Category: Slovakia

The new construction legislation approved in 2022, which aims, among other things, to speed up permitting processes, was to enter into force as a whole on 1 April 2024. This legislation divided the “old” Construction Act into two parts: spatial planning and construction.

However, the goal was not achieved.

The newly created Act on Spatial Planning entered into force as planned on 1 April 2024, while at the same time, the provision on spatial planning in the old Construction Act was abolished. This means that the territorial plans of municipalities, or of other territorial units, will already be procured according to the new regulation. Territorial plans, or their modifications and additions, whose procurement was initiated according to the original Construction Act, are an exception. The Act on Spatial Planning also introduces the new institution of the binding opinion of the municipality, which proves within the zoning proceedings the compliance of the proposed building with the binding part of the zoning documentation.

Construction permits, which were supposed to be regulated by the new Construction Act beginning in April, remain valid according to the original Construction Act, with minor modifications. Jurisdiction remains with the municipalities, while the appeal authority is the regional office of the Office for Territorial Planning and Construction (ÚÚPaV).

The new regulation is tentatively expected to take effect on 1 April 2025, but several legislative changes will be necessary by then (e.g. when integrating the proceedings into the building plan proceedings). The ÚÚPaV launched a new spatial planning portal on its website on 1 April 2024. In the future, the information system will also cover the construction sector. However, due to the postponement of the Construction Act, only the part for spatial planning has now been launched.

By Annamaria Tothova, Partner, Eversheds Sutherland

As we outlined in our earlier article, the option of a demerger by means of a spin-off (odštiepenie) is a significant innovation introduced into the Slovak corporate landscape by the Transformations Act.

Under the former regulation (previously covered in the Commercial Code), a spin-off, which entails the possibility of carving out only some of the assets, rights, and obligations and moving them to other legal entity without the divided company ceasing to exist, was not available. In a spin-off scenario, the shareholder of the recipient company either keeps the shareholding in the recipient company or receives financial proceeds. The shareholder of the divided company:

1. keeps shareholding in the divided company,
2. receives shareholding in the recipient company,
3. receives financial proceeds, or
4. a combination of any of the above applies.

This type of corporate restructuring was eagerly awaited by many businesses.

Alternatives

The transactions that might aspire to achieve a similar effect as spin-offs are either impossible to employ, less effective, or more expensive. These include:

1. Division (rozdelenie, rozštiepenie), in case of which:
   • it is necessary to precisely specify the assets and contracts of the company which are divided into at least two companies, and
   • the divided company ceases to exist;
2. Transfers of individual assets and contracts, in case of which
   • the consent of the contractual counterpart is sought, which can be cumbersome in more complex businesses, and
   • there is a risk that such transfers will, in case of dispute, be reclassified as the sale of part of an enterprise (predaj časti podniku);
3. Sale of part of an enterprise, in case of which:
   • the transferring company has to keep independent accounting for the respective part of the enterprise which is to be transferred;
   • all assets and legal relationships related to the part of the enterprise are transferred (i.e. the transfer of part of the enterprise concept limits the freedom of entrepreneur to decide which assets and legal relationships related to the “part of the enterprise” shall not be transferred);
   • the buyer has to pay the purchase price to the transferring company, i.e., not to its shareholder, and the transferring company has to pay income tax.

The ability to identify specific assets and legal relationships, to easily take them out of the divided company without that divided company ceasing to exist, and to transfer them into either an existing or newly founded company is groundbreaking news. It allows the clean separation of assets, lines of business, or contracts, whether for business or regulatory reasons, which may, on certain occasions, be easier and more transparent than the above options.

Admissibility of Spin-off

The following limitations apply to spin-offs:

1. Spin-offs are available for limited liability and joint-stock companies only;
2. The recipient company has to have the same legal form as the divided company;
3. A spin-off cannot occur if any participating company is in the process leading to winding up (bankruptcy, restructuring, liquidation, etc.), while certain exceptions may apply (especially if such a spin-off is approved by the bankruptcy administrator or court);
4. If due to spin-off any participating company would end up in crises (hroziaci úpadok);
5. Spin-off cannot occur if the divided company’s equity (vlastné imanie) is of lower value than its share capital on the decisive date.

