustainable. The automotive industry traditionally purchased raw materials like steel and metals from Russia. Starting from June, buying steel from Russia is prohibited, which means we’ll have to find an alternative market. Adapting to this might be a challenge considering the fact that, in the past, we have always depended on Russia.”

“Another major topic of discussion is the Recovery and Resilience Facility,” he adds. “These projects are now starting, and public bodies and companies are seeking assistance for getting state aid.”

Overall, Hager highlights that, at the moment, M&A remains busy. “There are a number of M&A projects in the pipeline, as clients are still interested in investing here. However, it seems that global investors are looking for a safer market in Europe. We suspect that interest in the Slovakian market will decrease with time if the war is not resolved soon,” he concludes.

Kinstellar has advised CPM International Telebusiness on the establishment of its new service center in Slovakia.

CPM Group company CPM International is a member of the Omnicom Group network of companies, with a number of EMEA hubs, including Barcelona and Bratislava, and contact centers in the UK. The company provides omnichannel customer experience and sales solutions.

“The newly built hub will employ several hundred contact center specialists,” Kinstellar informed. According to the firm, the new service center was launched in January 2022.

The Kinstellar team was led by Partner Adam Hodon and included Associates Michaela Strakova and Matus Kocisek.

Recently, the European Parliament and Council adopted Directive (EU) no. 2021/2167 on credit servicers and credit purchasers relating to transfer and servicing of the non-performing loans (NPLs) issued by the banks.

Short summary

In a nutshell, this new regulation, added to the whole spectrum of other areas of the financial sector regulated by the EU, aims to address the issue of rising number of NPLs by:

• Setting out licensing requirements for the entities servicing the non-performing loans, so called credit servicers,
• Enabling cross-border provision of such credit services in the EU,
• Introducing various obligations for banks (credit institutions) and the purchasers of the loans (credit purchasers) e.g. with respect to the transfer of NPLs

By regulating the outsourcing of the servicing of NPLs and their transfer, the EU aims to enable banks to better deal with NPLs. NPL portfolios currently represent substantial amounts in the banks’ balance sheets. The present EU-wide harmonization of the regulatory framework aims to support the further development of the secondary markets for NPLs. 

Regulated entities

Primarily regulated entities will be:

• Credit purchasers: entities other than banks, that purchase NPLs from the banks or from other credit purchasers.
• Credit servicers: legal entities managing and enforcing NPLs and carrying out credit servicing activities. Credit servicing activities include: (a) collecting or recovering payments, (b) renegotiating the credit agreement with the borrower, (c) administering any complaints relating thereto, (d) informing the borrower of any changes in interest rates and other payments due.
• Credit service providers: a third party used by a credit servicer to perform the credit servicing activities.

The Directive applies to loans, issued by credit institutions (banks), which are classified as non-performing within the meaning of CRR. These include, among others, loans where the bank considers that the obligor is unlikely to pay or is in default with its obligations for more than 90 days or loans, where the exposure is considered impaired.

Authorization of credit servicers

Under the Directive, credit servicers will need to obtain a new authorisation/license in order to conduct credit servicing activity. The requirements, licensing and withdrawal procedures are detailed in the Directive. The authorization will thus be harmonized within the EU. Cross-border passporting of the license from the home member state to the host member state will be possible, as is the case of number of other financial services provided within the EU.

The competent authorities within the member states will be obliged to establish a publicly accessible list or national register of licensed credit servicers, including those providing cross-border services.

In this respect it is important to note that certain entities, which carry out credit service activities, will be exempt from the licensing requirements. These include banks, supervised non-credit institutions, AIFMs, management companies and, with some exceptions, investment companies under the UCITS Directive.

It is also interesting to mention that the Directive does not require any specific licence for the activities of the credit service provider to whom the credit servicer may outsource some of the credit servicing activities.

Conduct of business rules

The Directive sets out the fundamental rules for how credit purchasers and credit servicers conduct their relationships with borrowers. It requires them to:

• Act in good faith, fairly and professionally;
• Provide information that is not misleading, unclear or false;
• Respect and protect their personal information and privacy;
• Communicate in a way that does not constitute harassment, coercion or undue influence.

Market players should take into consideration that the Directive sets out minimum content requirements for the credit servicing agreement that governs the contractual relationship between the credit purchaser and credit servicer. The  existing agreements will need to be amended to comply with the new set of requirements.

