Category: Slovenia

Franchising may be an attractive proposition for many companies wishing to expand internationally. Take a look at this overview to discover the applicable franchise law in Slovenia, covering the essentials for franchisors, the relevant areas of law, selected aspects such as fees, and dispute resolution and applicable law.

ESSENTIALS

about Slovenia’s franchising law

1. No legal codification and special regulation of franchise agreements;
2. Parties to the franchising agreement may regulate their contractual relationship freely, as long as it does not contravene the Slovenian Constitution, mandatory legal provisions, and moral principles;
3. Case law on franchise agreements is scarce. However, courts regularly uphold provisions of franchise agreements (also those made in favour of the franchisor);
4. Confidentiality clauses are essential as this area is regulated by the mandatory provisions of the 2019 Slovenian Trade Secrets Act.

RELEVANT AREAS OF LAW

Legal basis of Franchise Law

Franchise agreements are not codified in Slovenian law, and there is no official legal definition of “franchise”. In Slovenian legal theory, franchise agreements are considered as “agreements sui generis”, which may contain elements of various codified agreements (e.g., license, agency, sale and purchase, or lease agreements). Franchise law in Slovenia is primarily developed by Slovenian courts, which inter alia, decide in accordance with the principles of civil, commercial, and corporate law. However, jurisprudence regarding franchise agreements up till now is very scarce. Until now, the Slovenian courts upheld the content of franchise agreements, and have not found a respective clause to be null and void just because it was in favour of the franchisor. In 1998, the franchisors in Slovenia have established a Slovenian Franchise Association, which is a member of the European Franchise Federation and the World Franchise Council since 2001.

Corporate Law

Slovenian legislation does not prescribe a specific legal form of incorporation for franchisees. However, in practice, franchisees most commonly operate under the formation of a limited liability company (“LLC”; družba z omejeno odgovornostjo (d.o.o.)). The formation of an LLC is quick and simple; an LLC can have one or multiple founders (which are not liable for the obligations of the company), the minimum amount of share capital is EUR 7,500, whereas the costs of incorporation are also reasonably low. Each shareholder must fulfil several conditions under Slovenian Companies Act (absence of criminal records for certain felonies, absence of records of unpaid tax obligations etc.), in order to be able to be registered as a shareholder.

As of 2020, the incorporation of LLCs by foreign natural persons or legal entities is also subject to a special interim legislation which regulates Foreign Direct Investments (“FDI”). The legislation represents a transposition of the EU FDI Regulation (2019/452). However, as opposed to the EU regulation, Slovenian legislation considers foreign investors as also investors from EU countries. Accordingly, an establishment of a subsidiary in Slovenia by an EU or third country person, as well as an acquiring of at least 10% share or voting rights in a Slovenian company, shall require notification of such investment to the Ministry of Economic Development and Technology, if such a foreign investment can have an impact on critical infrastructure in Slovenia. The Ministry then considers whether such an investment represents a threat to security and public order in Slovenia, and issues a decision on allowing or rejecting the foreign direct investment, or else (if the FDI does not affect Slovenian critical infrastructure) issues an opinion that a special decision is not necessary.

Consumer Protection Law

The relationship between a franchisor and franchisee is not considered as a consumer relationship, as the franchisees’ activity with respect to the franchise agreement is business-oriented. This stands true even if the franchisee is organized as an “independent contractor” (samostojni podjetnik), i.e., a natural person performing business activity. The rules of consumer protection law shall thus apply only in respect of the franchisee’s marketing and selling of products or services to consumers.

Employment Law

To enter into the franchise agreement, the franchisee shall be organized as a company or an independent contractor (samostojni podjetnik; natural person, registered for performance of business activities). Such set up means that the franchisee shall not be considered as an employee of the franchisor, nor shall the employees of the franchisee be considered as employees of the franchisor. Potential exception could exist only if the franchisee would not be organized as a company (e.g., LLC) but as an independent contractor, and who would act as an employee of the franchisor (they would be economically dependent from the franchisor, the franchisor would organize its business process, give mandatory instructions to the franchisee etc.).

Law on commercial agents

It is generally accepted in Slovenian legal theory that franchising agreements also contain some elements of agency agreements. However, there is no uniform position that provisions for agency agreements (which would include provisions of compensation upon termination of the franchise agreement, legally prescribed notice period for termination of agreement etc.) should be applied mutatis mutandis also for franchising agreements. This is also reflected in the currently existing Slovenian jurisprudence, which does not apply agency agreement provisions in the Code of Obligations to franchising agreements. In this respect, the Higher Court of Ljubljana has in the Judgement case no. I Cpg 119/2014 stated that the provisions on non-compete clauses, which are otherwise used for agency agreements, are not to be used for franchise agreements, but that general provision on contractual penalty shall apply instead.

