Category: Slovakia

Legal AI developments, the impact of whistleblowing legislation, and the potential for a shorter work week keep lawyers talking in Slovakia, while a slowdown in legislative activity has them worried, according to Eversheds Sutherland Partner Annamaria Tothova.

“AI holds great potential for the future of law firms and lawyers,” Tothova begins. “It can streamline processes and potentially allow us to handle more work in less time. There’s even hope that some lawyers might actually get to have free time.” Still, there are significant challenges ahead, she notes, among them “the issue of trust in the accuracy of AI-generated text. And law firms are aware that relying solely on external AI services may not be the best approach, as it involves sharing sensitive information and know-how.” Consequently, she says “many law firms are investing in developing their own AI solutions in-house. This allows them to maintain control over their data and adapt the technology to their specific needs. Developing proprietary AI systems has become a top priority for law firms.”

Moving on, Tothova says “Slovakia now has a caretaker government, with experts running the country until new elections in September. This interim period, combined with the summer months, reduces expectations for significant legal developments.” Still, several important acts are awaiting a vote in parliament before the end of June, she notes, with lawyers curious about which will make the cut. “Many bills will be stuck in limbo till September, and then the outcome of the elections will shape the legal landscape, depending on who takes over which ministry.”

“For one, the new legislation for construction permitting, set to come into force in April 2024, suffers from the lack of some specific decisions, regarding large industrial developments and facilities for example,” Tothova says. “The environmental impact assessment and construction permitting used to be separate procedures, taking years to complete. However, there are now multiple acts in parliament proposing different procedures, oversight authorities, and setups. The timing is crucial as, even if an act is accepted by June, it may still be difficult to establish the necessary personnel and procedures in place by April 2024,” she explains, with many of the developers adopting a sit-and-wait approach.

According to Tothova, “the introduction of whistleblowing legislation in Slovakia, like in other countries, brings both benefits and concerns.” She notes that, while most companies welcome the mechanism, “there is a potential for abuse by employees who may use it to protect themselves from termination. Balancing the benefits and potential misuse is a challenge that still needs to be addressed.”

Connecting both AI and labor, Tothova points to ongoing discussions about a shorter working week. “If AI can facilitate work and enable tasks to be completed in a shorter time, it would provide an advantage to employees. Some early trials have shown increased productivity within the four days of work,” she says. “However, psychologists suggest that, after six months, those productivity gains may plateau, so the feasibility and long-term impact of such measures should still be explored.”

“While there are currently no specific regulations regarding a shorter working week in Slovakia – only for a shorter working time” – according to Tothova, “it is possible for employers to implement it within the existing framework.” This would involve adjusting internal documents to implement the rules for daily working hours and overtime, as well as conditions for extra days off. “However, having it formally established in legislation would provide a more secure and consistent framework,” Tothova concludes.

CEELM: Tell us a bit about the deal and your firm’s role in getting it across the finish line. 

Young: The deal involved Microsoft’s acquisition of Minit – a Slovakia-based company, specializing in process mining technology. It involved a Dutch holding company as well as subsidiaries in the UK, US, and Slovakia, where the founders grew their business. We were brought in to support Microsoft in dealing with the rather complicated structure and helping them get the acquisition done. 

CEELM: At what stage did you become involved and what do you believe it was about your firm/team that won you the mandate?

Young: We got involved at the term sheet stage, so fairly early. We have a good relationship with Microsoft – we have acted for them on transactions for over 20 years now. We work with them primarily in the UK but, every now and then, we end up supporting them in other jurisdictions as well. Since we have covered so many transactions for them over time, I think it’s a simple matter of them knowing and being comfortable with our team. And we know them and how they like things done quite well by now.

CEELM: What do you believe were the main considerations for which the jurors picked this deal as the winner?

Young: I think it’s a great success story – a Slovak-founded business that now lives the dream. It’s what all EU tech entrepreneurs are looking to do: grow through venture capital and then exit to a US giant. I don’t think the value is disclosed but it represents a great endorsement of what the team there has done and what can be achieved in the country. 

CEELM: What were the most complex aspects of the deal from a legal perspective? And what were some of the biggest difficulties faced in the process?