Subject to notification of the credit purchaser, a credit servicer may outsource certain activities to a credit service provider. In such a case, the credit servicer remains fully responsible for complying with all obligations. The Directive further details the conditions for such outsourcing. 

Transfer of the NPLs

Prior to entering into a transfer agreement relating to NPLs, banks will have to provide to a prospective credit purchaser with all necessary information regarding a creditor’s rights and applicable collateral, while ensuring the protection of information and confidentiality. This is to enable the potential purchaser to conduct its assessment of the value of the transferred assets and the likelihood of recovery.

Further, banks as well as credit purchasers transferring the NPLs will be required to report regularly (bi-annually or quarterly) to the competent authorities on the details of the transfers.  The reports should include information on the identity of the (new) credit purchasers, balance of NPLs transferred, security provided, and whether the transfers include the NPLs concluded with consumers. 

After any transfer of NPLs, the credit purchaser or the entity appointed to perform credit servicing activities must inform the borrower about the transfer, and provide necessary information relating thereto. 

Credit purchasers’ obligations

To ensure that borrowers’ rights are preserved with respect to NPLs, credit purchasers, based outside the EU, must designate an EU-based representative who shall be fully responsible for complying with the obligations imposed on the credit purchaser. 

Credit purchasers based in the EU will be obliged to appoint a bank, non-credit institution or a credit servicer to perform the credit servicing activities in relation to NPLs concluded with the consumers. Credit purchasers based outside the EU, or their EU representative, shall appoint an entity performing credit servicing activities (unless these are done by the representative itself) in relation to any NPLs concluded with natural persons and SMEs. 

Transposition and key takeaways

The Directive must be implemented into national laws by December 29, 2023. As usual, it gives the member states some leeway in certain areas. After the implementing laws are adopted in the member states, the relevant market players (banks, credit purchasers, credit suppliers) will have to adopt their business to the new rules, including:

• Obtaining the license for credit servicers, and passporting the license (if necessary)
• Incorporating changes to business of the credit servicers, such as conduct of business, credit service and outsourcing agreements,

Complying with new notification and reporting obligations for the banks and credit purchasers.

By Miroslav Kapinaj, Counsel, Dentons

As Ukraine’s neighboring country, the war has added extra complexity to Slovakia’s existing economic challenges, according to Dentons Partner Patricia Gossanyiova.

“Many of the most debated topics in Slovakia nowadays are linked to the ongoing war in Ukraine,” Gossanyiova begins. “We are neighboring countries; our companies and industries are strongly affected. Therefore, the war has impacted Slovakia’s political and economic life to a large extent.”

“The overall atmosphere in the country is heavily influenced by the uncertainty and unpredictability of the current events,” she explains. “The government now has a critical function, first aiming to ensure the safety of people, and addressing the economic impact afterward.” According to Gossanyiova, the government prioritizes protecting not only the Slovakian people but also the refugees coming from Ukraine.

“Recently, legislation was adopted granting Ukrainian refugees the right to work,” Gossanyiova points out. “They can now apply for a residence permit, attend schools, and receive medical treatment. It took some time to reach the final decision, but nowadays the relevant legislative framework is already in place.” She adds that it is not only the state and various non-governmental organizations addressing the current challenges but the business sector as well. “The various enterprises also seem to be very welcoming to refugees, offering work opportunities. My understanding is that cultural similarities and the need for a workforce for many Slovakian companies make the employment procedure very smooth.”

Gossanyiova reports that different legislative reforms are underway, addressing Slovakia’s biggest challenges. “There are various amendments for the most important pieces of legislation in the pipeline. For example, there is a major reform anticipated on the reconstruction of the judicial system. In addition, some crucial amendments to insolvency legislation and the commercial code have been proposed in the parliament.” However, she adds, “due to ongoing circumstances, they rarely become a focus of newspapers and relevant bodies these days.”

According to Gossanyiova, the war has aggregated Slovakia’s existing challenges. “These are hard times, but the circumstances were not that easy before either,” she says. “Before this, Slovakia was slowly recovering from the stagnation caused by the COVID-19 pandemic, but high inflation and increased energy prices impacted the overall economy. In Slovakia, we have many industries, including the automotive sector, which are heavily dependent on electricity and commodities prices. In addition, delays in the import of various items required by these sectors have put production on hold.”