IP Law

AS a rule, the holder of the IP rights will be the franchisor, and the franchisee shall acquire a license to use such IP for the duration of the franchise agreement. In order for the franchisor’s IP to enjoy protection in Slovenia, the IP shall be registered with the Slovenian Intellectual Property Office (SIPO), or EUIPO or WIPO (with designation for Slovenia). The IP/license relationship between the franchisor and the franchisee shall entirely be regulated by the franchise agreement, whereas under the Slovenian law the license agreements must be concluded in written form.

SELECTED QUESTIONS / ASPECTS

Precontractual disclosure

There is no legal regulation on exactly which information need to be disclosed to the franchisee prior to signing the agreement. There are also no special guidelines by the Slovenian Franchise Association on the minimum information that need to be disclosed. Therefore, general provisions of the Code of Obligations shall apply. In this respect, the following provisions of the Code of Obligations are particularly relevant: (i) in order for an agreement to be concluded, the parties must agree on all important elements of the agreement; (ii) if parties believe that they have reached an agreement, but in reality there exists a misunderstanding on the nature, basis or subject of the agreement, it shall be deemed that the agreement was never concluded; (iii) participants in contractual relationships must obey principles of fair treatment and must avoid causing harm to one another; and (iv) if one party misleads the other party into concluding an agreement, the other party may demand rescission of the agreement. It stems from the above listed provisions, that both parties have a duty to disclose all information which they can expect the other party will consider relevant for the conclusion of the franchise agreement. In case this obligation is violated, the other party could demand the rescission of the agreement and reimbursement of incurred damages.

Legal restrictions

Parties to a franchise agreement may generally regulate their contractual relationship freely, as most of the provisions of the Slovenian Code of Obligations are dispositive (and can therefore be cordially amended). However, the parties to the franchise agreement are prohibited to act in contravention of the Slovenian Constitution, mandatory legal provisions, and moral principles. Failure to comply with any of the preceding, may render the agreement, or a respective contractual clause, null and void.

Antitrust/Competition Law

Slovene national legislation does not provide any direct antitrust/competition law restrictions in respect of franchise agreements. However, it should be noted that franchise agreements may contain certain provisions which would contravene Article 101 of the Treaty on the Functioning of the European Union (“TFEU”), which sets forth competition-law rules applying to undertakings and certain restriction in that respect. However, those restrictions may be declared inapplicable by specific “safe harbour rules” (e.g., Commission Regulation (EU) No 330/2010) which stipulates that Article 101 of the TFEU does not apply to vertical agreements, provided that both parties of the franchise agreement do not exceed 30% of the relevant market share, respectively (subject to additional conditions).

Law on general terms and conditions (“T&Cs”)

Most commonly, franchise agreements are concluded as reformulated agreements, so that all franchisees in different countries are bound by the same contractual obligations. However, pursuant to Slovenian Code of Obligations, any unclear provisions in such pre-prepared franchise agreements would be interpreted for the benefit of the franchisee, whereas any clauses which could be considered as significantly too harsh for the franchisee, could ultimately be declared null and void in judicial proceedings. Since franchise agreements are B2B agreements, the chance of a court declaring a contractual provision as being null and void based on it being too harsh on the other party, are significantly lessened. Generally, courts in Slovenia tend to uphold the content of franchise agreements, including those which are made for the benefit of the franchisor (e.g., the High Court of Ljubljana in the Judgement case no. I Cpg 119/2014 upheld the contractually agreed penalty of EUR 20,000 for respective violations of non-compete clause by the franchisee, for violations made after the termination of the franchise agreement).

Confidentiality

Confidentiality clause is one of the most important part of the franchising agreement. The courts will uphold the confidentiality clauses in the franchising agreements, whereas during judicial review, courts also apply provisions of Slovene Trade Secrets Act, which are mostly mandatory (ius cogens). It shall be noted that, pursuant to the Slovenian Trade Secrets Act, trade secrets are information which (i) are not generally known to the relevant public; (ii) have a market value and (iii) the holder of a trade secret has taken appropriate measures to keep it a secret. The latter condition shall be fulfilled if the holder of the trade secret has designated the information as a trade secret in writing and has informed thereof all persons who come into contact with respective information (business partners, employees, etc.). To protect the confidentiality of the franchisor’s trade secrets, it is advisable that franchisors specifically determine which information is considered as trade secrets (e.g., in internally adopted Trade Secret Rules) and have all relevant persons sign a non-disclosure agreement. Such diligence offers franchisors remedies under the Trade Secrets Act, including requesting a cessation of violation, prohibition of distribution of goods which are subject of violation (both claims may also be accompanied by a claim for temporary injunction, to be issued before the final ruling), as well as claim contractual penalties and damages resulting from the breach.