Transformation Project

The basis of each transformation is so-called “transformation project”. The success of a spin-off relies heavily on the clarity of this transformation project, which defines the assets and liabilities being transferred. Should the transformation project lack precision, assets may become subject to a dispute and end up in shared ownership among the divided and successor companies, leading to potential business complications.

In the case of divisions, a decisive date may be set, i.e. the date from which the acts of the company being divided are deemed, for accounting purposes, to have been carried out on behalf of the recipient company. This date can be set retroactively, back to the first day of the accounting period in which the draft of the transformation project is drawn up. In the case of a spin-off, the above applies only to the assets and liabilities subject to transfer to the recipient companies.

Cross-liability in the case of divisions

The divided company is, under the law, providing a guarantee to the creditors for the liabilities transferred in the course of spin-offs up to the value of net assets (čisté obchodné imanie) transferred to the recipient company, and the divided company is liable for the liabilities transferred to the successor companies.

The Transformations Act also contains joint and several liability of the recipient companies, which is an important instrument for the protection of creditors. The creditor may demand full performance of an obligation from any of the successor companies, and the performance of the obligation by one of them will extinguish the obligation of the others. Regressively, the successor companies’ claims are subsequently settled in the proportion in which the net assets of the divided company have passed to them.

In addition, the creditors may under certain circumstances request that the recipient company provides collateral to ensure enforceability of the receivable. 

Conclusion

The introduction of spin-offs marks a significant step forward in corporate restructuring within the Slovak legal framework. While offering opportunities for efficient asset transfer and clean separations, spin-offs also pose challenges and require careful consideration of transformation projects and liability implications. Nonetheless, the ability to selectively transfer assets and liabilities without the dissolution, presents a promising avenue for businesses seeking strategic restructuring while maintaining operational continuity.

By Katarina Mihalikova and Ivan Kormanik, Partners, Majernik & Mihalikova, PONTES

Nedelka Kubac Advokati has successfully represented Klement in an energy construction bid rigging case before the Slovak Competition Authority.

According to NKA, using the leniency program and the settlement procedure, a reduction of over 90% in the initially proposed fine was secured, “from EUR 1,629,193 to a final amount of EUR 159,700. Additionally, Klement avoided the originally proposed penalty of a three-year ban on participating in public contracts.”

The NKA team included Partner Martin Nedelka and Senior Associate Jakub Jost

The requirements for the Whistleblowing Officer’s (WO) role are covered by various guidelines that have been published by the Slovak Office for Protection of Whistleblowers over the past several months. The multitude of information sources now requires clarification, as the role of the WO leading internal investigations of reports is becoming increasingly prominent. 

Below we summarise the key points for convenience:

A WO should:

• be an individual of high morale, good reputation and ethical standing, who is able to garner the trust of the employer’s management as well as of the employees;
• have a suitable background, ideally in the field of law or economics;
• have practical experience in conducting investigations, audits, controls or similar analytical work is welcome;
• have methodological and analytical skills to be able to identify potential breaches.
• The WO is strictly bound by instructions from the employer’s statutory body or the statutory body of the parent company.

From their part, employers must:

• facilitate the independent execution of duties by the WO;
• ensure no conflicts of interest arise;
• maintain the WO’s qualifications up-to-date on an ongoing basis.

We recommend that employers review their whistleblowing policies and relevant internal documents, as well as the qualifications of their current WOs, and bring them in line with issued guidelines in order to avoid potential scrutiny from the authorities.

Furthermore, international companies should consider appointing a WO fluent in Slovak, given that the local language is preferred for filing notifications, and that they will likely be required to communicate with local authorities where the local language is a must.

By Katarina Matulnikova, Partner, and Zuzana Hodonova, Counsel, Wolf Theiss

The first comprehensive Slovak foreign direct investment (FDI) screening regime entered into force on 1 March 2023. Now that the first year of this new FDI regime is behind us, below we summarise the key takeaways based on our practical experience with this law.