“On the other hand, the past few months have been very interesting and challenging times for lawyers, as our legislation is constantly evolving. We are hopeful that further upcoming legal updates will once again become the hottest topics, once the war is over,” Gossanyiova concludes.

White & Case has announced its Bratislava office will separate from the firm on March 31, 2022, with the local team to continue as Aldertree Legal.

Aldertree Legal will be led by soon-to-be-former White & Case Partner Juraj Fuska, who confirmed the entire team – including soon-to-be-former White & Case Local Partners Zoran Draskovic, Vladimir Ivanco, and Michal Palisin – is staying with Aldertree.

A White & Case spokesperson announced the firm will have an exclusive alliance with Aldertree, adding: “We would like to thank Juraj and the team in Bratislava for their contribution to White & Case, wish them every success, and look forward to a close and ongoing working relationship under the exclusive alliance.”

Fuska commented: “The Bratislava office has achieved healthy growth in recent years and the exclusive alliance with White & Case will ensure continuity to the services we provide and support the development and further growth of Aldertree in Slovakia while ensuring the ongoing delivery of high-quality legal services our clients expect.”

Based on the new Act on Support During Short-Time Work, also known as Kurzarbeit, the employers’ new permanent support scheme will apply as of January 1, 2022, in Slovakia. The basic aim of the new regulation is to compensate employers financially for temporary loss of working hours and thereby preserve employment. Kurzarbeit can be applied if an employer is forced to reduce its operational activities due to temporary external factors beyond its control that have a negative economic impact on its business, particularly the declaration of a state of emergency, state of crisis, or force majeure. Furthermore, the Kurzarbeit allowance applies only in case at least one-third of the employer’s workforce is not assigned work for at least 10% of their working hours.

The Kurzarbeit allowance will be funded from social insurance contributions, at a rate of 0.5% from the assessment base, which reduces the insurance rate for unemployment (currently 1%). Therefore, the amount of the employer’s social security contribution burden does not change due to the introduction of Kurzarbeit.

Kurzarbeit was adopted in reaction to the developing economic crisis caused by the COVID-19 pandemic, and the complicated, yet not very effective, state aid system provided to employers within the First Aid contributions project. Under that system, the employer had to undergo a demanding administrative process, and the contributions were paid only two months after applying. Finally, the contribution amount per employee was capped relatively low.

Another reason for introducing this scheme was the gradual implementation of the Kurzarbeit system in all member states of the EU, which thus becomes a benchmark for the country’s competitiveness, as well as the EU’s pressure to introduce a permanent tool to maintain employment and compensation for loss of income.

During the law-making process, the legislator was inspired mainly by the applicable legislation in Germany and Austria, where the system had been in place for some time. Consequently, it has transplanted most of the conditions under which the aid is granted in those countries. Such a procedure is by no means exceptional but should not be applied without considering the specifics of a particular country.

As an example, we consider it unjustifiable that the conclusion of an agreement with the employees’ representatives or the individual employees concerned (in case there are no employees’ representatives) on activation of Kurzarbeit is required to claim the support. Under current legislation, a trade union may operate at an employer without proving any minimum level of representativeness towards the employees it formally represents. Therefore, in Slovakia, we often see so-called ‘quasi trade unions’ (with minimum membership), whose primary aim is not to defend employees’ rights. As quasi trade unions often set out to torpedo employers’ activities, we consider this requirement a significant obstacle in fulfilling the conditions for the allowance. In addition, we believe that such requirements are superfluous, as one of the conditions for granting the support is the payment of social insurance contributions for at least 24 months before the employer applies for the allowance. Thus, the employer prepays any potential future allowance.

If the employer fails to receive the respective consent to activate the allowance (without the necessity of being notified of any relevant reason), it is forced to ask an arbitrator to resolve the dispute. This process, including the time limit for the arbitrator’s decision, may result in a deadlock situation where the employer misses the deadline for allowance application and, consequently, loses its entitlement thereto. As a result, both the employer and, in the end, the employees themselves would be negatively impacted as the employer will likely be forced to proceed with employment terminations, despite fulfilling all other conditions for the activation of the Kurzarbeit scheme.

Despite the several shortcomings of the new legal regulation on Kurzarbeit, it is generally welcomed. Slovakia needs such a stable and foreseeable system of support that can help employers mitigate the consequences of abrupt external negative circumstances, without a long-lasting impact on their business and workforce. The devil is in the details, however, and only the practical implementation of the Kurzarbeit system will show its potential flaws or prove its effectiveness.

