Corporate veil pierced in Slovakia

Creditors will be able to enforce their claims directly against controlling shareholders

One of the main reasons businessmen conduct their business through companies is to transfer the risk from themselves to the company. In other words, creditor claims against a company can only be satisfied from company assets, whereas the assets of its owners – the shareholders are protected. The statutory protection of shareholders has the prosaic name corporate veil.

The recent amendment to the Slovak Commercial Code introduces a provision, which, for the first time in Slovak law, partially pierces the corporate veil.

The new regulation applies only to controlling shareholders. A “controlling shareholder” is a legal entity or a natural person that holds a majority share in a company’s voting rights. Any company so controlled is considered to be a “controlled company”.

According to the amendment, any controlling shareholder that significantly contributes to its controlled company’s insolvency is obliged to compensate the company creditors for the damage caused as a result of the insolvency of the controlled company. The law assumes that the company is insolvent not only if it has more than one creditor and the value of its obligations exceeds the value of its assets, but also if, due to lack of assets, the insolvency cannot be declared, or continued, or the enforcement proceeding executed.

A controlling shareholder can relieve itself of this obligation if it can prove that it acted in an informed way and in good faith for the benefit of the controlled company. Thus, it appears that a form of the “business judgement rule”, well established in common law jurisdictions, is being introduced in Slovakia. Hence, the controlling shareholders are protected from the consequences of incorrect business decisions which were not aimed at damaging the company or its creditors.

The law presumes that the damage is in the extent of the unsatisfied claim. However, this does not prevent creditors from claiming damages in their actual amount together with lost profit.

The new regulation enables creditors to enforce their claims even if the insolvency was caused by a shareholder of their business partner.

The discussed provision will come into force on 1 January 2018.

Article courtesy of   bnt attorneys-at-law, s.r.o.


Disputes with producers in Central and Eastern Europe (CEE)

Trouble with a producer in a CEE land? Unclear text and foreign law always favor the domestic producer. But there are tips and tricks that can help, even in the middle of a dispute. We deal with tough cases; we know the local courts. Intimately. We work with arbitration. And we love it.

1         When the sun is shining and everybody is happy

It is a paradox, but this is the time to think about a possible dispute. There are approaches that can help to mitigate a dispute in a foreign land before it happens. Obviously, a buyer can agree to apply the buyers law on the contract. Also, B2B contracts are usually arbitrable, so choosing a reputable arbitration court should be advantageous. Be assured, dodging a foreign court could be priceless. However, do not forget to check if your contract is also arbitrable under the local law and therefore, you will not have trouble enforcing the arbitration award locally.

Please, do not forget to attach your general terms to the signed contract. A simple cross-reference to a web page with the general terms might not suffice under some CEE laws. If you have no general terms, prepare them. We can help you with that, too. And do not forget to limit your liability.

2        When there are dark clouds on the horizon

This is the time for your local lawyer in CEE. We can negotiate the potential dispute. Speaking from experience, more than half of the disputes are negotiable. Producers in CEE do not usually like court processes. They often will accept a proposed settlement, even if less than advantageous for them. We recommend writing it down and preparing the written settlement in a way that is enforceable.

3        The legal storm and legal help with disputes in CEE

In case your (ex)business partner/producer did not settle and you are in a middle of a lawsuit, heads up. Check if you have a counterclaim. The counterclaim can be raised during a lawsuit, but there are other possibilities, too. For example, in some cases, it is possible to file the counterclaim as a separate claim in another EU member state, e.g. when the claimant is from a different EU country. In such instance, you can choose witch EU court will decide this part of the lawsuit (forum shopping). This might be of advantage, since a different judge in a different EU country will hear this part of the case.

Also, if you are a provider you might have a subcontractor. From a legal point of view, you might be able to include a subcontractor in some lawsuits. This can be done in the main lawsuit or a separate lawsuit can be initiated.

All in all, you need an experienced international lawyer that is specialized in disputes in CEE from the beginning till the end of your doing business in CEE.

Article curtesy of:

bnt attorneys-at-law, s.r.o.

Business Registers Interconnection System – BRIS

Interconnection of central, commercial and companies registers in the EU, Iceland, Liechtenstein and Norway.

An amendment to the Act on the Commercial Register, which came into force on 15 June 2017, introduces an interconnected system of central, commercial and companies registers in the European Union (the Business Registers Interconnection System – BRIS).

The new system implements the requirements of Directive 2012/17/EU of the European Parliament and of the Council of 13 June 2012 amending Council Directive 89/666/EEC and Directives 2005/56/EC and 2009/101/EC of the European Parliament and of the Council as regards the interconnection of central, commercial and companies registers.