Statistics of FDI proceedings in Slovakia

Based on publicly available unofficial statistics, it seems that 14 FDI proceedings were initiated during the first year of the Slovak FDI regime, with Schoenherr advising on five of them. Seven of these proceedings were mandatory screenings, with no prohibition, no approval with remedies and no call-in by the authority. Official statistics should be published in summer 2024.

Approach of the FDI authority and timing of screening

There has been uncertainty regarding how the FDI authority, i.e. the Ministry of Economy (the “Ministry”), will exercise its powers under the new FDI regime. This uncertainty pertains especially to the interpretation of some unclear definitions, formalities, timing, voluntary filings or potential call-ins.

In practice, however, FDI screenings are running smoothly, with the Ministry taking an open and forthright approach. The Ministry is very open to discussions on any point regarding the potential need to file a notification or during actual screening, while case handlers are available and responsive. We have also seen the Ministry be prepared to change its position – on formalities, for example – upon submission of a reasoned statement.

Even though screening timeframes are regulated by law (45 days in the case of voluntary filings and 130 days in the case of mandatory filings), actual FDI screening periods can be hard to anticipate. The Ministry frequently uses its powers to request additional information, both from a foreign investor and a target group, which suspends the review period. In general, however, after submitting a complete notification, the Ministry issues approval decisions within three to four months.

Voluntary filing guidelines

In addition to mandatory filing (related to investment into critical targets), the Slovak FDI Act introduced a voluntary filing applicable to investments into non-critical targets, while leaving unclear what investments are covered by this possibility. Voluntary filing serves mainly as a tool to avoid a potential call-in of the transaction by the Ministry after closing, which otherwise would be possible within two years.

In the first year of the FDI Act, the Ministry published guidelines specifying circumstances in which voluntary filing is highly recommended, given the increased risk of a potential call-in of a transaction. Risk criteria include:

• the target supplies goods and/or services to the state, operators of critical infrastructure or essential providers with increased cybersecurity risk, especially if the supplies have a unique feature or are difficult to replace by alternative goods and/or services;
• the target is involved with R&D or innovation, financially, in personnel, or in any other way, based on a contract concluded with Slovak universities or academic institutions, particularly in the fields of energy (including renewable energy), semiconductors, artificial intelligence (biometrics and data mining) and biotechnology;
• the target participates in projects of EU interest listed in the EU FDI Regulation.

Even if the transaction falls outside these risk criteria, the Ministry encourages foreign investors to proactively apply for voluntary filing to eliminate the potential risk of a call-in.

Frequent requests for further information

In general, the Ministry tends to frequently use its powers to request additional information for both mandatory and voluntary filings, even though the Slovak application form requires comprehensive information. These requests are targeted both at a foreign investor and at a target group and usually involve multiple rounds of requests.

Requests for information differ from one case to another, but in our experience, the Ministry often focuses on the following topics:

• personal data processing (especially access of a foreign investor to the data of a Slovak target) and cybersecurity;
• supply continuity of the offered products/services and introduction of new products/services;
• impact of the investment on existing contracts (especially in relation to public entities or other critical entities);
• rationale and general aim of a transaction.

Importance of the EU Cooperation Mechanism (EUCM)

The EUCM allows the European Commission (EC) and other EU Member States to provide their view on the investment. Information provided to the Ministry from other Member States or the EC is presumably a significant source of information about investments that could potentially threaten public security in the Slovak Republic.

The Ministry also uses the EUCM to identify potential transactions that are subject to Slovak FDI screening (and were not filed). It is proactively contacting foreign investors to remind them of their obligation to file. As the Ministry becomes increasingly familiar with the EUCM, we also expect call-ins to play a larger role in the Ministry’s activities.

Conclusion and outlook

FDI filings in Slovakia have become a common feature of M&A transactions over the past year. The authority’s practical and open approach certainly helps to achieve smooth screenings, but some areas have yet to be clarified, such as the scope of transactions for voluntary screening or the applicability of FDI to certain transactions (such as pledges). It is therefore important to analyse the potential FDI implications of transactions with targets that have a presence in Slovakia.