By Radovan Pala, Partner, and Radoslava Lichnovska, Head of Employment, Taylor Wessing

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Havel & Partners has advised Slovakia’s Deposit Return System Administrator on the setup, implementation, and January 2022 launch of the disposable beverage packaging deposit return system.

The firm also represented the DRS Administrator before the Slovak Intellectual Property Office on filing an application for a utility design. According to Havel & Partners, the DRSA is a non-profit organization that acts as the sole coordinator and administrator of the newly established deposit return system of disposable beverage packaging in Slovakia.

According to DRSA’s website, “the Slovak Ministry of the Environment officially commissioned a consortium of four associations of beverage producers & retailers … to establish a central DRS Administrator for Slovakia. Their members altogether represent almost 80% of all drink containers placed on the market and more than 3,000 retail stores in Slovakia.” The DRS Administrator is responsible for the creation, administration, financing, and coordination of the deposit system in Slovakia.

The Havel & Partners team included Partner Stepan Starha, Managing Associate Jan Kapec, Senior Associate Roman Svetnicky, Associates Robert Gasparovic and Patricia Jamriskova, and Junior Associates Petra Kovacechova, Tomas Varso, and Milan Cernaj.

Dentons has successfully represented nine members of a Slovak Romani community before the District Court Kosice II, on a pro bono basis, in a seven-year dispute regarding their forced eviction.

According to Dentons, the court “has ruled in favor of nine members of a Romani community, who were forcibly evicted from their homes in the district of Nizne Kapustniky, Kosice, in 2012 under the pretext of waste removal by the city authorities. The inhabitants were offered no alternative accommodation after their homes were demolished and, as a result, they became homeless. Some of them were bussed to a different part of the country. The Court has ruled, in its first instance judgment, that the City of Kosice violated human dignity and the right to privacy of the plaintiffs and committed illegal discrimination on the basis of their ethnic affiliation.”

Dentons worked on the case in cooperation with the European Roma Rights Centre.

“Although this is only the first instance decision, it is a great victory for those evicted people who have been fighting a legal battle for more than seven years so far,” commented ERRC’s Legal Consultant Michal Zalesak. “The judgment is also important for the future as it sends a message to authorities everywhere who seek to illegally evict Roma from their homes and creates new case-law on forced evictions and the Anti-discrimination Act. I believe this is the first judgment with a finding of harassment in Slovakia under this law.”

Dentons’ team included Managing Counsel Martin Mendel and Associate Richard Marcincin.

The still ongoing pandemic and its impact on the economic environment occupy governments all over the world. In Slovakia, several measures have been adopted by legislative bodies since its outbreak last year mainly in the area of financial aids and business loans. Moratoriums have also impacted the positions of banks and other creditors demanding their claims against debtors.

The adoption of the Act on certain extraordinary measures in the financial area in relation to the spread of COVID-19, which has been in force since April 2020,  introduced a wave of various measures aiming directly at the support of businesses. They covered three areas: taxes, financial market, and budgetary rules.

The tax-related section introduced extended deadlines for submission of tax returns, tax returns of employees, annual reports, and financial statements. The aim was to relieve businesses of obligations that had increased their expenses and administrative burden. Taxpaying legal entities were, for example, able to deduct from the tax base loss carryforward for tax periods 2015 to 2018 up to the aggregate value of EUR 1 million. Furthermore, enforcement proceedings and tax audits performed by the Financial Administration were suspended.

The situation in the financial market was affected too. SMEs could receive financial aid for maintenance of their operations provided by the state-owned banks Exportno-importna banka Slovenskej republiky (Eximbanka SR) and Slovenska zarucna a rozvojova banka, a.s. Financial aid was provided in the form of either a loan guarantee or payment of loan interest (interest subsidy).

Both SMEs and large enterprises could also receive financial aid for liquidity provision from Eximbanka SR or funds managed by Slovak Investment Holding, a.s., through banks and branches of foreign banks, in the form of either a loan guarantee or loan guarantee fee waiver.

The new regulation also allowed employers and natural persons to defer repayment of their loans if they were, or could potentially be, unable to repay these on time due to the pandemic. The maximum deferral period was three months or nine months with a bank being the creditor. Similarly, consumers could apply for deferral of their consumer loans and mortgages.