Amendments

As a general rule, any amendments to franchise agreements must be agreed upon by both parties to the agreement. The franchisor is entitled to amend the franchise agreement unilaterally only if the franchise agreement contains a clause to that effect. Should the franchisor use this clause to impose upon the franchisee disproportionately onerous obligations, such a clause could be found null and void in case of dispute (for more on this, see the section on General Terms and Conditions).

Termination

The parties to the agreement may always bilaterally agree on premature termination of a franchise agreement concluded for a definite or indefinite term. However, unilateral premature termination of agreement without cause is possible only if the franchise agreement contains a clause to that effect. Conversely, premature termination of agreement for cause (i.e., due to breach of contract) is possible also without a contractual clause, based on mandatory provisions of the Slovenian Code of Obligations. In this case, the terminating party must first issue a notice to the other party, in which it explains the breach and awards the other party a reasonable time to remedy the breach. If the breach is not remedied within the set time, the party may terminate the agreement with immediate effect. Premature unilateral termination of agreement results in both parties having to return what they have received, whereas in the case of a breach of contract, the terminating party may also claim damages from the wrongdoing party for the damage it sustained as a result of a breach.

Renewal and transfer

The parties to the franchise agreement may always bilaterally agree to renew an agreement. Since the franchise agreement usually contains elements of a license agreement, for which the Slovenian law requires a written form, also the renewal of the franchise agreement must be concluded in writing. With respect to transfer of the franchise agreement by one party to a third person, a general rule of the Code of Obligations is that a party may transfer an agreement to a third person only with consent by the other contractual party. Without a special clause to that effect, neither party shall be able to transfer (assign) the agreement to another person without the consent of the other party. The parties may, however, always agree differently in the franchise agreement itself.

DISPUTE RESOLUTION AND APPLICABLE LAW

Dispute resolution, court system In Slovenia, the court system consists of Local Courts (for cases in which the value of the dispute does not exceed EUR 20,000, and some special types of cases), District Courts (for cases in which the value of the dispute exceeds EUR 20,000, and some special types of cases, including all commercial disputes), Higher Courts (generally courts of appeal against decisions of local and district courts), and the Supreme Court (which can in some cases also review decisions of Higher Courts). The parties may agree upon the venue for dispute resolution (Slovenian courts or courts of another country). The parties may also opt for arbitration, which is in principle a much more flexible and timely manner of dispute resolution than proceedings before Slovenian courts. Arbitration proceedings in Slovenia are governed by the Arbitration Act, which sets out several ground rules for arbitration proceedings, and which also states that rulings in arbitration proceedings bear the same validity as final judicial decisions. In practice, more and more companies thus opt for an arbitration clause instead of a judicial clause, in their commercial agreements. The most common arbitration venue in Slovenia is the Permanent Arbitration before the Slovenian Chamber of Commerce.

Applicable law

Parties to the franchising agreement are, in principle, allowed to freely determine the law which will govern their contractual relationship. In case of judicial dispute, Slovenian courts or arbitral bodies would be obliged to apply provisions of said law. The only exception are rules which would contravene certain fundamental principles of Slovenian law and Slovenian legal system (the so called order public exception), as the courts and arbitration bodies can disregard such foreign-law rules.

COVID-19

In order to mitigate the impact of COVID-19 pandemic on commerce, Slovenia adopted several interim COVID-19 acts. The measures included, inter alia, state aids in the form of direct grants, tax and payment benefits, loan guarantees, wage subsidies (e.g., reimbursement of wage compensation to employees on temporary lay-off; reimbursement of paid salary compensation due to part-time work) etc. Some of the measures also included moratoriums on bank loans, and (in certain cases) moratoriums on lease payments. Namely, to help companies which were renting commercial real estate, and which could not use said real estate due to COVID-19 government measures, interim legislation provided for new rules with respect to such leases. The lessees were granted the possibility to unilaterally terminate the lease agreement, or else to request a deferral of payment of obligations under the lease agreement, as well as to demand the extension of a fixed-term lease. No special moratoriums were imposed on payment of franchise fees. In general, it was up to contractual parties to negotiate potential amendments to commercial agreements in the event that one party was harmed by the COVID-19 pandemic. Legal remedies, prescribed in the Slovenian Code of Obligations (such as demanding the rescission of contract based on changed circumstances etc.) proved to be very limited.