Young: It’s difficult to say without going into any sensitive matters. If I had to point to one obvious challenge, it’d be the multi-jurisdictional element of the deal: a US buyer, a Dutch holding company, and all the subsidiaries involved across the board. 

CEELM: In contrast, what, in your opinion, went particularly smoothly and what do you believe contributed to it?

Young: Again, it’s difficult to go into detail but, in general terms, I’d say the deal was run as it should be: all were working towards the same general goal – getting the deal done. It was a very collaborative process: the sellers wanted to sell, and the buyer wanted to buy. Ultimately, the buyer wanted to incorporate the target’s services into their own offering. That could only be a success if the team integrates and the process is collaborative. We were all there to help the transaction happen rather than hinder it.

CEELM: In your view, what is the significance of this deal for the Slovak market?

Young: As I mentioned already, I think it represents a great endorsement of what a tech company can achieve in the country. They built up a very exciting company that runs cutting-edge technology to the point that it was interesting for one of the largest tech companies in the world. 

CEELM: What about the wider CEE region?

Young: I see a lot of companies having tech that is built out of the region. I get the impression that there are good universities producing well-educated software developers that a lot of companies use to build their tech. I think deals like this one will reinforce that impression and others might turn to the region for those capabilities.

CEELM: Do you believe we can expect other similar deals in the near future in the region? Why/Why not?

Young: It’s always good for a market to have a success story such as this one. It represents a great endorsement to have one leading global company comfortable acquiring a company in the region. It sends a message that if they would, why would others shy away from it? At the end of the day, large tech companies need to remain cutting-edge. Since that is not always possible organically, I think they will continue to look around for opportunities to acquire good people and good tech through such deals. And deals such as this one send a message that CEE is a good place to look for targets. 

This article was originally published in Issue 10.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here. 

Detailed information on subsidies.

What’s coming up:

1. Subsidies for the second and third quarters of 2023

The Ministry of Economy will continue to provide compensation for increased electricity and gas prices in the second and third quarters of the year. With effect from 23 May 2023, the Ministry extended the eligible period for the provision of subsidies until September 2023. Entrepreneurs will thus be able to apply for subsidies for energy consumed from January 2023 to September 2023, for each month separately. Following this change, the deadline for applications has also been extended. Subsidies for these months will be available for application until the end of November 2023. This will ensure continued financial support for the first three quarters of this year.

Under this subsidy scheme, the Ministry compensates entrepreneurs for the costs of high energy prices by means of a direct subsidy of 80 % of the eligible costs, i.e.
the difference between the price actually paid for gas and/or electricity and the set maximum limits of EUR 99/MWh (gas) and EUR 199/MWh (electricity). This is the net price of the commodity excluding distribution and network charges.

The application is submitted from the applicant’s electronic mailbox to the Ministry of Economy of the Slovak Republic, one month in arrears. The maximum amount
of the subsidy is EUR 200 000 per month. Conditions to be fulfilled for the grant:

• The applicant must have established its own off take point and assigned an ID number.
• If the amount requested exceeds EUR 100 000, the application must identify the ultimate beneficial owners.
• Eligible applicants are economic operators, i.e. providers of goods and/or services, regardless of their legal form, method of financing and size, with the exception of credit and financial institutions. Distressed companies are also eligible.
• An eligible applicant is not a business that does not have an established off-take point during the eligible period and does not have a unique billing EIC and/or POD code that appears directly on the invoice.
• An eligible applicant is only an end-user of energy and is not an entity that has consumed energy for the purposes of electricity and heat production during the eligible period.
• The subsidy is granted retrospectively, based on the submission of an invoice for the energy consumed.
• If the amount requested exceeds EUR 100 000, the applicant must be entered in the register of public sector partners.

What remains in force:

1. Support for small consumers of regulated electricity and gas

Small businesses with an annual consumption of up to 30,000 kW of electricity
or 100,000 kW of gas are guaranteed a price for part of the regulated energy supply, with fixed ceilings of EUR 99/MWh (gas) and EUR 199/MWh (electricity) for the whole year 2023, according to Government Regulation No.19/2023 Coll.

2. Guaranteed energy prices for households

 The maximum electricity price for households remains at 67.3 EUR/MWh. In the case
of gas, the price will be increased by a maximum of 15 % compared to 2022.

