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Legal newsletter March 2021

Compensation of damage under the Crisis Act? The Ministry of Interior has a different legal interpretation

With the onset of another wave of pandemics and another state of emergency, the question arises as to how the state has responded to the claims made so far. While the said attempt to exclude the application of the Crisis Act was thwarted by the court in the spring of last year, the Ministry of the Interior adopted a new strategy.

The Ministry of the Interior currently rejects claims for compensation for damage caused by crisis measures in times of emergency alleging that Section 36 of the Crisis Act applies only to compensation for damage caused to persons solely as a result of crisis measures of an individual nature and aimed at that specific person, or a specific group of people. Measures which restrict freedom of movement or assembly in general and which restrict the operation of shops and restaurants according to this interpretation are not individual acts but rather general measures of normative nature.

It is thus developing a line of interpretation occuring previously, according to which the main cause of damage is the pandemic itself, i.e. the crisis situation to which the nationwide measures respond.

We believe that this interpretation does not correspond to the meaning of the provisions of Section 36 of the Crisis Act, nor to the purpose for which it was adopted. This is because according to § 5 and 6 of the Crisis Act the list of measures that the government can adopt of course also includes measures that restrict freedom of movement and assembly, which are implicitly of general nature, not individual. Compensation for damage then belongs both in the case of damage as a result of individual measures and area measures. Although the Ministry of the Interior argues with case law in the area of ​​compensation for damage caused in the exercise of public power, compensation under the Crisis Act is based on a different principle and this analogy can therefore be used only to a limited extent.

It is necessary to take into account that claims for damages under the Crisis Act will not be successful before the Ministry and the applicant will have to submit its claim before a court.


New approach to review of binding opinions

The amendment should remove problems with the interpretation related to the review of binding opinions, which has been paralelly regulated in both the Building Act and the Administrative Procedure Code. Pursuant to the provisions of Section 4, Paragraph 9 of the Building Act, in its original version, the review procedure was limited to a period of one year calculated from the date of issuing the binding opinion by the competent authority. This review procedure could only be conducted in the context of an appeal against the decision which was subject-matter to the binding opinion. However, this led to fundamental difficulties with interpretation. The possibility to achieve a review of a binding opinion is thus practically ruled out in proceedings lasting more than a year. In the event that the appellate administrative body applied to the superior administrative body in the construction proceedings with a request to review the binding opinion, even though one year has elapsed since its issuance, the superior administrative body could only inform the appellant, according to some interpretations, that it did not have jurisdiction to judge.

The amendment to the Building Act deletes the mentioned provision of Section 4, Paragraphs 9 and 10. The review of binding opinions will now be uniformly governed only by the Administrative Procedure Code (§ 149 para. 5).

Following the amendment effective from 31 December 2020, the Administrative Procedure Code strictly distinguishes between the review of binding opinions in appeal proceedings and at the same time allows for a separate review procedure. An opinion (legality and correctness of the opinion) may be subject to appeal regardless of when it was issued; there is therefore no doubt that opinions older than one year can also be reviewed. In addition, a period of 30 days is set, within which the superior administrative body is obliged to confirm or change the opinion of the authority competent to issue a binding opinion.

Following the amendment to the Administrative Procedure Code, the binding opinion may also be reviewed within the review procedure. It examines only the legality of a binding opinion and can be initiated within 1 year of the legal force of the decision which was conditioned upon the binding opinion. A new binding opinion cannot be revoked or changed in the review procedure after 15 months from the legal force of the decision, which was conditioned upon the binding opinion.

Another novelty is the issuance of a binding opinion by fiction. The Administrative Procedure Code newly stipulates in the provision of section 149 para. 4 the duty of competent administrative body to issue a binding opinion without undue delay, no later than within 30 days of receiving request for the bunding opinion (60 days in particulary complex cases). According to the Building Act, a resolution extending the deadline for issuing a binding opinion is only recorded in the file. If the binding opinion of the given authority is not issued within the set time limit, a consenting bindig opinion without conditions it is deemed to be issued. According to the explanatory memorandum, the application of the fiction of consent should be exceptional.

However, it is necessary to draw attention to the fact that according to section 4 para. 10 a governing body is entitled to annul the binding opinion within 6 months from the date of the  decision for which the binding opinion has been issued if the conditions for its issuing were not met.

Despite efforts to unify the interpretation and speed up the procedure, the amendment also increases builders' uncertainty by allowing the review or revocation of a binding opinion for a relatively long time after a final decision has been issued, even outside the normal appeal process against a building permit.


How to properly distribute profits according to the amendment to the Commercial Corporations Act

The basic condition for the payment of profit is that the profit or other own resources can be distributed only following to approval of regular or extraordinary financial statements by the company supreme body. At the same time, the company must perform tests required by law to ensure that the distribution of profits or other own resources does not disrupt the economic stability of the company.

Contrary to former legislation, in the event of non-compliance with the payment conditions of a profit share, the shareholder to whom the share was paid must return these funds, regardless of whether he accepted them in good faith or not. This does not apply only for shareholders of a joint-stock company where the concept of good faith has been maintained.

So what tests does the company have to asses?

a) Balance test

The balance test determines the maximum amount eligible for distribution as a share of profit according to several financial indicators (profit or loss, profit and loss from previous years, funds accumulated in the company, etc.). The company will not pay more than it realistically can afford.

Here, the amendment tightens up and unifies the so-called balance tests, which now apply also to cooperatives. Newly, the maximum amounts to be paid out will not include all special funds formed from the profit, but only those that the company is free to use. Research and development costs will also be counted in if they are reported in assets. Thus, the company may not distribute profit or other own resources unless the amount to be distributed is higher than the part of the research and development costs not written off yet.

b) Equity test

The obligation to carry out an equity test now also applies to limited liability companies and cooperatives. Profit and other own resources of the company cannot be distributed if the equity falls below the amount of the subscribed share capital increased by funds of which the company is not entitled to dispose, or if the equity would even be negative after such distribution.

c) Insolvency test

The rule that business corporations may not pay a profit share or other own resources if this would lead to bankruptcy remains virtually unchanged. The deadline for the decision on the distribution of profit on the basis of regular or extraordinary financial statements is newly set in accordance with the case law until the end of the accounting period following to the accounting period for which the financial statements were prepared.

If the profit or other own resources are not paid out by the business corporation by the end of the accounting period, they will be transferred to the retained earnings account of previous years. This can cause other own resources to be transformed into profit in the company accounting, which in practice can cause complications.

Circumvention of the law is to be prevented by the new provision of section 40 para. 5 of Business Corporations Act, according to which providing any benefits without consideration to shareholders or persons close to them is not permitted with certain exceptions set forth by law.

The regulation of advances on profits payment is also more precise. Payment of advances on "other own resources" is not allowed, but they can be distributed as part of the distribution of profits. If advances are paid but the conditions for distributing the profit are not fulfilled the obligation to repay the advances within three months of the date on which the relevant financial statements were to be approved arises.

The amendment to Business Corporations Act generally makes the conditions for the payment of profits and the rules for their return in the event of a breach of the conditions for payment more restrictive. We are ready to help you with specific questions about the application of these rules.