By Ana Kastelec and Lilit Zavašnik, Attorneys at Law, Deloitte Legal 

Up until fairly recently, the lease of business buildings and business premises (offices, warehouses, pertaining parking spaces, etc.) in Slovenia was governed by the Business Buildings and Business Premises Act (“Act”). Since the Act was adopted back in 1974, it was not shaped for the modern business environment in which it is both in the interest of the lessee and the lessor to be able to act quickly and have at least a certain degree of flexibility when it comes to adopting business decisions. The obligatory 12-month notice period for termination of lease agreements, concluded for an indefinite period, and the obligation to terminate the lease agreement through court proceedings, for example, all but served those interests.

The legislator consequently decided to put an end to this long outdated legal regime by repealing the Act in its entirety with Article 52 of the Act Amending the Housing Act, which came into force on 19 June 2021. Lease agreements, concluded prior to this date, continue to be governed by the Act, however lease agreements concluded at a later date are now governed by Articles 587 to 618 of the Obligations Code, and by the provisions agreed between the parties in each such agreement.

The practical consequences of this change in legislation are presented below.

Termination

As mentioned above, pursuant to the Act the statutory notice period for termination of lease agreements, concluded for an indefinite time, is 12 months. Unilateral termination for non-fault-based reasons is only possible through court intervention. Consequently, most lease agreements for business premises are concluded for a definite period and prolonged (usually yearly) with annexes, which is in some cases quite impractical as the parties are obliged to re-negotiate or merely re-sing the agreement on a yearly basis, just to avoid the hassle which would inevitably arise if one party would wish to unilaterally terminate the lease. The statutory termination notice period for lease agreements concluded for an indefinite period pursuant to the Obligations Code is much shorter, i.e. eight (8) days, unless otherwise agreed in the lease agreement, and the agreement may be terminated by giving the other party a simple notice.

Both under the Act and the Obligations Code it is possible to withdraw from the agreement (i.e. terminate it without a notice period and without court intervention) in case of fault-based reasons. Those reasons are quite similar under both acts, however there are certain differences, for example, under the Act the lessor was able to terminate the agreement if, for reasons beyond their control, they were permanently unable to use the premises designated for the performance of their business activities and therefore needed the leased premises for their own use. The Obligations Code does not list this as a reason for unilateral termination, therefore it is necessary to explicitly include it in the agreement if the lessor so requires.

Additionally, under the Obligations Code the lessee may terminate the lease agreement due to a defect of the leased premises if a material defect which cannot be rectified interferes with the agreed or normal use of the leased premises, or in case of a legal defect (right of a third party, restricting the lessee’s right to use the leased premises).

Conversion from fixed term to indefinite term

Both the Act and the Obligations Code stipulate that a lease agreement for a fixed term is converted into a lease agreement for an indefinite period if the lessee continues to use the leased premises following the expiry of the agreed term. Under the Obligations Code it is enough that the lessor does not object to the continuing use, whereas under the Act the lessor was obliged to file a claim before the competent court, demanding the latter to issue an order for the lessee to vacate the leased premises.

Sub-lease

Under the Obligations Code the lessee may sublease the leased premises to a third party without prior written consent if the lessor does not suffer any damage by such sublease, unless otherwise explicitly agreed in the lease agreement. Under the Act the lessor must give its prior written consent for the sublease to be valid.

General remarks

Despite the fact that the repealed Act was somewhat impractical and often criticized for its rigidness and outdatedness, it regulated the lease of business premises in detail, whereas the Obligations Code is more general and gives the parties more freedom to agree on the specifics of the lease which best suit their business needs. Given the abovementioned, consulting with a legal professional who is able to prepare the best possible agreement to serve the specific needs of your business is crucial. As they say, an ounce of prevention is worth a pound of cure!

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Ermina Delic Kamencic, Attorney at law from Ketler & Partners, member of Karanovic & Partners

Selih & Partners has advised ADM on investing in precision fermentation company Acies Bio. Solo practitioner Klemen Ticar advised Acies Bio on the deal.

ADM is a New York-listed multinational company, operating in food and commodities agricultural origination and processing. Acies Bio is a Slovenia-based biotechnology company specializing in R&D and manufacturing services for developing and scaling synthetic biology and precision fermentation technologies for food, agriculture, and industrial applications.

According to ADM, this investment will help it “more quickly advance projects in the field of precision microbial fermentation by leveraging Acies Bio’s extensive microbial capabilities and contract manufacturing services.” ADM’s investment in Acies Bio is being made through ADM Ventures, the company’s corporate venture capital arm.

The Selih & Partners team included Partners Natasa Pipan Nahtigal and Spela Remec, Legal Adviser Branko Milosevic, and Associates Miha Hocevar and Marusa Polak.