By Bernhard Hager, Managing Partner, and Annamaria Tothova, Partner, Eversheds Sutherland

Kinstellar, working with Winston & Strawn, has advised Tempo Software on its agreement to acquire Old Street Solutions brand operator Amovos.

“Old Street Solutions is an Atlassian Marketplace Partner simplifying Jira and Confluence with their popular Custom Charts for Jira and Custom Charts for Confluence apps,” Kinstellar informed. “The acquisition will expand Tempo’s Atlassian-based product suite providing users with easy-to-use, customizable data visualizations of Jira data, so teams can focus on getting work done quickly, not struggling with complicated corporate reporting tools.”

Tempo Software provides portfolio management solutions for product development organizations.

“We’re thrilled to welcome Old Street Solutions to Tempo, as it marks another significant step forward in our mission to empower teams to work better together,” Tempo Software CEO Mark Lorion commented. “Data visualization and reporting capabilities are essential to any Strategic Portfolio Management solution and help our customers to make informed decisions and improve their product development processes. Through it, we enable organizations to see their entire process clearly and to gain insights into optimizing their plans, capacity, and costs.”

The Kinstellar team was led by Partner Adam Hodon and included Managing Associate Lukas Mrazik, Associates Norbert Stilla, Dominika Biela, and Matus Kocisek, and Junior Associates Barbora Blahova and Martin Danco.

Kinstellar did not reply to our inquiry on the matter.

With political instability leading to a legislative stall in Slovakia, a spark of hope flickers through the freshly approved National Research Development and Innovation Strategy, according to Majernik & Mihalikova Partner Katarina Mihalikova.

“A few weeks ago, the government approved a milestone in the Recovery plan – the National Research Development and Innovation Strategy – which is great news,” Mihalikova begins. “This provides backup for swaths of resources, as well as a clear path and the requisite financial and implementation tools for innovation on a national level.” 

According to Mihalikova, the team around the Chief Innovation Officer at the Government of the Slovak Republic, Michaela Krskova, is to thank for this, because the “innovation agenda was not, historically speaking, a priority for our governments so far. People just didn’t understand that the knowledge economy is the way forward and that the world would pull away from us if we just stuck to the traditionally successful endeavors like automotive construction facilities,” she explains. “This new strategy is great news and, hopefully, it will bind future governments to the innovation agenda as well.” 

On the not-so-positive side of things, Mihalikova reports that the current government, which is in a state of dissolution, “has collapsed and will be replaced by a caretaker government. The President of Slovakia will appoint acting ministers – professionals with no political affiliations – to lead the country until the elections,” she says. “This only exacerbated the already tumultuous state of political affairs and I hope that matters can stabilize by the time elections are around.”

This also impacts the legislative agenda. “We are in a stall right now,” Mihalikova continues. “The next parliamentary session had a scheduled agenda with more than 200 items on the docket – all of which are in a state of flux because there isn’t a functioning parliament right now. Even the acts that we were supposed to have passed a long time ago, on account of harmonizing with the EU, are stalled,” she explains.

On the commercial side of things, Mihalikova reports a slowdown in the tech and start-up sector. “Investors are more careful with their money and are not handing it out as easily as they once did,” she says. “Still, there are companies that are maturing after five to seven years on the market, and we have seen interesting exits. For example, Microsoft and Cisco are picking things up – but these are the results of hard work by the founders in previous years.” She hopes that things will soon return to normal, with “valuations being more down to earth and more realistic, as there is still, perhaps more, potential to come up with and develop new ideas.”

Finally, Mihalikova says it is becoming noticeable that the “deficiencies of our education system are catching up,” with many people who are “studying abroad not coming back. This brain drain, coupled with the coming demographic crisis, would take years of systematic, focused work to offset,” she notes. Connecting it all together, Mihalikova hopes the National Research Development and Innovation Strategy might help combat this: “Depending on its implementation, it might attract people and draw them back. And it might stimulate regional development as well as tech transfers from universities and the academic world to businesses.”