In the upcoming years, we expect an increase in enforcement activities by the Ministry, including call-ins, especially based on information from the EUCM. Additionally, we anticipate that the Ministry may expand the list of circumstances in which voluntary filings are advisable, and that the government might expand the list of transactions subject to mandatory screening, even before the implementation of the planned revamped EU FDI regime.

By Michal Lucivjansky, Partner, Schoenherr

The question is not “if” you will face a cyberattack, but “when”. Ensure your cyberspace is resilient to security risks early. New cybersecurity regulation will impact many Slovak companies this year and next.

Time Frame

• October 17, 2024
• sufficient and timely preparation is key – the earlier the better 

Sectors concerned:

• energy
• transport
• banking
• infrastructure financial markets
• health
• drinking water
• waste water
• digital infrastructure
• postal and courier services
• waste management
• chemical industry
• food industry
• digital service providers
• research
• universe
• manufacturing
  • medical devices
  • computers
  • electronic and optical instruments and equipment
  • machinery and equipment
  • motor vehicles

Liability

• new personal responsibility of “the governing body” (managing director, board of directors, etc.) for cybersecurity
• responsibility should not be delegated to the IT department/NIS 2 officers
• governing body will have to:
  • initiate and confirm NIS2 measures
  • monitor the implementation of the NIS2 measures
  • undergo regular training, familiarise yourself with the processes and know them

New obligations of the company at a glance

• self-identification
• notification of the NIS 2 obligations to the authorities
• determination of the scope of the risk – i.e. whether the regulation applies to the whole business or part of it
• introduction of cybersecurity measures (procedural, organisational and technical)
  • adoption and adherence to the cybersecurity documentation
  • risk analysis and its management
  • security of the supply chain
  • cyber hygiene and employee training
  • use of cryptography and encryption, multi-factor authentication
  • informing customers about incidents and threats
  • implementing countermeasures
  • regular training for management and employees

Penalties

• in the current cyberlaw setting, a fine of up to EUR 300,000 for failure to adopt cybersecurity documentation
• NIS 2 brings an increase in fines, up to a maximum of 7 to 10 million or 1.4 % to 2 % of worldwide annual turnover, whichever is higher (fine thresholds by type of entity – important or essential)

Sanctions

• the temporary suspension of the company’s operating permits; or
• temporary suspension of a statutory body from exercising managerial functions in any company

By Bernhard Hager, Partner, Simona Makuchova, Senior Associate, Martina Oveckova, Junior Associate, Eversheds Sutherland

1 March 2024 marks the date when the Transformations Act No. 309/2023 came into force in Slovakia. This regulation comprehensively outlines the procedures for national and cross-border mergers, divisions, and conversions of companies and cooperatives, moving away from the previously scattered provisions in the Commercial Code.

It transposes, albeit belatedly, Directive (EU) 2019/2121 of the European Parliament and of the Council. Regrettably, the transposition is once again gold-plated, as it adopts stricter rules not only for joint-stock companies but also for other types of companies.

Mergers and Divisions

All forms of commercial companies and cooperatives will be able to participate in mergers and divisions, provided all companies involved have the same legal form. The exception to this rule continues to be the merger of a limited liability company or a simplified joint-stock company with a joint-stock company, should the successor company be a joint-stock company.

The division, i.e., the transfer of part of the capital shall be permitted only for limited liability companies and joint-stock companies.

A significant innovation introduced into the Slovak corporate landscape by the Transformations Act is the option of a spin-off (odštiepenie). The possibility to carve out only some of the assets, rights, and obligations and move them to another legal entity, without the divided company ceasing to exist (hereinafter referred to as “spin-off”), was not available under the former regulations found in the Commercial Code. We will elaborate on the advantages of spin-offs in the next article.

The Transformations Act also covers quite extensively cross-border mergers and divisions. 

