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Lawyers highlight changes in civil code

Despite some positive changes to legislation and ambitious plans of the new government, more needs to be done to restore trust.

Lawyers say courts should work more effectively. (Source: SME)

The replacement of the more than 50-year-old code of civil procedures and changes to the Commercial Code that may simplify the process of founding a startup are among the most significant changes cited by law firms interviewed by The Slovak Spectator. They also call for increasing the effectiveness of law enforcement, which from many points is regarded as the weakest point of Slovakia’s legal system.

The Slovak Spectator spoke with Ľubomír Leško, managing associate at Peterka & Partners, Andrej Leontiev, partner at Taylor Wessing, and lawyers from the Ružička Csekes and Soukeník – Štrpka law firms.

TSS: Which three legislative changes adopted in the past year does your law firm consider the most important and why?
Ľubomír Leško (ĽL):
The most important change is undoubtedly the so-called re-codification of the Civil Order, i.e. adopting three civil law procedure codes: the Civil Litigation Procedure Code, the Civil Extra-litigation Procedure Code, and the Administrative Court Procedure Code. As of July 1, 2016 when the codes will become effective, the old Civil Code of Procedure will become invalid after 53 years. The core of the re-codification and dividing the old code into three independent codes was to respond to the peculiarities in litigation and extra-litigation matters. The declared objective of the re-codification as well as the whole concept of the civil law procedure rules is to make the court proceedings more effective and accelerate them, as well as to increase law enforcement. It will be interesting to watch how the legal community will deal with the implementation of the new rules and whether the declared goals of re-codification will be achieved. 

Regarding businesses, the amendment to the Commercial Code from November 12, 2015 is important as it introduced a new form of business-making in Slovakia. As of January 1, 2017 new, simple shareholder companies will be introduced in Slovakia’s business and legal environment. They combine the characteristics of limited liability companies and joint-stock companies, and their minimum basic capital starts at €1. The main goal of this new form of business is to support risky investments into commercial firms such as startups, i.e. business initiatives with high potential for innovation and growth which otherwise could secure financing from banks only with difficulties.

Andrej Leontiev (AL): The amendment to the Commercial Code introduced a new legal form of a commercial company which should be attractive especially for startups – the so-called simple shareholder company. In European context, it is a unique legal form which enables the founders and investors to flexibly, effectively, quickly and without high costs implement into their relationships everything that is considered to be “standard” legal regulation in the startup environment in western countries. This will enable a simpler approach to financing via venture capital. It will come into force on January 1, 2017 and can transform Slovakia into a place where it pays off to found startups; it can also serve as a “magnet” for foreign startuppers. Also entrepreneurs other than startups will be able to use this new type of company with a simple structure.

Apart from that, three new codes of civil procedural rules were adopted. In particular, in relation to lawsuits the “socialist” principle according to which the court helps the parties find the so-called material truth has been abandoned. The new code of civil procedure stipulates that it is the party which provides better evidence rather than the party which “was telling the truth” wins.

We negatively perceive the new rules applicable to posting employees. It contains inappropriately strict and administratively difficult regulations for reporting foreigners who have been sent to Slovakia. There is a real threat that short cross-border business trips will be accompanied by a greater administrative burden than before joining the EU. The idea of the Slovak lawmakers that honest entrepreneurs shall be responsible for illegal employment of their subcontractors is unfair, as the state, who is the recipient of taxes paid by the public, passes the control tasks to taxpayers – honest entrepreneurs.

Sylvia Szabó, Ján Azud and Šarlota Štosová from Ružička Csekes: As of July 1, 2016 the new rules for criminal liability of legal entities will come into effect. They stipulate under which circumstances and who can make specific legal entities responsible for committing a crime and sanction them. These may be a statutory body but also a person who has a controlling function or is entitled to act in the name of the company. We can see a considerable risk for companies in the new rules which will underestimate its impact on their internal rules. It increases the possibility of creating responsibility claims of companies towards statutory bodies if they were sanctioned for their illegal activities.

At the end of the year a new law on public procurement was adopted which implements European reforms. Its aim is to reduce administrative burden, simplify the access of small and medium-sized companies to public contracts and electronise the whole public procurement. The experts are “fed up” with the number and frequency of changes to the public procurement rules, so we have to believe that the new law will bring necessary certainty and stability.

Also the new civil procedure codes – the Civil Litigation Procedure Code, the Civil Extra-litigation Procedure Code, and the Administrative Court Procedure Code – which will replace the old Civil Code of Procedure from 1963 will become effective on July 1, 2016. This re-codification required changes in more than 170 legal regulations to secure unity in terms of the laws impacted by the new codes.

Miroslav Hlivák (MH), partner at Soukeník – Štrpka: The Civil Litigation Procedure Code and the related norms – the Civil Extra-litigation Procedure Code and the Administrative Court Procedure Code – should help accelerate court proceedings, make the application of the constitutional right of the participants to a quick and fair trial more effective, and improve law enforcement in Slovakia. 

The amendment to the Commercial Code brought new provisions on a business crisis and simple shareholder companies. The provisions on crisis respond to the practice of damaging creditors during bankruptcy and restructuring proceedings, when a company was able to “draw” property from a company via related people. The new regulation defines a group of people whose payments to the company will be considered a payment substituting its own resources. The company cannot return the payments substituting its own resources during the crisis. The amendment increases the share of statutory representatives’ liability for payments to allied people during the crisis, but it is quite easy to avoid these rules by using the institute of increasing a company’s basic capital, with which it will in fact prevent a crisis.

