Category: Slovakia

  • New Investment Screening Mechanism in Slovakia

    On 1 February 2021, the Slovak Ministry of Economy submitted an investment screening proposal to the government. This proposal was approved by the National Council (with amendments) on 5 February 2021 and is scheduled to enter in force on 1 March 2021.

    Screening mechanism and transactions subject to consent

    Under this new regime, the acquisition of a shareholding in certain designated entities (share deal), or of the acquisition of the business of these entities (asset deal) will need to be reported to the Slovak government. This obligation will apply notwithstanding whether the acquirer is a Slovak or foreign entity.

    With respect to share deals, the new law will capture investments exceeding 10 % (voting rights / equity) and investments that allow for the exercise of an influence over the management of an operator which is comparable to a 10 % share. Moreover, the law will apply to indirect acquisitions. This means that, for instance, the change in persons who have a direct or indirect participation in the operator of a critical infrastructure exceeding a 10 % shareholding or voting rights is eligible to be screened. Thus, an acquisition taking place anywhere in the global corporate structure of a group having a shareholding in a specific Slovak company can also trigger the requirement to obtain a consent from the Slovak government.

    Industries subject to the new regulation

    The new regulation will only apply to businesses designated as part of the critical infrastructure in the following industries:

    • mining;

    • electric power engineering;

    • gas;

    • petroleum and petroleum products;

    • pharmaceutical;

    • metallurgical; and

    To this end, the secondary law names such specific companies. Currently there are around twenty entities falling under this regime, while these companies are among companies with the highest revenues and a substantial number of employees. The majority are already owned by foreign investors.

    Procedure

    The notification of a transaction subject to this new regime must first be reported to the Ministry of Economy which can (but may choose not to) review it in light of public policy and the national security of Slovakia, the EU or another Member State of the EU.

    In certain cases (e.g. sale of business in the context of insolvency proceedings), the ministry will mandatorily review the transaction based on the application.

    If the ministry will review the transaction, it will prepare a motion to the Slovak Government either to grant consent, to grant consent subject to conditions (similarly as in the case of competition law proceedings related to merger control) or to prohibit the investment, if the transaction poses a risk to public order or national security.

    A decision of the Slovak Government to not grant a prior consent or to cancel a consent can be appealed to the Supreme Court within 30 days from its adoption.

    Legal consequences

    Under the new law, a standstill obligation will apply until the ministry and the government review the transaction. Therefore until the review process is finalised, an exercise of rights and obligations under this transaction related to Slovak critical infrastructure is prohibited.

    Outlook

    The grounds based on which the authorities can oppose a transaction are quite general and thus they allow for wide discretion. It is to be seen how this tool will be used in practice.

    Moreover, the government is also planning to adopt a secondary regime for FDI screening which would apply not only to selected industries but in general to foreign investments. This second regime should be introduced into the legislative process during spring 2021.

    By Michal Lucivjansky, Counsel, Schoenherr

  • Dentons and Ferro Legal Advise on Sale of Exponea to BloomReach

    Dentons, reportedly working with Law & Trust, has advised Slovak businessman Ivan Chrenko on the sale of his stake in Exponea to the US-based BloomReach e-commerce digital platform. Ferro Legal and Blumenfeld Legal advised Exponea, and Wilson Sonsini and Taylor Wessing reportedly advised the buyer on the deal.

    Financial details of the transaction were not disclosed.

    According to Dentons, “BloomReach’s market-leading e-commerce search and content services combined with Exponea’s best-in-class customer data platform and marketing automation are intended to create the first ever truly integrated product and customer data set.”

    The Dentons team included Partners Rob Irving and Partner Juraj Gyarfas, based in Budapest and Bratislava, respectively.

    Ferro Legal’s team was led by Managing Partner Stefan Surina.

    Editor’s note: After this article was published, Taylor Wessing confirmed that it had advised BloomReach on the deal. The firm’s team was led by Partner Juraj Frindrich.

  • The Buzz in Slovakia: Interview with Martin Magal of Allen & Overy

    Slovakia’s political life is currently marked by the government’s internal struggles, says Martin Magal, Managing Partner at Allen & Overy Bratislava. “We have a fairly inept coalition government and our politicians are much more involved in fighting among each other than fighting against the COVID-19 pandemic.”