New Procedures

1. According to the Transformation Act, the basis of each transformation will be the so-called transformation project, which replaces the previous merger/division agreement. The Transformation Act contains general content requirements of the transformation project as well as specific requirements for capital companies.
2. The approval of the draft of the project must be in the form of a notarial deed in the case of capital companies.
3. Various quorums apply to the approval of the draft of the project. In the case of personal partnerships, the consent of all shareholders is required. In the case of capital companies, approval of at least two-thirds is required (unless the Memorandum/Articles of Association set forth otherwise). In the case of vertical mergers or divisions, the consent of the general meeting is not required if specific conditions are fulfilled.
4. In all cases of mergers and divisions (including vertical ones), an audit report will be required and will not be substitutable by an expert opinion as was the case under former provisions contained in the Commercial Code. In the case of capital companies, the audit report may, under certain conditions, be prepared prior to the approval of a draft of the project.
5. A pledgee pledging its shareholding in the participating company shall notify the creditor about the project (instead of the company).
6. The notification obligations have not changed significantly. It remains important to keep in mind the obligation to notify the merger or division to the Tax Office (60 days ahead of its approval) and publish the draft of the project (at least one month ahead of its approval).
7. Invalidity of merger/division can be claimed within 6 months from the date of its effectiveness.
8. The creditors may still request that their receivables are secured if due to the merger/division the enforceability of these receivables is worsened. However, the creditors may raise this request only within a period of 6 months from the date of its effectiveness.

Liability of Executives

The Transformation Act also includes special joint and several liabilities for damages by members of the statutory body in case of breach of their legal duties during mergers/divisions. These individuals are jointly and severally liable for any damage they cause to the company, of which they were members of the statutory body at the time the obligation arose, as well as to its partners.

Furthermore, members of statutory bodies are liable to creditors for any damage they cause if they did not refrain from actions leading to the transformation, or carried out the transformation of the company where (a) the successor company was insolvent, or insolvency was imminent, (b) after the division, the divided company would be insolvent, or insolvency was imminent, or (c) the transformation was not permissible (under Section 3 (5)).

At the same time, general provisions on the liability of the statutory body apply.

Change of Legal Forms

When it comes to the change of legal forms, the news is that:

1. A limited liability company will be able to convert to a simplified joint-stock company (and still to a joint-stock company and cooperative);
2. A joint-stock company will be able to convert to a simplified joint-stock company (and still to a limited liability company and cooperative);
3. A simplified joint-stock company will be able to convert to a joint-stock company (and still to a limited liability company);
4. A limited partnership will be able to convert only to an unlimited partnership;
5. A cooperative will be able to convert only to a joint-stock company and still to a limited liability company.

The Act also introduces the cross-border change of legal form when it relocates its registered seat to another Member State and at the same time changes the legal form.

To Be Continued: Our series will continue to unpack the nuances of these procedures, offering a practical lens on the transformations reshaping Slovakia’s corporate sphere. Next up, we’ll take a closer look at spin-offs, a pivotal addition to the Slovak M&A toolkit.

By Katarina Mihalikova and Ivan Kormanik, Partners, Majernik & Mihalikova, PONTES

Slovakia is witnessing an increased number of vital amendments across legal sectors, from construction to cybersecurity, tax law, and criminal law, according to Legate Managing Partner Peter Vrabel, who posits that these changes aim to streamline processes, enhance transparency, and bolster investor confidence.

“The construction sector is undergoing a significant transformation,” Vrabel begins. “Previously, construction authorities were municipality bodies but, with the new amendment, this responsibility will transition to state bodies – this change was primarily due to zoning design issues, and the state will now oversee the process through a newly introduced zoning body.” According to him, this shift aims to make the approval process faster and more transparent, under ministerial supervision. “However, there are teething problems, particularly with software integration, which everyone is eagerly anticipating,” he points out.

Vrabel then highlights amendments of note for the environmental impact assessment law. “The amendments to the EIA law are indeed investor friendly. These raise the thresholds for new investments, meaning not every project will automatically require an environmental impact assessment,” he explains. “Instead, a simpler screening procedure will suffice, which is much quicker. This, coupled with amendments limiting public participation time in the EIA process, is designed to expedite investor projects without extensive delays,” Vrabel posits.

In addition, the tax framework of Slovakia has also seen important changes. “Tax law has undergone substantial reform aimed at supporting small entrepreneurs and addressing global corporate taxation,” Vrabel reports. “Small businesses can now enjoy a 15% tax rate if they are entrepreneurs and their turnover doesn’t exceed EUR 60,000. Meanwhile, global companies with substantial revenues must now pay a minimum corporate income tax of 15% on all income generated in Slovakia, a move aimed at ensuring the fair taxation of multinational corporations.”

