Different legislations cope differently with the pandemic, thus there can be seen distinct approaches to the coronavirus situation at hand. In this post we have made an overview of the most topical questions you might be interested in in regard to the COVID-19 situation and combined our answers considering the different approaches of three Baltic countries – Estonia, Latvia and Lithuania. In this overview you can find answers to the following topics:
(i) Breach of contractual obligations;
(ii) Performance of contractual obligations under changed circumstances;
(iii) Force Majeure;
(iv) General meeting of shareholders;
(v) Protection of Personal Data;
(vi) Inability to pay taxes or credit on time;
(vii) Managing the situation of employees;
(viii) Restructuring of the company.
In the case you have any questions regarding the circumstances addressed in this post, feel free to contact us at info@lextal.ee and we will forward your inquiry to an attorney specializing in the relevant field of law.
Breach of contractual obligations
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| Just as in Lithuania, in Estonia failure to perform or improper performance of an obligation, including a delay in performance, is deemed as a non-performance. In the case of non-performance by an obligor and if the obligor is liable for the non-performance, the obligee may use different legal remedies: i) require performance of the obligation; ii) withhold performance of an obligation which is due from the obligee; iii) demand compensation for damage; iv) withdraw from or cancel the contract; v) reduce the price; vi) in the case of a delay in the performance of a monetary obligation, demand payment of a penalty for late payment. | In the event of delayed payment or other default the defaulting party may be obliged to pay contractual penalty, cover losses, pay to the innocent party interest or suffer other consequences stated in the contract of law. A contractual penalty regarding unacceptable performance of the obligation or failing to perform it within due time (time period) may be laid down as a fixed sum or ascending (no more than 10 % in total of the principal debt or amount of the main obligation). If someone has to bear contractual penalties, then a creditor may request either its payment or the performance of the contract, unless the contractual penalty was set for failure to perform in the proper time rather than non-performance as such. The interest rate, unless stated in the contract, is set by law – 6% or in case of contracts for the supply of goods, for purchase or provision of services – 8% on top of the refinancing rate of the European central bank. The total amount of interest the creditor is entitled to cannot exceed 100% of the principal amount of the main obligation. The losses are to be proven by the creditor in the court. | The performance of the obligations, as it is stated in the Civil Code of the Republic of Lithuania, may be secured by contract or by law through forfeiture, mortgage, surety, security, deposit or any other means provided for in the contract. It can be specified as a specific amount of money or as a percentage of the amount of the underlying obligation and be calculated for each day, week, month, etc. of the default. In the event of forfeiture, the creditor cannot claim from the debtor both the forfeiture and the fulfillment of the obligation, unless the debtor misses the due date to fulfill the obligation. The debtor who has defaulted on a financial obligation is required to pay five per cent annual interest on the amount overdue, while in cases where both parties to the contract are entrepreneurs or private legal persons, default interest shall be payable at the rate of six percent per annum, unless the law or contract provides otherwise |
Performance of contractual obligations under changed circumstances
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| Pursuant to the Estonian Law of Obligations Act it is possible to alter the balance of the contractual obligations if the circumstances under which a contract is entered into change after the entry into the contract and this results in a material change in the balance of the obligations of the parties due to which the costs of one party for the performance of an obligation increases significantly or the value of that which is to be received from the other party under the contract decreases significantly. The injured party may demand the amendment of the contract retroactively from the other party, for the time not earlier than the time when the balance of the obligations changed. The modification of the agreement needs the consent of both parties. | Under the Section 1589 of the Civil Law of the Republic of Latvia “A contract legally entered into shall impose on a contracting party a duty to perform that which was promised, and neither the exceptional difficulty of the transaction, nor difficulties in performance arising later, shall give the right to one party to withdraw from the contract, even if the other party is compensated for losses”. Changed circumstances is generally not a legal reason to withdraw from the contract or fail to fulfill contractual obligations as well as they are not enabling unliteral amendments in the contract | Article 6.204 of the Civil Code of the Republic of Lithuania provides that, if in the course of performing a contract, the circumstances occur, which: i) were not known until the conclusion of the contract, ii) at the time of the conclusion of the contract could not have been foreseen, iii) are beyond the control of the aggrieved party, iv) the risk of occurrence of these circumstances was not assumed by the aggrieved party, and mentioned circumstances is the reason why the cost of performance has essentially increased or the value thereof has essentially diminished, then the aggrieved party shall have the right to make a request to the other party for the modification of the contract. A referral to the other contract’s party itself does not give a party the right to unilaterally modify the contract – the other party must accept the proposed changes. |
Force Majeure