    Nonetheless, Magal says, the Slovak people and the country’s economy are doing fairly well. “Even though we had a 6% negative GDP last year and we are currently under strict lockdown, I don’t remember a busier period, transaction-wise,” he says, pointing to Cisco’s acquisition of Sli.do as one of the more notable recent transactions.

    In addition, legislative activity hasn’t slowed down significantly, Magal says, and he reports that reforms of Slovakia’s judicial system are underway as well. “The idea is to close down and merge a number of small district courts which only have several judges and thus cannot specialize,” he says. The number of appellate courts will be reduced from eight to three and the current five district courts of Bratislava will be unified into a single first instance court. “This reform faces some backlash under the pretext that it will make the courts less accessible to people,” he says. “However, the small, local courts may have been susceptible to cronyism, so I applaud the change.”

    Magal reports that a new Public Procurement Law was drafted by the Slovak Deputy Prime Minister that, if passed, will speed up the public procurement process by dispensing with many of its previously-mandatory procedures. Magal, for one, is not enthusiastic about the change. “Apart from my role at Allen & Overy, I am also Vice President of the American Chamber of Commerce in Slovakia,” Magal says. “We have taken a stance against this proposal because we believe in the principle that the public procurement procedures should be used as rule and not as an exception.”

  • Slovakia: Amendment to the Labour Code – What Will Change?

    What changes must employers expect with respect to employee alimentation, working from home, employee intragroup assignment, or employing teenagers before their completion of compulsory education? The latest amendment of the Slovak Labour Code introduces several changes, establishes a new ground for dismissal, and also significantly modifies the regulation of collective labour relations.

    Meal vouchers or financial allowance? Employees will be able to choose

    From 1 March 2021, employees will be able to choose whether to receive meal vouchers, meals from a staff catering provider, or whether they prefer being paid a financial allowance on food. Having chosen, they will then be bound to that choice for 12 months. However, the opportunity to decide between these options applies only to those employees whose employer does not already provide for their alimentation in its own (or other employer’s) catering facility. Where a contract with the provider of meal vouchers is still running, the employer can – in accordance with the transitional provisions – offer its employees the possibility to choose only after the expiry of that contract, but no later than 1 January 2022. Employers providing meal vouchers to their employees can therefore have the employees choose between a financial allowance on food or meal vouchers anytime during the period from the validity of the amendment until the end 2021. 

    The financial allowance paid by the employer must be at least 55% of the minimum value of the meal voucher (currently EUR 2.11). Here, the principle of equal treatment must be respected, under which the amount of the financial contribution must be equal for all employees, regardless of whether they are paid a financial allowance or receive meal vouchers. If only a financial allowance on meals is being provided, the amount must be at least 55% of the value of the meal allowance for business trips lasting 5 to 12 hours (currently EUR 2.81). The financial allowance on meals will not be subject to taxation or health and social insurance contributions. 

    The maximum contribution paid by the employer will decrease from the current 3% to 2% of the value of the meal voucher. Furthermore, as of 1 January 2023, meal vouchers will have to be in electronic form only, except in cases where such electronic meal vouchers cannot be used for objective reasons at the workplace or in its vicinity. On the one hand, the decrease reduces employer costs, yet, on the other, the amendment creates more red tape by allowing employees the option of choosing between several forms of alimentation. 

    Labour unions: members will have to be employees

    Based on a newly passed amendment, a labour union organisation can be active at an employer only if that employer’s employees are among its members. 

    If a labour union organisation is interested in being active at an employer, but does not have members among the employees (usually members of the labour union body), the employer may initiate proceedings before an arbitrator. Conversely, a labour union organisation also has the right of recourse to an arbitrator. If the final decision goes against the labour union organisation, for a period of 12 months, that organisation will be considered as not being active at the respective employer. 
    In addition, the new regulation repeals the binding force of representative sectoral collective agreements towards employers that are not members of any employer association nor are covered by any sectoral collective agreement. In accordance with the transitional provisions, currently valid and effective representative sectoral collective agreements will remain in force until their expiry. 