And there is also the topic of cybersecurity, which is becoming increasingly important for the country. “With the implementation of the European NIS2 Directive in October, companies with over 50 employees and a turnover of EUR 10 million must adopt stringent cybersecurity measures,” Vrabel outlines. “This includes internal directives, employee training, and investment in hardware to ensure data security; the aim is to prepare companies early for these new requirements, enhancing national cybersecurity resilience,” he explains.

Finally, Vrabel reports on changes to the criminal law framework, especially regarding corruption cases. “The reform in criminal law and procedure eases the criminal charges and statutory time limits for wrongdoers. The controversy mainly revolves around the alignment of these laws with constitutional principles, especially concerning the reduction of criminal accountability in certain cases,” he concludes.

Expectations are high in Slovakia for the mergers and acquisitions, private equity, and energy sector pipelines, according to Hillbridges Partner Miroslav Trencan, who highlights a series of shifts and trends shaping the market, from the challenges of financing and the impact of regulatory changes to geopolitical influences and the strategic decisions driving large-scale M&A projects.

“Over the last few months, we’ve seen significant strength in mergers and acquisitions, private equity, and the energy sector,” Trencan begins. “There’s a notable trend, especially in private equity, where there’s been a push for the disposal of portfolio companies. This shift is partly due to the large increase in PE ownership we witnessed in 2021 (after the stalemate during the previous COVID period), followed again by a period of stagnation caused by high interest rates and financing challenges,” he explains, adding that he is hopeful this indicates a healthy trend for the months ahead.

“Following the surge in PE activity in 2021, the rising interest rates made financing new deals difficult, leading to lower valuations for PE portfolio companies due to the lack of available financing,” Trencan continues. “This resulted in a backlog of transactions ready for sale but facing unfavorable terms. Recently however, PE managers have shifted strategies, recognizing the need to sell and report returns on their investments, even if that means accepting lower valuations for target companies – which has led to an increase in PE activity in recent months,” Trencan explains.

Aside from private equity, Trencan reports that 2023 saw “an increase in large-scale M&A activities, particularly in the energy sector, focusing on heat power plants and heavy industry targets like the steel industry. These targets were either overdue for sale or the result of strategic decisions – it’s a trend that’s clear in our pipeline and one we expect to continue into 2024,” he adds.

Moving on, Trencan mentions that the new FDI regime, introduced under the EU umbrella with local specifics, “has indeed caused considerable challenges, particularly in terms of unpredictability in deal timings. The Slovakian version adds complexity, requiring FDI approval for EU investors acquiring certain strategic assets, which can delay transactions significantly,” he says. “This, coupled with the Critical Infrastructures Act, allows the government to screen even intra-EU transactions, making the process more complex and unpredictable.”

Focusing on the geopolitical landscape as an influencing factor in M&A activities, Trencan reports that “the Russian war in Ukraine and the consequent US-EU sanctions regime have profoundly impacted daily operations. Compliance with sanctions has become a daily task, affecting supply chains, customer relations, and transactions,” he says, adding that this trend is expected to continue into 2024.

Finally, Trencan says he is “expecting further amendments to the FDI regime to align with the original EU goals of controlling non-EU investments. Additionally, the recent government changes in Slovakia could lead to other legislative and regulatory changes, especially in the energy sector,” he reports. “The completion of a nuclear facility and the announcement of a new nuclear project reflect broader trends in the EU toward nuclear energy, which will likely influence our work moving forward,” Trencan notes in conclusion.

Nedelka Kubac Advokati has successfully represented the interests of the Zlavomat discount portal through an investigation by the Slovak Competition Authority for possible abuse of a dominant position.

According to the firm, it has managed to successfully dispel “competition concerns raised by the competition authority by the proposal of commitments. This marked the conclusion of the investigation into one of the first cases in the Slovak digital environment without any sanctions being imposed.”

The NKA team included Partner Martin Nedelka and Senior Associate Jakub Jost.