Later in 2020, the measures introduced under the above Lex Corona Act were tightened in order to prevent the state’s economy from substantial damage caused by a too long period of their application. This amendment introduced the concept of temporary legal protection which could be applied for and granted in a formal court proceeding, resulting in protection from bankruptcy and enforcement proceedings.

On January 1, 2021, the Act on temporary protection of entrepreneurs took effect. It leans on the abovementioned concept – while prolonging the period of granted temporary protection – but under stricter rules. Involved businesses now have to obtain the approval of the majority of creditors and fulfill other statutory conditions. Debtors may apply for the moratorium until December 31, 2022.

The temporary protection regime, as opposed to its 2020 version when it could be obtained through a formal process, is now limited by law. Affected entrepreneurs are currently more likely to initiate restructuring or declare insolvency.

As of January 1, 2021, the Act on bankruptcy and restructuring was amended, introducing a newly designed arrangement of a low-cost fast so-called “small bankruptcy.” The new regulation has significantly simplified the rules for the conduct of bankruptcy. If all conditions are met, the court declares small bankruptcy over the debtor’s assets within 15 days from the application. This measure is intended for small entrepreneurs whose businesses failed, but could not otherwise exit the market quickly. Small bankruptcy enables them to save up to five years.

The Ministry of Justice has proposed a bill dealing with imminent bankruptcies that should form a framework for the voluntary recovery of businesses. This preventive instrument is intended to create enough room for entrepreneurs for an efficient, fast, and transparent preventive restructuring already at an early stage when insolvency is “imminent,” and thus preventing the debtors from going bankrupt and having to file for insolvency.

This purpose can be achieved also through temporary protection, as it provides a sufficient timeframe for effective restructuring. The adoption of the new regulation should simultaneously abolish the temporary legal protection provided for under the 2020 amendment. The new act should take effect in July 2022.

By Tomas Zaborsky, Head of Banking and Finance, and Erika Urdovicova, Junior Associate, Noerr Slovakia

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

When it comes to politics in Slovakia, due to fast-paced developments and the presence of social media, there is frequently a ‘major’ crisis lasting only a few days, to then be replaced by a new one, says Majernik & Mihalikova Partner Ivan Kormanik.

“One of the recurring issues is related to the proposed referendum on the shortening of parliamentary elections. Interestingly, even some members of the ruling party opt for organizing such a referendum,” Kormanik explains. “In addition, the general prosecutor’s activities have been a source of controversy. His recent annulment of criminal charges for some well-known individuals, as well as his comments on a draft of the Defense Cooperation Agreement with the USA, which were clearly not related to his professional competencies, have been a subject of public debate. However, even though such topics receive public attention for some time, they are rarely addressed and easily forgotten.”

“There is some success in the legislative field,” he adds. “The parliament has approved an important reform of the hospital network, which is certainly positive news, given that the current state of the healthcare system in Slovakia severely lags behind the EU average. An amendment of the Act on Public Procurement was adopted, after a lengthy and onerous process. The B2C segment will be affected by the new Electronic Communications Act, regulating matters such as spam, cold calls, and biometric recognition.” In addition, Kormanik points out that the EU Restructuring Directive governing preventive restructuring regarding the reorganization of enterprises will be presented to the parliament.

According to Kormanik, various factors have led to increased prices for electricity and energy in general. He points out that “the management of the Slovak Regulatory Office for Network Industries is rather competent and it actively works on the adoption of new regulations on renewable resources and providing subsidies for them. In addition, investors are looking for new opportunities to build new facilities, in particular with regard to solar and wind energy.” Kormanik says all these have an effect on law firms focusing on energy law.

“Inflation in almost every area of the economy was reflected in the increased prices of real estate, as well,” Kormanik notes. “Compared to last year, residential real estate prices have, reportedly, increased by 20 to 30%.” He points out that disagreement between the different branches of government regarding how to address COVID-19 challenges compounds the inflation-related situation even further.

“The good news for Slovakia is that we see Slovak companies, such as Slido or Exponea, that were established a couple of years ago, exited by their founders and sold to global corporations,” Kormanik says. “The investment rounds have increased significantly when it comes to volume and valuation. The story of Inobat is impressive – a company developing battery solutions for cars, which shook hands with a number of large international players.” He adds that “in general, the innovation economy is on the rise in Slovakia, attracting a lot of private investment, as well as subsidies from the government.” Kormanik believes these new developments indicate that the county will see a number of successful projects and exits in the coming years.