    New dismissal reason: concurrence of 65 years of age and retirement age

    The amendment introduces a new dismissal reason applicable from 1 January 2022: concurrence of 65 years of age and the age from which the entitlement to retirement pension applies. The employee concerned will be entitled to the same severance pay as in the case of dismissal due to organisational changes. The age of 65 as a dismissal ground already applies to civil servants. The motivation behind the new dismissal reason is an intergenerational change of personnel and reduction in unemployment. 

    Home office: scheduling of working hours, compensation of employee’s expenses, right to disconnect

    Based on the adopted amendment, self-scheduling of working time will no longer be a distinguishing feature of regular work from home and telework. Now, employers will also be entitled to schedule their employees’ working hours when working from home on a regular basis. The parties can however still agree that the working time will be set by the employee only. In such a case, the employee will, however, lose some benefits, such as wage compensation for personal impediments at work, surcharges for overtime work, for holiday, weekend, or night work. 

    The new regulation obliges the employer to reimburse its employees working from home for demonstrably increased costs resulting from the use of the employee’s own tools, devices, or materials necessary for work from home or telework. It remains unclear whether employers can write these reimbursements off as tax expenditures. Employers are also responsible for the protection of data processed and used in telework. 

    Each employee working from home will have the right to disconnect. Employees working from home will be entitled to not use work equipment (i.e. be logged in or connected) during their daily rest. In addition, employers cannot punish their employees if they do not fulfil their work tasks during that rest period. The purpose of this right is to separate private and professional life, and to ensure that the periods of rest or leave are respected. The right to disconnect also applies to employees working from home on an occasional basis. 

    The amendment fails to clarify the distinction between occasional and regular work from home. When applying grammatical interpretation, regularity occurs already when work is being carried out from home one or two days per week. The topic of occupational health and safety has long been an outstanding issue with respect to work from home and the amendment does not shed any light on this. 

    Permanent childcare: new definition 

    The term ‘permanent childcare’ was already introduced within last year’s amendment of the Labour Code; however the question remained unresolved about what ‘permanent’ childcare actually is. The latest amendment now finally defines this term. The right to five weeks paid leave arises on the day when an employee notifies the employer of the employee’s obligation of permanent childcare. Furthermore, the amendment clarifies that the entitlement to five weeks’ leave must be granted to both parents having a child in joint custody. Where an employee starts or stops permanently taking care of a child within a calendar year, the length of the paid leave is proportionate to the number of days of permanent childcare in the respective calendar year. 

    Intragroup assignment of employees: more flexible rules 

    The amendment contains more relaxed regulation of the assignment of employees between controlling and controlled entities. Objective operational reasons and minimum employment (3 months) prior to the assignment will no longer be required for an intragroup temporary assignment. However, this applies only on condition that the temporary assignment between the parent company and its subsidiary has been agreed free of charge (with exception of wage costs). 

    Employing teenagers before completion of compulsory education

    In accordance with the amended Labour Code, teenagers older than 15 years of age will be allowed to work in ‘easy’ jobs even before the completion of compulsory education. The determination of whether a particular job is easy lies with the labour inspectorate, which will issue a permit, upon agreement with the competent public health authority, at the request of the employer. 

    By Pavol Rak, Partner, Noerr

  • Dentons Litigation Team Represents TV Markiza in Criminal Trial of Former Owner

    On January 12, 2021, the Supreme Court of the Slovak Republic confirmed the verdict delivered by the Specialized Criminal Court in February 2020 on the forging of four promissory notes of private television broadcaster TV Markiza. Businessman Marian Kocner and former minister Pavol Rusko, a onetime owner of TV Markíza, were accused of forging the promissory notes and using them to demand EUR 69 million from the television station. Both Kocner and Rusko were convicted of forging the promissory notes and were each sentenced to 19 years’ imprisonment. Dentons’ Litigation team in Bratislava represented TV Markiza in the case.

    Dentons Partner Daniel Lipsic led the firm’s team, with support from Senior Associate Miroslava Jesikova and Associate Dagmar Horvathova.