An Overview of Important Legislative Changes in Slovakia

Increase in the minimum wage benefit for employees from 1 June 2023

From 1 June 2023, the minimum wage benefit for employees will again be determined as it was before 2020 as follows:

– work on Saturday – 50% of the minimum wage

– work on Sunday – 100% of the minimum wage

– work at night – 40% of the minimum wage

Increase in meal allowances for business trips from 1 January 2023

From the beginning of 2023, the meal allowance for employee business trips has increased. The amount of the meal allowance depends on the length of the business trip as follows:

– EUR 6.80 for trips lasting 5 to 12 hours;

– EUR 10.10 for trips lasting 12 to 18 hours; and

– EUR 15.30 for trips lasting more than 18 hours.

Levy on excess income from the sale of electricity

Producers of electricity from inframarginal sources (RES, nuclear energy, brown coal), or persons connected with them, who supply electricity produced by the producer to the wholesale market, are obliged to file a notification and pay the excess income levy for the first time in the month of February 2023, no later than 25 March 2023. The levy represents 90% of the excess income, while the excess income means the positive difference between the market income and the market income cap.

The certificate for e-signature on OP chips issued until 20 June 2021 expired on 31 December 2022

The certificate stored on OP chips issued until 20 June 2021 expired on 31 December 2022. In the transitional period until 30 June 2023, it is possible to perform selected actions (authorisation of electronic documents on the Financial Administration portal, customs declarations, etc.) through an alternative – an improved electronic signature.

 By Filip Kozon, Associate, Jan Macej, Sylvia Berova and Sona Petrovicova, Senior Associates, Eversheds Sutherland

The Slovak Republic was one of the last countries in the region to adopt the Foreign Direct Investment Screening Act, which introduces a comprehensive mechanism for screening foreign investments for the purpose of protecting security and public order based on Regulation (EU) 2019/452.

Foreign investments in which a foreign investor from third countries outside the EU directly or indirectly acquires a target entity or part thereof, exercises effective participation in the target entity or increases it, exercises control in the target entity, or acquires ownership or other rights to substantial assets of the target entity are subject to screening. So-called critical foreign investments will be subject to mandatory screening.

These are investments in the areas of production, research, development or maintenance of military technology or military material, dual-use products, biotechnology, security, periodical publication publishers, etc. In the case of a critical foreign investment, it is necessary to submit a request for screening before it is carried out and screening must not be carried out until the decision on its permission is issued. In the case of non-critical foreign investments, it is possible to apply for screening voluntarily.

The motivation for voluntary requests for screening should be a certain legal certainty, since with specific exceptions re-initiating the procedure for screening an investment with the same parameters in the future by official authority is, in principle, not admissible. In the case of transactions with an international element from a third country, it will always be necessary to examine in detail whether they may be subject to mandatory screening or consider requesting a voluntary review.

By Petra Markova, Counsel, Eversheds Sutherland

Former Allen & Overy Counsel Katarina Matulnikova has been appointed as the new Managing Partner and Head of the Employment team at Wolf Theiss in Bratislava. She takes over from Jitka Logesova, who had held the position since 2019.

Specializing in employment law, Matulnikova previously almost 13 years with Allen & Overy Bratislava, from 2010 to 2023, including as a Counsel and Head of the firm’s Employment practice. Before that, she was an Associate with DLA Piper, from 2004 to 2010.

“With Katarina joining the Bratislava office, our team is primed for further growth both in Slovakia and across the wider CEE region,” Logesova commented. “She is an outstanding lawyer who has proven her profound expertise and leadership skills over many years, winning her major recognition both domestically and internationally.”

“Slovakia has very few women holding down Managing Partner roles,” Matulnikova added. “And of those, even fewer predominantly practice in a non-transactional field. So I am very thankful for the boldness shown by Wolf Theiss in giving me the opportunity to lead and contribute to the well-established Wolf Theiss team in Bratislava. I am thrilled to further diversify the team and the portfolio, as we look to drive growth and continue providing top-notch advice to our clients.”

On 1 March 2023, the Act on Screening of Foreign Investments entered into force. It introduces a comprehensive screening mechanism for foreign investments in the Slovak Republic.

This puts Slovakia among the many countries that have introduced various foreign investment control (FDI control) regimes in recent years. The new Act replaces the previous control regime applicable for selected transactions, which was rather hastily passed in 2021 and is reflected in the Act on Critical Infrastructure. The new regime is more reflective of international standards and in line with the framework of the EU regulation.