Based on changes of the Decree on bodies within ministries, the competence to perform administrative tasks in the field of environmental protection and professional and administrative tasks in the field of nature conservation, except for administrative and professional tasks related to responsibility for prevention or remediation of environmental damage, have been transferred from the Environmental Agency of the Republic of Slovenia to the Ministry of the Environment and Spatial Planning.

How does this affect administrative procedures in place?

Due to these organizational changes, which were carried out on 1 September 2021, all applications with which administrative procedures in the field of environmental protection and nature conservation are initiated, must be addressed to the Ministry of the Environment and Spatial Planning. Administrative procedures that began before 31 August 2021 will be finished by the Environmental Agency of the Republic of Slovenia. This means that any amendments to applications and other documents related to these administrative procedures still need to be addressed to the Environmental Agency.

Reports on the first measurements of emissions into the air, water, noise, reports on performed operational monitoring, reports on waste management and some other reports (based on the environmental permits and environmental protection regulations) still need to be submitted to the Environmental Agency.

What does this mean for the investors, plan producers and operators of the installations? 

An important impact of these organizational changes is the elimination of two-stage decision-making. This means there is one less appeal procedure that could be initiated by the participants in the proceedings and decisions can be challenged only in court in the administrative dispute. In practice, this will lead to faster completion of administrative procedures and lower costs for investors, plan producers and operators of the installations.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Vesna Lozak Polanec, Attorney at law, Ketler & Partners, member of Karanovic & Partners

Following the record-long period, since May 25, 2018, during which Slovenia failed to adopt a relevant GDPR-implementing act, the Slovenian Government has sent a new draft of the Slovenian Data Protection Act for public discussion. If the parliamentary process runs uninterruptedly, the adoption of the new Act can be expected by the fall of this year.

Adoption of the new Act definitely has important implications not only for the business community but for the public sector as well. Once it is adopted, the Information Commissioner will be authorized to impose fines in accordance with the GDPR (which is currently not possible, as there is no legal basis in national laws), since the administrative fines pursuant to the GDPR will have a national status of a misdemeanor and the Information Commissioner will be the competent body for conducting the misdemeanor procedure. There are several other aspects of the proposed Act that are very relevant as well.

Such new provisions will force both international companies present in Slovenia and local companies to revisit their initial regulatory reviews in relation to data protection in Slovenia, which were conducted in 2018. Even though there are no major deviations from the GDPR, the devil is in the details.

Approach to the New Data Protection Act

Slovenia has a long-standing tradition in data protection, as it is a constitutional category. The first Slovenian Data Protection Act was adopted back in 1990, even prior to Slovenian independence. The law was then revised several times, most importantly following Slovenia’s accession to the EU. The idea of having a complete act, covering the field of data protection in one single piece of legislation, is deeply rooted in Slovenian legal culture, and the approach is believed to reaffirm legal certainty. Nevertheless, adoption of the GDPR required a revision of this strategy, and during the last three years several drafts, all with a different technical approach to implementing those GDPR provisions that needed it, were introduced. For the first time, the Slovenian Data Protection Act includes direct references to the GDPR, at least in relation to certain provisions.

The latest draft of the act follows the original from 1990, but it introduces several new legislative drafting styles, similar to those used in Germany, Austria, and the Slovak Republic. The legislative aim was to follow the GDPR, but at the same time widen certain aspects, especially in relation to the applicable legal principles (legality, fairness, proportionality, etc.) and to define some aspects more precisely, as it was believed some areas are intentionally left more general in the GDPR, to allow member states to implement them in a way to foster national peculiarities. The Slovenian legislator thus relied heavily on the opening clauses.

It goes without saying that this approach, at least to a certain degree, reflects the pan-European approach provided in the GDPR. Each country’s unique interpretation of the opening clauses affects whether it diminishes the pan-European approach or merely improves legal certainty. Slovenia’s current draft walks a thin line in this respect.

What Will be Regulated by the New Data Protection Act

In addition to the Information Commissioner’s ability to impose fines in accordance with the GDPR (which are of course much higher than currently applicable Slovenian fines), the draft act, inter alia, regulates the requirements for verifying the age of minors using information society services, conditions for processing personal data of deceased persons, conditions for processing genetic, biometric, and health-related data, the mandatory deletion of personal data after a certain amount of time, conditions for Data Protection Officers, and so on.

It is worth noting that the latest draft is an improvement over previous attempts. For example, it seems there will be no mandatory knowledge of the Slovenian language for Data Protection Officers – this will of course facilitate practices by international companies. On the other hand, there are some specifics that are challenging, such as prohibitions against the use of genetic or biometrical personal data for marketing or similar business purposes, even if the services are free of charge.