    Lipsic is also representing the parents of investigative reporter Jan Kuciak pro bono in criminal proceedings related to the charges of murder brought against Marian Kocner for allegedly murdering Kuciak and his fiancee several years ago, which Dentons describes as “one of the most high-profile trials in Slovak history.”  The Specialized Criminal Court cleared Kocner of ordering the killings in September 2020, and the case is now on appeal. 

     

  • Havel & Partners Advises Premium Design Group on Acquisition of Furniture Manufacturer Javorina

    Havel & Partners has advised the Premium Design Group on its acquisition of 100% of the shares in the manufacturing cooperative Javorina.

    Financial details of the transaction were not disclosed.

    Javorina is a Slovakia-based manufacturer of wooden furniture and Premium Design Group is a producer and distributor of equipment for interior and exterior decoration.

    According to Havel & Partners, “by acquiring Javorina … Premium Design Group wants to help the company fulfill its potential and by 2025 expand its current largely diverse export portfolio beyond its deliveries to Austria, Belgium, Germany and Dubai, building a franchise network in CEE countries within two to three years.”

    Havel & Partners’ team included Partner Vaclav Audes and Senior Associate Juraj Petro.

    Havel & Partners could not disclose additional info about the transaction.

  • Wise 3 Joins Slovakia’s Legal Market

    The Wise 3 law firm — consisting of 20 fee-earners, led by four founding partners coming together from three other firms — has opened its doors for business in Bratislava.

    The firm, which claims to offer “a wide range of legal services — in particular in the … pharmaceutical, information technologies, and financial services industries,”  is led by former Beatow Partners Partners Branislav Brocko and Michal Delincak, former Nechala & Co. Partner Pavel Nechala, and former Krion Partners Partner Michal Ridzon.

    “Our priority is to use rich experience and profound knowledge,” commented Pavel Nechala, on the firm’s website. “We want to provide our clients with the highest comfort and security possible in all fields of our expertise. We build connection on mutual understanding, strong values, and modern technologies.”

    “We are like good cuvée wine,” added Michal Ridzon. “We are composed of several parts. These parts form an overall taste, harmony, and quality all together. We build on mutual understanding and shared values at Wise 3. This allows us to decide quickly and [correctly] without unnecessary diversions.”

  • The Buzz in Slovakia: Interview with Viliam Mysicka of Kinstellar

    According to Kinstellar Bratislava Partner Viliam Mysicka, the Covid pandemic has posed a significant challenge for Slovakia’s government. “The government was formed just before the March 2020 lockdown happened, and the majority of the ministers are new,” he says. “They have more experience as CEOs than as politicians.”

    In addition to the government’s relative inexperience, Mycicka describes a running disagreement between Prime Minister Igor Matovic and Richard Sulik, the Minister of Economy, on certain Covid-related measures. Mysicka describes Sulik as a strong individual who served as Minister of Economy ten years ago. “He is forming a sort of opposition within the government,” he says. “He is very vocal about his stances, and sometimes his dispute with the prime minister spills over to social media.”

    Despite the conflict in the government, Slovakia’s executive authority seems to be steadfast in its fight against corruption, according to Mysicka. “The leading party of the government won the election with the pitch to the public that they will fight corruption — and they are really trying to deliver on that promise,” he says, adding that “many politicians, judges, and other influential people have been taken into custody and interrogated about their potentially illegal activities, and many are being prosecuted.” He reports being generally encouraged by this initiative, but he warns that certain practices of the Slovak police in recent months are being criticized as unbalanced. For example, he says, the Slovak Bar Association has recently expressed its concerns that the principle that lawyers cannot be prosecuted for providing legal advice is being disregarded in certain cases.

    The Slovak economy has, in any event, several challenges to overcome, as the country has already suffered greatly due to the pandemic. “Slovakia’s economy is dependent on the automotive sector,” Mysicka explains. “Peugeot, Land Rover, KIA, and Volkswagen have manufacturing plants here and generate between 10-50% of the Slovak economy.” Thus, he says, “we have an export-driven economy, and since the sale of automobiles has decreased significantly in some countries, we will probably have a 5-10% drop in GDP this year.”

    Other industries, such as real estate, banking, and energy, remain healthy, Mysicka reports. “One of the biggest transactions in the energy sector was E.ON’s acquisition of Vychodoslovenska Energetika Holding from RWE,” he says (referring to the deal reported by CEE Legal Matters on September 22, 2020). 