The new Act does not aim to reduce the number of foreign investments in Slovakia. The main objective is merely to ensure that foreign investments may be reviewed in terms of protection of security and public order of the Slovak Republic and the EU.

Whether this objective will be met will be determined in practice.

Who is a foreign investor according to the Act?

1. In general, any person (legal or natural) outside the EU will be considered a foreign investor— i.e., persons that are not EU citizens or do not have their registered seat or place of business in the EU.

2. However, even EU citizens or persons with their registered seat or place of business in the EU will be considered foreign investors if they are controlled by a person outside the EU or by a public authority of a third country, such person is their ultimate beneficial owner or such person finances the transaction.

What types of businesses and foreign investments will be regulated by the Act?

A foreign investment is any investment (irrespective of its amount) made by a foreign investor that enables the investor to directly or indirectly acquire a target person, to exercise effective participation or control in the target person, or to acquire its substantial assets.

It is irrelevant whether the investment is a planned investment or the result of pledge enforcement, execution or other enforcement right.

The Act distinguishes between two types of investments:

1. A critical foreign investment is the acquisition (or exceeding) of a 10%, 20%, 33% or 50% share in the target person in the following sectors :

• Specific products (in particular weapons, explosives, pyrotechnic products)
• Defense industry products
• Dual-use items (software and technology that can be used for both civilian and military purposes)
• Biotechnology
• Critical infrastructure
• Essential services related to cybersecurity regulations
• Digital service provider in the field of cloud computing
• Providers of national-level information security encryption
• Media services (broadcasting)
• Content sharing platforms (with an annual turnover above €2 million)
• Periodicals publishers
• Operators of news web portals
• Press agencies

2. Non-critical foreign investment is the acquisition (or the exceeding) of a 25% or 50% share in any target person, except in the sectors listed above (irrespective of the turnover of the target person or the value of the transaction).

However, the following are not considered to be foreign investments:

• Investments between related parties (i.e., intragroup reorganizations)
• The establishment of a pledge
• Transactions in the ordinary course of business for the purpose of selling or buying goods, products, supplies or services

When will screening become mandatory?

The acquirer must apply for investment screening only when the investment is considered a critical foreign investment.

In other cases (non-critical foreign investments), the acquirer can decide whether to submit an application. Please note that the Ministry of Economy is entitled to initiate ex officio screenings up to two years after the date of the transaction and can potentially impose an obligation on the foreign investor to reverse the transaction. With that in mind, it is always necessary to assess the level of risk in a particular case when deciding whether to apply for an optional screening.

How will the foreign investment screening process work?

The competent authority to carry out the screening is the Ministry of Economy.

Proceedings may be initiated upon the application of the foreign investor or ex officio screenings can be initiated by the Ministry of Economy.

This procedure has several phases; below we have summarized the essential ones:

1. Assessing the foreign investment’s negative impact risk:

• This phase applies only in the case of a non-critical foreign investment.
• The Ministry of Economy notifies the ministries of Interior, Defense, Foreign Affairs and possibly other concerned ministries, as well as the police and intelligence services (known as “consulting authorities”) of the proceeding; these authorities then have 30 days to provide their statement regarding the risk of a negative impact of the foreign investment.
• If no risk has been identified, the Ministry of Economy sends a confirmation of this to the foreign investor and the target.
• If a negative impact risk is identified, the Ministry of Economy will initiate the screening process described below.

2. Screening the foreign investment:

All critical foreign investments will undergo this phase as well as non-critical foreign investments if the risk of a negative impact is identified in the first phase.

The Ministry of Economy notifies the consulting authorities again, and they provide their statement within 40 days.

Subsequently, the Ministry of Economy prepares a proposal of the final statement

(i) approving,

(ii) conditionally approving or

(iii) rejecting the foreign investment; the foreign investor and the target person then have 15 days to submit their comments to this proposal (this process is also referred to as “consultations”).

After consultations, the Ministry of Economy issues a decision, either approving the investment, conditionally approving it (in this case it also sets out the mitigation measures), or it submits a statement to the government rejecting the foreign investment. If the government agrees with the rejection, the Ministry of Economy will issue a decision rejecting the foreign investment; if the government disagrees, the foreign investment will be allowed.

