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Significant legislation enacted in 2011

EVEN though the current government has been in office for only a little more than one-and-a-half years, it has pushed a number of significant laws and amendments to laws through parliament that have changed the business environment and aspects of society as a whole. Lawyers interviewed by The Slovak Spectator say that amendments to the Labour Code, the Civil Procedure Code and the Act on Bankruptcy and Restructuring, as well as the totally new Act on Drugs, were some of the most significant pieces of legislation adopted in 2011.

EVEN though the current government has been in office for only a little more than one-and-a-half years, it has pushed a number of significant laws and amendments to laws through parliament that have changed the business environment and aspects of society as a whole. Lawyers interviewed by The Slovak Spectator say that amendments to the Labour Code, the Civil Procedure Code and the Act on Bankruptcy and Restructuring, as well as the totally new Act on Drugs, were some of the most significant pieces of legislation adopted in 2011.

The Slovak Spectator spoke with Ján Azud, partner at Ružička Csekes, Ján Makara, attorney-at-law and partner in PETERKA & PARTNERS, Silvia Belovičová, local partner at White & Case, Daniel Futej, partner at Futej & Partners, and Dávid Oršula, advocate and partner at bnt - Sovova Chudáčková & Partner.

The Slovak Spectator: Which legislative changes or new laws adopted in 2011 do you consider to have been the most important, and why?
Ján Azud:
We would like to address this question from the perspective of various sectors which account for a significant part of our practice. In the area of corporate law we believe that the implementation of the EU legislation relating to mergers and divisions in the Commercial Code has been a positive step forward. Amendments incorporating the EU rules will make the process of mergers or divisions less complicated and costly. The M&A [mergers and acquisitions] and competition areas will be positively affected by the amendment to the competition act which modifies the merger review process. Historically, foreign-to-foreign acquisitions were subject to mandatory notification even though their effects on the Slovak market were minor. Multinationals active in our market were obliged to notify about all their acquisitions occurring wherever in the world despite the fact that the target company was not active in Slovakia at all. This should change going forward, as the amendment modified the notification obligation to reflect the needs of the market.

As far as the real estate sector is concerned, we found it very important that new legislation on termination and consolidation of some of the leases regarding residential premises was adopted, based on which landlords acquired strong termination rights for leases with regulated rent. Not strictly a law – but very important anyway – was the ruling by the Constitutional Court which declared the expropriation of land based on the Extraordinary Measures Act unconstitutional, which had allowed construction to take place before title to the land had been acquired. It is likely that implementation of large infrastructure projects will be more difficult and time-consuming now.

Civil procedure saw adoption of a comprehensive amendment to the Civil Procedure Code and a very important amendment to the Act on Bankruptcy and Restructuring. While the latter dropped the requirement that a creditor petitioning for bankruptcy must obtain an enforceable title, the former introduced time limits for court decisions and other measures designed to improve efficiency and speed up litigation. The Ministry of Justice was obliged to publish on their website a petition form to start a lawsuit for everyone’s general convenience.

Businesses having contracts with the public sector, and the public sector itself, were significantly affected by the amendment to the Civil Code requiring mandatory disclosure of public contracts which, as of 1 January 2011, introduced publication as a condition for effectiveness.
Later, the law had to be amended again to address the most significant impracticalities linked to the disclosure duties.

Public procurement regulation was amended several times during 2011. The most important changes involved amendments to the thresholds, mandatory e-auctions for goods and certain services and works, and disclosure of documentation generated in contract award procedures, including tenders. While both the mandatory disclosure of contracts and the new public procurement regulations were aimed at increasing, and actually achieved, more transparency they also resulted in increased bureaucracy and added more complexity to what was already a very inflexible procurement process.

The labour market was affected by a major amendment to the Labour Code which brought greater flexibility into employment relations. Employers may now, for example, extend the standard three-month probationary period of management employees to up to six months and fixed-term employment contracts can now be concluded for three years instead of the previous two-year maximum term. The amendment introduced further concepts aimed at increasing flexibility, such as the shared work position and the flexi-work account. Layoffs should be less costly, as the amendment generally cancels the obligation to pay both severance pay and salary during the notice period.

The pharmaceutical sector is likely to be significantly affected by the new Act on Drugs which, inter alia, introduced generic prescriptions and permitted the creation of pharmacy chains. Last but not least, we note the developments in the telecommunications sector where a completely new Act on Electronic Communications was passed, aiming to address modern trends in electronic communications. This law was not without controversy, as it was pointed out by some commentators that it actually cancelled the existing regulatory authority without providing for a successor.
Ján Makara: 2011 was characterised by quite a large number of substantial amendments to significant Slovak legislation, very often with the objective of improving the business environment and making it more transparent.

One of the most discussed amendments was to the Labour Code, which aims to support employers and simplify employment conditions. It modifies many important rules and introduces some new ones. Generally, working time has been made more flexible by the introduction of things such as a working time account and defining existing flexi-accounts as a permanent tool. More pro-employer provisions have been adopted, such as the employee’s right to severance pay being extinguished if they stay at work during the notice period, non-compete clauses after employment ends, and the possibility to lengthen the probationary period. The long-standing principle that working conditions in a collective agreement cannot be agreed less favourably than those provided in the Labour Code has been repealed in specific cases.