    New economic opportunities may arise in the future, Mysicka explains, with the arrival of the 5G network in the country. According to Mysicka, a draft law on the network was recently introduced in parliament and is expected to pass soon. “Slovakia will have to choose between two Scandinavian and two Chinese network providers,” he says, “but based on the public comments of several politicians, Slovakia will most likely choose one of the Scandinavians.”

  • Capital Funds from Shareholder Contributions as Specific Type of Equity Funds In Slovakia

    Although in use long before, on January 1, 2018, a new type of equity funds – “capital funds from contributions” – were expressly recognized and regulated by the Slovak Commercial Code. These funds are considered a supplement to contributions to a company’s registered capital and may be created by all capital company forms in Slovakia, including joint stock and limited liability companies.

    They differ from contributions to registered capital in that, in general, contributions to capital funds from contributions do not increase the voting share of the respective shareholder making the contribution. Therefore, they are commonly used as a form of equity contribution by a new investor acquiring shares in a company with relatively low registered capital (which is typical for start-up companies in Slovakia). This form of equity contribution found its place also in cases of imminent need for company recapitalization, e.g.,  to avoid the initiation of insolvency proceedings. Shareholder loans are often converted into equity through the contribution to capital funds from contributions.

    The process of their creation is less burdensome from the perspective of administrative and reporting requirements. In particular, unlike contribution to registered capital, capital funds from contributions do not have to be registered with the Slovak Commercial Register.

    That said there are certain notification requirements which still must be fulfilled, including the inclusion of the possibility that such funds will be created in the foundation documents of the company, approval of the contribution by a general meeting of the company, and prior notification of distribution of the capital fund. Also, the new rules have introduced a requirement of expert valuation of in-kind contributions and various distribution restrictions.

    In addition, the new rules on capital funds from contributions have certain peculiar income tax implications. Though in broader terms Slovak income tax rules consider contributions to capital funds to be similar to contributions to registered capital, there are differences regarding distributions from these funds.

    In particular, the distributions are not treated as dividend income, and instead fall within the general tax base of the shareholder receiving the distribution (taxable either at the corporate rate of 21% or the individual progressive rate of 19/25%). That essentially makes such distributions similar to those resulting from decreases of the company’s registered capital.

    However, though the law treats individual taxpayers and legal entities slightly differently, in general the wording indicates that when calculating the tax base only the shareholder making the contribution can deduct the amount of contribution made in the past from the distributed amount.

    This presents practical difficulties for share transfers, where the acquirer of the shares is not entitled to a deduction. This non-entitlement would apply even where the acquirer has actually reflected the amount of the contribution of the seller in the purchase price of the shares (arguably the capital fund from contributions affects the overall value of the company) and where the distribution from a decrease of registered capital would not be subject to tax up to the amount of the purchase price paid for the acquired share(s). This unequal treatment needs to be taken into account when structuring transactions.

    On the other hand, since the distribution is not classified as a dividend under Slovak law (or as any distribution of profit), it does not fall under the dividend regime in double tax treaties to which Slovakia is a participant. Rather, it is treated either as enterprise income or as other income, where the residency principle usually applies, thus making the distribution not subject to taxation in Slovakia.

    That said, discussions have been initiated about eliminating these peculiarities and it is possible that in the near future the tax regime of contributions to capital funds from contributions and distributions therefrom will be enhanced. Then “capital funds from contributions” may become a useful tool for companies in difficulties caused by the Covid-19 crisis.

    By Miriam Galandova, Partner, and Matej Kacaljak, Senior Associate, PRK Partners in the Slovak Republic

    This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Havel & Partners Advises Vision Ventures on Investment in Eatster

    Havel & Partners has advised Vision Ventures on its venture capital investment in Slovakian start-up Eatster, which operates an online food order application.

    The Vision Ventures Group manages the Vision Ventures Growth I venture capital fund, which, Havel & Partners reports, invests in “exceptional companies with international ambitions.”

    The Havel & Partners team included Partner Stepan Starha, Senior Associate Tomas Navratil, and Junior Associate Martin Blaha.