If the Ministry of Economy does not issue a decision or submit a final statement to the government within 130 days from date proceedings were initiated, the foreign investment is considered to have no negative impact; however, the Act does not set out any respective time period in which a final statement must be assessed by the government.

Decisions are subject to appeal. Appeal is decided by the Minister of Economy. Following an appeal, the acquirer can then initiate an administrative action before the Supreme Administrative Court of the Slovak Republic.

What is the practical impact on M&A transactions?

The new regime may have a significant impact on the course of the transaction. From a practical point of view, it is particularly important to point out the following:

In the early stages of the transaction, it is necessary to assess whether the transaction is subject to mandatory screening (whether it can be classified as a critical foreign investment).

If it is determined that the foreign investment is non-critical, it is necessary to assess the likelihood of the transaction being subject of an ex officio screening by the Ministry of Economy in the future, and on that basis to determine whether an optional screening should be applied for before the transaction closing.

The amount of time for the screening has to be reflected in the transaction timeline — the screening process can take up to 130+ days.

A critical foreign transaction cannot be closed without prior approval. In the event of a breach, a fine can be imposed of up to the value of the critical foreign investment or 2 percent of the total net turnover generated by the foreign investor or controlling person.

If a foreign investment is completed without prior approval, the Ministry of Economy may initiate an ex officio screening procedure and impose an obligation on the foreign investor to reverse the transaction (this screening can be initiated up to two years after the transaction).

By Juraj Gyárfáš, Patner, Tomáš Pavelka and Norbert Vizvári Associates,  Dentons

Amidst a wave of reorganizations and restructurings in the country, new businesses are looking to enter Slovakia – but have to face its new FDI screening mechanism. Despite the slight economic downturn, there is yet reason to hope for better days, according to DLA Piper Country Managing Partner Michaela Stessl, especially given the prospects of the automotive sector.

“There is a lot of reorganization and restructuring work right now, as a direct consequence of the economic downturn that came about as a post-Covid result exacerbated by the war in Ukraine,” Stessl begins. “Lawyers are extremely busy with reorganizations and restructurings, which is impacting several areas, not just corporate.” She says that, depending on client preferences, these procedures could be quite complex. “Liquidation procedures in Slovakia are very complex and demanding in the best of scenarios, and the current situation is far from ideal for most businesses,” she says.

Clients looking to shift their business elsewhere, to downsize their business, or to straight-up shut down – all of this is impacting the business landscape in Slovakia. “Looking at matters from a long-term perspective, some businesses are leaving the country and creating room for others – and we have already seen a sharp interest,” Stessl reports. “Many foreign businesses, in particular from the US, are expressing a strong desire to establish themselves in Slovakia. These endeavors, largely by defense companies looking at CEE countries, are, also, complex and require a lot of careful, professional work.” On account of such replenishment in business numbers, Stessl notes she is “not too pessimistic, from a business perspective.”

However, these incoming businesses might be facing some hurdles. “As of March 1, 2023, a new FDI screening mechanism is finally in place, after two years of different iterations and drafts,” Stessl reports. With the new mechanism having entered into force, she says any new company seeking to establish its presence in Slovakia will have to apply “careful analysis to figure out if its actions trigger a screening procedure and a notification to the regulator, or if it has to be discussed with them beforehand.” According to her, this also applies to intragroup acquisitions and transfers of shares, which only creates the need for more attention. “The FDI screening mechanism represents a major point of interest for businesses, especially given the minor discrepancies between different EU member states that deployed it into their national frameworks. If not analyzed and approached properly, non-compliance could stifle a transaction or even terminate it and lead to substantial monetary fines,” she explains.

Ultimately, Stessl says the Slovakian economy is, right now, in “a bit of a downturn – there are layoffs, the state’s budget is overindebted, and a certain percentage of the GDP needs to be used for defense purposes. Also, finding qualified employees for local businesses is a bit problematic nowadays.” Still, despite all of that, there are sectors of the economy that are performing well and are showing promise for the future, she notes. “Slovakia has a strong automotive sector and, recently, has managed to attract Volvo to engage in electric car production here. Consequently, this will attract other related businesses, such as battery makers, which could create additional ripple effects – all reasons for a more positive outlook,” Stessl concludes.