Apart from introducing legislative and technical changes related to authorization of electronic documents, the amendment also addresses publication of registered data and provision of deposited documents through BRIS in electronic form.

An enterprise or an organization unit of a foreign person can now be deleted from the commercial register upon notification of the foreign commercial or other register via BRIS.

BRIS will include information on cross-border mergers by means of acquisition or by means of a new formation where the successor is a Slovak company, as well as information about the possible winding-up or insolvency of a company. The information will be accessible free of charge and immediately after the data is registered in the state of registration. The system will be available in all EU languages (especially the description of services and search criteria).

Under an amendment to the Act on Court Fees, various court fees will be cancelled. These include the fee for confirmation of non-existence of a certain entry in the commercial register, the fee for issuance of a deposited document in electronic form and the fee for electronic confirmation that a document is not deposited in the collection of deeds.

As for verification, this will be achieved by the electronic seal of the operator of the public administration information system as to the correctness of the data in an excerpt, or confirmation of non-existence of a certain entry in the commercial register, in a copy of a document or in confirmation that a document is not deposited in the collection of deeds sent to the applicant electronically.

Courtesy of:

New European Rules on Data Protection – GDPR

The General Data Protection Regulation (“GDPR”) is the new European data privacy regulation, which comes into force in less than eight ten months on 25 May 2018.

Does your business process any personal data such as names, birth dates, photos, email addresses, social network profiles, location details, computer IP addresses biometric or other sensitive data?

If the answer is “YES”, GDPR compliance shall be placed at the top of your agenda, as it applies to you regardless of whether such data processing takes place within or outside EU. Ahead of 25 May 2018, all organisations are strongly encouraged to review their data protection policies to ensure their compliance with GDPR.

GDPR will be directly applicable in all EU Member states. Nevertheless, each member state may modify certain clauses or even adopt more restrictive measures in certain areas. The Slovak Data Protection Authority (DPA) took this advantage and in June 2017 introduced a brand-new Personal Data Protection Act, which shall replace the current legislation. The proposal of the new act is strongly discussed by wider public.

The GDPR and the new Slovak Personal Data Protection Act imposes wide range of requirements on controllers and processors. Your organisation shall be prepared that it is the person who´s personal data are processed, who shall be on the driver´s seat.

GDPR penalties for non-compliance will be substantial. A failure to comply with the new rules may lead to fines amounting to €20 million or 4% of global annual turnover for the preceding year. The new Slovak Act will also adopt these penalties. Of course, we are closely monitoring the process of implementation of the new Slovak Data Protection Act and will keep you updated.

Register of Public Sector Partners in the Hands of Experts

Are you a public sector partner? Do not forget to register!

In February 2017, the so-called act against shell companies came into force. This introduced the register of public sector partners. From now on, persons acting as public sector partners must be registered.

Mandatory registration applies to all persons who accept financial means or performance from public sources, and to selected persons (such as persons who enter into a contract as the result of a public tender, health care providers, organizations that hold a mining licence) and, in certain cases, their sub-contractors as well.

However, the act sets limits on the persons who have to be registered, so that not all persons, regardless of the financial means or performance accepted, have to register. The duty to register is established if the once-off amount of EUR 100,000 (or EUR 250,000 in total during a calendar year) is exceeded.

The aim of the act against shell companies is to uncover and disclose the property and management structure of persons “who do transactions with the state”. The most important disclosed data is information on persons who benefit from the business activity of these companies (so called ultimate beneficial owners).

The aim of the legislator is that identifying the ultimate beneficial owners should be carried out by so-called authorized persons who have the best overview of the property and management structure of the public sector partner, i.e. those who either suggested and set up the structure or came into contact with it. This means that these persons in particular include attorneys, tax advisors, auditors, banks and notaries.

Authorized persons have a legal duty to identify and confirm the identity of the ultimate beneficial owners on the basis of all available information. In practice, identification will mainly be based on founding documents, excerpts from registers, various agreements on the exercise of rights and distribution of profit, annual financial statements and business reports. This means that the extent of documents and sources of information will always depend on the specific public sector partner. Authorized persons have to act with due care and are not bound by the instructions of the public sector partner.

An application for registration of a public sector partner can only be filed by the abovementioned authorized persons electronically. Žilina District Court manages the registration within the statutory period of five days.

Sanctions for violation of the law are severe. The registrar can impose a fine of up to EUR 100 000 on a public sector partner or member of the statutory body. Apart from a financial sanction, the registrar may also delete a registered public sector partner from the register, which can have a major influence on their business activities.