Considering the above, the draft still has a long road ahead, but at least it will be an interesting one. The act, once adopted, will definitely gain the attention of companies dealing with personal data.

By Marko Ketler, Senior Partner, and Kevin Rihtar, Senior Associate, Ketler & Partners, Member of Karanovic

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On May 26, 2021, the EU’s new Medical Device Regulation came into force, significantly changing the applicable regime, including – of particular interest to the dynamic Slovenian MedTech start-up community – by providing a new definition of software applications that need to be certified as medical devices.

Previously, software as a medical device (so-called “SaMD”) has usually been classified as a class I product (categorized according to risk, contact duration, and invasiveness). Under the MDR, most SaMDs will be classified in higher risk classes. This means that manufacturers will have to fulfil more requirements to receive the CE mark (signifying that products sold in the European Economic Area have been assessed to meet high safety, health, and environmental protection requirements). Instead of allowing manufacturers to make a self-assessment, the notified body (an accredited organization designated by a member state for this purpose) will assess the device’s conformity and approve the CE mark based on an audit of the manufacturer’s technological workflow and an evaluation of the technical and scientific documentation supporting the device’s performance and safety claims.

What is the MDR?

This new regulation will, together with the In Vitro Diagnostic Medical Device Regulation that comes into force next year, gradually replace the Medical Device Directive and the Directive on In Vitro Diagnostic Medical Devices and reshape the framework for access to the medical technology market through a mandatory conformity report for all medical devices from a notified body.

Although we want to focus more on the market access aspect in this article, it is important to note that the MDR reflects a life-cycle approach. Manufacturers will now have to follow the general obligations that require them to establish, document, and implement a quality system that remains effective throughout a device’s entire life-cycle. The MDR now covers many more products than before and requires the implementation of a unique device identification device to track devices throughout the supply chain.

The modified framework will affect the notified bodies as well. They will now have to comply with the new rules on designation and continuous assessment of their work. Some countries have even reported that due to the new requirements, many previously-certified bodies have lost that status and closed their doors. Luckily, this has not yet happened in Slovenia.

How the MDR Will Affect Innovative Companies

We could discuss how the MDR was adopted in 2017, how long the transition period was, and how there was plenty of time to prepare. And there is a lot of guidance and support available, and the information has been delivered in a user-friendly way. But …

Although the new MedTech companies will benefit from the transitional period during which medical devices registered under the old rules are recertified (hopefully this will eliminate bottlenecks at the level of the notified bodies), most start-ups and other companies in the Slovenian medical technology industry we are in touch with estimate an additional ten to twelve months of work will now be required before a device obtains the required certificate and is ready for market. Twelve months is a long time for innovative products and solutions; for businesses to gain momentum before other businesses come racing in with upgrades or twists, time is of the essence. The costs associated will not be negligible either, especially for smaller companies. The majority of companies we have contacted estimate that compliance with the new regulations will cost more than five percent of the revenue the relevant software is expected to generate.

This extended certification process, combined with the failure of the Ministry of Health to deliver the regulations it promised to bridge the gaps at the local level (the draft had not yet been published at the time this article was written), makes it clear that the new system will disrupt Slovenia’s medical technology industry.

The good news for innovators is, of course, that everyone is in the same boat – a boat that needs to keep floating for a year longer than anticipated. And that is what is most concerning. A business with ideas on how to improve patients’ lives is still a business, and these twelve months may make a difference to whether a company decides to go ahead and develop an idea, kick it into the long grass, or … relocate.

By Ales Lunder, Partner, and Sasa Sodja, Attorney-at-Law, CMS Slovenia

This Article was originally published in Issue 8.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Karmen Rebesco law firm, working with Allen & Overy, has advised mandated lead arranger Nova Ljubljanska Banka d.d. on the provision of a EUR 148 million syndicated loan to members of the SIJ Group. Dentons and Jadek & Pensa advised the SIJ Group on the deal.

SIJ – Slovenian Steel Group is the largest Slovenian steel producer and one of the largest producers of stainless and special steels in Europe.

The banking syndicate consisted of NLB d.d. as the agent and original lender, as well as of Nova Kreditna banka Maribor d.d., SID banka, d.d., Ljubljana, SKB Banka d.d. Ljubljana, and Bank GPB International S.A. as original lenders.

Karmen Rebesco’s team was led by Senior Partner Karmen Rebesco.

Allen & Overy’s team included Partner Attilla Csongrady, Senior Associate Peter Redo, and Associate Petra Dzubakova.

Jadek & Pensa’s team included Partners Andraz Jadek and Ozbej Merc.

Dentons’ team was led by Partner Logan Write.