The amendment to the Act on Bankruptcy and Restructuring adopted in 2011 can be described as an important pro-business measure as it has made bankruptcy proceedings much more accessible by opening them to submission of creditors’ petitions, simplifying the petition submission and allowing petitions to be submitted later than 45 days after proceedings are opened. A long-awaited measure that limits the usual adverse business practice of creditors belonging to one group controlling bankruptcy proceedings to avoid ordinary creditors being satisfied has finally been adopted. Consequently, debts owed to a single group, even secured ones, are now considered subordinate and are satisfied only after debts owed to ordinary creditors, both secured and unsecured, have been satisfied.

It is important not to forget to mention the amendment to the Civil Code and to the Freedom of Information Act, which entered force at the beginning of last year, as it introduced the revolutionary obligation to publish most agreements concerning public finances on the web or in the Commercial Journal.

We also consider it important to mention the recent changes in investment aid regulations by which the possibility of state aid being approved for a foreign or Slovak investor has been made much more accessible, as the lower limits at which aid for a project can be granted have been reduced. The changes also aim to encourage more investment in regions affected by unemployment.

The amendment to the Public Procurement Act at the beginning of 2011 should have important effects on the use of public funds by lowering the limits for under-limit contracts, under-threshold contracts and contracts of small value, making the use of electronic auctions in certain public procurement procedures obligatory as well as making other significant changes in procedures.

One of the most important measures of 2011 is the amendment to the Civil Procedure Code, which aims to shorten the currently often intolerable length of court proceedings. This is to be achieved by imposing deadlines by which certain procedural decisions must be issued and by introducing stricter rules for postponing hearings and parties avoiding participation.

An amendment to the Act on Accounting that establishes a central registry for financial statements where all financial statements will be gathered and published should also make the business environment more transparent and effective.

Finally, another measure worth mentioning is the amendment to the Act on Competition Protection that brought important modifications to business concentrations. Extensive changes in tax law, implementing the first and second phases of tax and customs administration reform, have been adopted. The Act on Unfair Terms in Commercial Relations between Customers and Suppliers of Goods, which are grocers, was also repealed.

Silvia Belovičová: The amendment to the Labour Code introduced better flexibility into employment and made the labour market in the Slovak Republic more attractive for employers, which should generally help employment in Slovakia.

The changes to the Civil Procedure Code should speed up civil proceedings as new time limits were set for the courts to adopt specific decisions or perform certain actions. Furthermore, adjournment of a hearing, very often abused by the parties, has been made subject to stricter conditions.
The amendment to the Act on Bankruptcy and Restructuring has also improved the legal insolvency framework, particularly by making it easier for creditors to open bankruptcy proceedings and introducing clearer rules on the liability of executives for failure to file for bankruptcy. The changes related to affiliated companies and voting in the restructuring process can also be viewed positively.

A simplification in the field of business licensing was achieved and the improved inter-connection of information systems by the District Courts and the Trade Licence Offices has eliminated double registration and double notification of changes.

The replacement of the separate Tax Directorate and Customs Directorate and reducing 102 tax offices to nine offices can be seen as a step forward towards less bureaucracy. The new manner of e-filing tax forms will definitely improve and expedite communication with tax authorities and decrease the related administrative burden for entrepreneurs.

Measures aimed at excluding transactions of entities with less than the threshold of turnover on the Slovak market from approval of mergers and introduction of the possibility to have simpler merger cases approved in a simplified Phase I procedure with limited disclosure regarding the transaction and affected markets are very welcome.

The mandatory internet publication of government contracts proved to be an effective tool for increased transparency in the business environment and a curb on favourable treatment. A similar positive measure increasing transparency is mandatory publication of court decisions.
Daniel Futej: One of positive legislative changes is the obligation to publish some verdicts by courts, while these must be made anonymous before their publication. The verdicts can be found at the website of the Ministry of Justice, http://www.justice.gov.sk/Stranky/Sudne-rozhodnutia/Sudne-rozhodnutia.aspx.

This legal norm means that courts and judges subject their decisions to public scrutiny and creates a precondition for codification of judicature and thus the principle of circumspection of verdicts can be legitimately carried out. It would also be worthwhile pondering the publication of dissenting views in cases in which a vote is taken in a senate.

Another significant change was the amendment to the law on obligatory publishing of agreements. This duty pertains particularly to agreements that deal with public finances. These agreements become effective only the day after they are published. This means that an agreement is not legally binding until it is published. If an agreement is not published within three months after its closure or the granting of permission by a related body, if needed, the agreement is invalid. The original wording of the law did not specify the time period in which an agreement should be made public. But the amendment removed this flaw and introduced the rule that a mandatorily published agreement must be published continuously during the existence of the obligation originating from the agreement or for at least five years after it became effective. This revision still has some flaws in relation to public procurement regulations when it can happen that an inappropriately low price, and thus not an economically reasonable price, is set as the preference price.

Dávid Oršula: The amendment to the Labour Code increasing flexibility in the labour market was one of the most important legislative changes adopted last year. I would also list here all measures increasing transparency in the judiciary and in public administration, including making court decisions and contracts with governmental bodies public. Other important pieces of legislation are the amendment to the Act on Bankruptcy and Restructuring that strengthens creditors’ rights and the new Act on Drugs. Last but not least are changes in tax administration and amendments to some tax laws.

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