The new institute of a simple shareholder company introduces the so-called €1 joint-stock company. Compared with an ordinary joint-stock company, this kind of firm has a simplified organisational structure and does not require (nearly any) initial capital. This form of commercial company will be suitable mostly for startups which have an idea but need investors. It will enable startup entrepreneurs to keep their voting rights and pay the investor profits from business activities. This institute can also be beneficial for companies witnessing frequent changes in their ownership structure.

We see the importance of the law on sport. It is an important societal phenomenon for which comprehensive legislation was absent until recently. We perceive the law on sport as a good pillar for the development of sport in Slovakia, especially by making the financial flows, which create conditions for developing not only top sports activities, more transparent and more effective.

TSS: Which legislative proposals in the new governments programme statement does your law firm consider crucial and why?
ĽL:
From the point of legal environment in general, we consider the proposed measures to increase transparency and effectiveness of the decision-making processes of judges and the quality of court rulings important. The need for regular scrutiny and publishing evaluations of the quality of judges’ work by people other than judges as well as the increase in personal responsibility of judges for proved failures could be a change towards more effective judiciary and improvement in its perception by the public.
We hope that the government will consider the measures regarding the fight against corruption as crucial. We would like to point to the intention to adopt a more effective anti-shell law in which the legal definition of the end beneficiary will be specified and extended. An important precaution could be the introduction and improvement in using the electronic contracting system which has already justified itself.

AL: As regards the Slovak system of justice, the law against shell companies will be crucial. To regulate any business between entrepreneurs and the state or the public sector with across-the-board, effective and enforceable sanctions is a very ambitious project. Similarly important is the second anti-corruption measure which would ban public officials from accepting any benefits, gifts or other perks regardless of any potential reciprocal service.

In the field of justice, it will be crucial to introduce unbiased selection procedures for new judges and also to adopt rules to make the profession of a judge attractive for the most skilled lawyers.

Ladislav Krechňák from Ružička Csekes: We positively perceive the ambition to improve the legislative process. We consider it right that in regard to transposing EU legislation, every submitter will have to distinguish the content required by the EU from their own content, which may help solve the negative state when rules that the EU did not require were implemented into Slovak legislation as part of the transposition. The promise to shorten the transposition period for directives and lengthen the period in which laws will come in force may contribute to strengthening legal certainty. We also appreciate the government’s attempts to secure transparency, foreseeability and participation of the process, which are basic prerequisites for restoring trust in the legal character of the state.
From the point of improving the work of public administration, we consider the effort to introduce legal regulation of state service crucial. The aim to professionalise the state service and limit political nominations would be significant progress compared with the current situation. 

Responding to the current status and evaluation of the environment in the country, there are measures heading towards decreasing corruption and related negative effects. The introduction of the anti-shell law, legal changes regarding tax havens, the ban on providing and receiving non-ethical benefits, the introduction of anti-corruption clauses in draft laws and the efforts to apply the principles of open governance can draw Slovakia closer to countries where corruption has been pushed to the margins. 

MH: Regarding the legislative changes, we consider one of the crucial priorities of the new government is to adopt a new construction law. It is one of the few laws which concerns a broad group of Slovakia’s citizens and via which one of the most important needs of people is fulfilled – the need for housing. We positively perceive the effort to simplify the currently vague and complicated building permit process. 

Also changes in accountancy and tax administration will be important. The government plans to analyse the existing sanction mechanisms and, if necessary, propose changes which should result in better observance of the tax and accounting laws.

TSS: What legislative proposals does your law firm see as missing from the programme statement and should have been there?
ĽL: The measures towards more significant improvement of business environment, including reducing the administrative burden caused by various legal regulations. We also consider the total recodification of private law necessary.

AL: Despite various specific proposals of the Jingling for Change initiative, the sphere of prosecutor’s offices and police has remained outside the interest of this government.

Peter Zilizi from Ružička Csekes: A significant part of the programme statement is expression of the policy of supporting the creation of new jobs. It however does not count with amending the Labour Code which is considered a hindrance to progress. It should create a space in which participants in employment relations will be able to adjust their rights and duties in a way to accommodate them with their needs. The current Labour Code treats everybody the same, while it does not take the differences of sectors, which require specific solutions, into consideration.

In employment, the general aims are not supported by specific measures. The labour offices do not work with the unemployed adequately and the connection between schools and the labour market does not work. The changes towards “privatisation” of employment services and more effective connection between schools and the labour market are absent.

The long-term problem is weak law enforcement and lack of trust in courts. The government suggests creating systemic preconditions for improving the performance of courts and shortening the proceedings and increasing transparency of courts’ decision-making, which should support the elimination of corruption and increase trust in the system. The government proposes to increase the personal responsibility of judges for their personal failures. The failures of judges, however, can have negative impacts on participants in proceedings and other people as well. The proposals comprising related legislative solutions, however, are missing. In the programme statement legislative measures to improve the law enforcement are absent. The proposed changes to distrainment proceedings are a step forward, but other measures towards increasing the possibility to secure law enforcement also via the law are necessary.

Lukáš Štefánik, lawyer at Soukeník – Štrpka: We consider the law enforcement a crucial indicator of a functioning law environment. New civic codes create conditions for simplifying and accelerating court proceedings, which may considerably strengthen the law enforcement in Slovakia, but the legal degree of certainty, the independence of judiciary and prosecution offices are other topics which should not be forgotten.

The application practice will require some specific legislative measures. We often encounter cases of falsifying signatures. The current version of the Land Registry Act, for example, enables the entry but also deletion of a lien on property without having a verified signature of the pledger or pledging creditor. The absence of the duty to verity the signature creates room for scammers who may cause damage to the property of the pledger or pledging creditor, as well as their laws and legally protected interests, by falsifying the signature. 

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