The COVID-19 epidemic and consequent restrictive measures strongly affected Slovenia’s economy, including the country’s rental market. The COVID-19 epidemic impacted all commercial leases, with tourism, hospitality, and to an extent retail among the sectors suffering most. Commercial properties with strong tenants such as IT & Life Science companies and public sector entities proved to be much more resilient than commercial properties dependent on tenants from distressed sectors.

But every crisis is an opportunity in disguise. This article provides a short overview of the (temporary) legislation adopted in response to COVID-19’s impact on commercial leases.

State Intervention Measures Adopted to Mitigate the Consequences

Tenants under Slovenian law are in general not entitled to postpone or withhold rent payments during epidemics, unless explicitly allowed to by the lease agreement. Except for an exemption from rent available to tenants of state and municipality-owned commercial real estate, there were no state intervention measures adopted to help tenants who were banned from performing their business activities during the first lockdown in 2020. Many tenants finding themselves in a difficult financial situation tried to agree on a deferral or reduction of rent with their landlords, but only some succeeded. Many companies that implemented remote work have been negotiating rental incentives, rent-free periods, and earlier lease terminations.

Only in December 2020 were certain measures adopted to help the tenants of privately-owned commercial real estate. As of December 31, 2020, tenants who are prevented or significantly restricted from carrying out economic activities and cannot use leased premises in whole or in part for the agreed-upon purpose due to state-adopted intervention measures can now terminate those lease agreements with eight-days’ notice. This measure represents a deviation from the Commercial Buildings and Business Premises Act, which provides that lease agreements concluded for an indefinite period must be terminated through the court and with a minimum of one-year’s notice. If termination of lease is not in a tenant’s interest, he can request a deferral of payments under the lease agreement or an extension of the lease from the landlord if the agreement has been concluded for a definite period. These measures are currently valid until June 30, 2021, but the government may extend them for an additional six months.

Under certain conditions, tenants and landlords can also benefit from the partial reimbursement of uncovered fixed costs. This measure is targeted at legal entities from economic sectors that were prohibited by governmental decree from offering goods and services to customers, and which consequently saw revenues fall sharply during the eligible period. The measure was originally adopted for the period from October 1 to December 31, 2020, but the government has already extended it until March 31, 2021.

In practice tenants have mainly requested a deferral of financial lease obligations and/or partial reimbursement of uncovered fixed costs, with lease terminations based on adopted measures rarely attempted.

Looking to the Future

The temporary nature of the state’s intervention measures raises the question of whether these measures should be permanently enacted for situations like epidemics. The Commercial Buildings and Business Premises Act is already outdated and in desperate need of reform. As the current law has proved to be insufficient in addressing situations such as this epidemic, we believe it would be worth considering amending it in this respect.

So far, the new measures have not had much impact on the rental market. Most tenants have not yet used their right to terminate leases, and therefore, despite a slight decline in demand due to the COVID-19 epidemic, we do not expect a flood of free office space. Average rents for business premises are expected to remain stable, as there is a shortage of quality premises. Even though remote working is currently on the increase, it will probably represent only an occasional way of working in the long-term. Therefore, downsizing of leased office space is unlikely. Average rents for industrial space are expected to remain stable for modern premises, while downward rent pressure will continue for outdated industrial space. Due to the continuous growth of e-commerce, increased real estate development in the logistics sector is expected in coming years. 

By Dunja Jandl, Partner, and Vesna Tisler, Attorney-at-Law, CMS Reich-Rohrwig Hainz Slovenia

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

“Covid is still a very hot topic in Slovenia, I’m afraid,” reports ODI Partner Suzana Boncina Jamsek. “The vaccination efforts have somewhat stalled, especially with some problems that Europe seems to have been having with the AstraZeneca vaccine, and this is affecting the market and our daily work.” Boncina Jamsek says that the country still has some lockdown measures in place, but that these change “almost on a weekly basis,” and are not very strict at the moment. “Still, business meetings are rarely taking place in person and this is still a hurdle for all of us,” she says.

The government is hoping for a stable finish to its term, Boncina Jamsek says, even though it has been experiencing issues lately. “The Education Minister has been questioned by the opposition in a parliamentary process, recently, but nevertheless the current government  seem to still be on track to complete their mandate,” she says. The government is also preparing to take over the reins of the EU in the back half of 2021.

The government’s legislative agenda has not been entirely focused on corona-related efforts. Indeed, Boncina Jamsek says, “the government has passed a proposal for a new de-bureaucratization law which is currently being vetted by the parliament – this, if passed, will likely lead to a leaner administration.” 

M&A transactions remain quite lively, Boncina Jamsek reports, although smaller than in previous years. “Still,” she says, “investment activity is high, despite corona.” She also says that the real estate market is very active and that there are a lot of investment funds establishing presences in the country. 

Additionally, Boncina Jamsek says, there has been a boom in the private medical care sector. “There has been a lot of M&A activity with private clinics and diagnostic centers recently,” she says, describing it as “a very vibrant area of the Slovenian market, overall.” 

Finally, she says that Slovenia’s banking & finance sector “has experienced a prolongation of credit arrangements, but not a lot of restructurings, unlike the last economic crisis of ten years ago.” According to her, “I think that this is because there are still a number of Covid-19 measures in place that ease the existence of businesses – after these run out, it remains to be seen what the situation will be like.”

 

On June 20, 2019, the European Parliament and the Council of the European Union adopted the Directive (EU) 2019/1023 on restructuring and insolvency (hereinafter: Directive). The objectives of the Directive are to make it easier for companies in financial difficulty to access restructuring measures at an early stage to prevent them from becoming insolvent, to lay down minimal rules on the discharge of debt incurred by insolvent entrepreneurs and to increase the efficiency of preventive procedures and insolvency procedures, primarily to shorten the length of the procedures.

Member States have to adopt and publish the laws and regulations necessary to comply with the Directive by July 17, 2021. Nevertheless, the Member States that encounter particular difficulties in implementing the Directive into their national legislation can benefit from an extension of a maximum of one year of the implementation period. Even though the Slovenian Government exercised the benefit of extension of the implementation for one year, the Ministry of Justice has in December 2020 prepared a draft bill introducing amendments to the Slovenian Insolvency Act to implement the Directive into Slovenian legislation.

Researches show that in Slovenia an insolvency procedure with the distribution of assets on average lasts 4 years and 4 months before it is completed. The average satisfaction of ordinary claims in bankruptcy procedures is just 4,6%. The excessive length of the procedures and untimely identification of financial difficulties have been identified as the main obstacles triggering low recovery rates in insolvency procedures.

The Directive and draft bill acknowledge that the earlier a debtor can detect its financial difficulties and can take appropriate action, the higher the probability of avoiding impending insolvency or, in the case of a business the viability of which is permanently impaired, the more orderly and efficient the liquidation process would be.

For this purpose, the proposed bill introduces the term “threatened insolvency” into Slovenian legislation as a situation that arises when it is probable that a debtor will become insolvent within one year. To timely prevent insolvency, a system of early identification of threatened insolvency is proposed along with an obligation of financial advisors of the company (accountants, auditors or persons providing services related to the company’s operations or inspection of the company’s operations) to notify the management of the company in writing if they believe that the company is likely to become insolvent or is insolvent. Furthermore, it is proposed that the obligation of the management (and in some cases also the shareholders) to prepare a financial report and to propose restructuring or insolvency procedure is moved from a time when the company becomes insolvent to an earlier point in time when insolvency is only threatening.

Intending to eliminate the threatened insolvency, the proposed bill is also expanding the scope of preventive restructuring procedures. At present, preventive restructuring procedure can only affect financial creditors and has minimal court oversight. The proposed new judicial restructuring procedure provides a possibility to adopt a wider range of measures including a restructuring of non-financial claims. This pre-insolvency procedure could prove useful in restructuring linked businesses on different levels of a vertical supply chain that was hit by the COVID-19 pandemic.

The proposed bill also provides measures to facilitate the success of the restructuring procedure. Many agreements include clauses on termination of agreements in case of insolvency or threatened insolvency (ipso facto clauses). This decreases the possibility of a successful rescue of the debtor’s business. The bill provides a prohibition of termination “essential contracts” (contracts which are necessary for the continuation of the day-to-day operations of the business, e.g., supply of gas and electricity) during the negotiation phase solely on account of the insolvency of the debtor. Prohibition of such termination should enable the debtor to continue its business operations until a restructuring plan is confirmed or denied.

Taking into consideration the adverse economic consequences of the COVID-19 pandemic and the fact that state intervention measures will eventually cease, it is expected that in H2 of 2021 we will witness an increased wave of restructuring and insolvency procedures. Even though the Directive was adopted before the COVID-19 pandemic hit the world, we can say that the Directive is addressing efficient solutions for the affected companies and is a welcoming addition to the Slovenian legislation on restructuring and insolvency. Keeping our economy alive in these difficult times will be one of our main goals in years to come, consequently, Slovenia and the other Member States will face difficult regulatory challenges to successfully tackle these issues. And implementing the Directive into national legislation surely is a first step in the right direction.

By Ziga Kosmatin, Senior Associate, and Luka Rzek, Associate, Miro Senica & Attorneys