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| Pursuant to the Estonian Law of Obligations Act, force majeure circumstances occur under analogous conditions, as provided for in Lithuanian law, i.e: i) the existence of an impediment; ii) the impediment must not have been caused by the debtor’s own conduct or inactivity; iii) the unforseeability of the circumstance; and iv) the inevitability and insurmountability of the circumstance. If the effect of the force majeure is temporary, the non-performance of the obligation is excused only for the period during which force majeure impeded performance of the obligation. The force majeure clause does not have to be added to the contract as it comes from the law, but all contracts should be reviewed as they may contain specific clauses that exclude the application of force majeure. | Force majeure, or “superior power”, is not defined in the Latvian law and is determined by court in every case individually. Nonetheless, there are some instances where force majeure is applicable under the law. I.e., under Section 1657 of the Civil law of the Republic of Latvia „A court may release the debtor from consequential losses due to default also in other cases where the debtor cannot be considered at fault due to lack of care, recklessness or negligence, or if performance did not occur due to force majeure.“ The COVID-19 pandemic and the governmental orders related therewith can be used as a force majeure only in case the defaulting party can show and prove that these circumstances directly have caused the default of obligations without the fault of the defaulting party. The existence of force majeure is determined by the parties or court on a case-by-case basis, in the light of the particular facts. | A party to a contract, which has faced force majeure, has the right to suspend the performance of the contract until the circumstances of force majeure disappear, and if such situation lasts for a longer period, there is a possibility to terminate the contract. The basis to be exempt from liability arises from the moment of the occurrence of the force majeure occasion (obstacle) or from the moment of notification, if not reported in a timely manner, therefore the counterparty must be informed immediately regarding company’s inability to meet contractual obligations, their expected duration and the extent to which they are due. The Lithuanian Chamber of Commerce, Industry and Crafts has officially identified Covid-19 as one of the circumstances that could be considered as force majeure. However, it must be proved that precisely circumstances related circumstances are the ones that led to the failure of performing the contract. Therefore, the existence of force majeure is determined on a case-by-case basis, in the light of the particular facts, and for each contract separately. The force majeure certificate, issued by the Chamber within 20 working days, does not exempt the company from all its obligation. The certificate is additional evidence in negotiating with the other party to the contract regarding the circumstances of the force majeure during the period of their existence, default interest, interest, non-payment of fines, deferral, etc. |
General meeting of shareholders
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| It is advisable not to held physical shareholders meetings until the emergency situation is terminated by the Estonian Government. Company may make a written resolution that will be signed by all shareholders and must set out the names of shareholders, the number of votes and the time of passing the resolution. It is possible to carry out the voting by “mail in writing” and/or “electronically”. | Under the Commercial law of Latvia, the general meeting of shareholders shall convene at least once a year in order to approve the annual financial statement, to take a decision on distribution of profit, and to elect an auditor. The time of the Meeting of Shareholders must be set considering the statutory term for submitting the annual financial report - 4 months or 7 months after the ending of the respective financial year. According to Law on Measures for the Prevention and Suppression of Threat to the State and Its Consequences Due to the Spread of COVID-19, the term for submitting the Annual financial report for 2019 is extended for 3 months. In connection with coronavirus an amendment to the law was adopted: the Shareholder is entitled to vote in writing for all items in the agenda of the meeting before the meeting takes place. All shareholders may attend the meeting by electronic means as well. | Under the Law on Companies of the Republic of Lithuania, it is a time for convening an ordinary annual General Meeting of Shareholders– it shall be done no later than 4 months after the end of the financial year, i. e. companies whose financial year coincides with a calendar year have to convene the General Meeting of Shareholders by May. It is recommended to convene the Meeting after the quarantine period. If the General Meeting of Shareholders is already scheduled, there are several ways to proceed: i) postpone the date of the Meeting, ii) cancel the Meeting, iii) invite Shareholders to attend the General Meeting and vote in writing on the general ballot paper by electronic means. |
Protection of Personal Data
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| The Estonian Data Protection Inspectorate has found that the employer cannot enforce the employee to disclose whether he or she has symptoms of or has been diagnosed with COVID-19. However, the employer can request the employee to disclose information whether the employee has visited any risk countries, has had encounters with people who have been infected with COVID-19 and ask a confirmation that the employee does not impose threat to the other employees and to the work environment. | The same as in Lithuania. | Although the GDPR provides for a general prohibition on the processing of health data, but in the case of epidemics, there is an exception where the processing is necessary for reasons of public interest in the area of public health. Without prejudice to the GDPR, the employer has the right to receive the information from its employees about whether they have symptoms of COVID-19, whether they have been diagnosed with COVID-19, whether they have travelled abroad, or have contact with COVID-19 and other information necessary to protect employees, clients and to fulfil their duties as an employer. This information cannot be made public or documented without reasonable justification (unless required by law to prove the employer's obligations or required by law). |
Inability to pay taxes or credit on time
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| Tax and other filings should be made by deadlines set out be the law. The penalty interest (rate - 0.06% per day) on tax debts has been cancelled for a period 1.03 - 01.05.2020 and will be reduced by half to 0.03% per day after 01.05.2020. There are also possibilities to apply for the payment of tax arrears in instalments. | The taxpayers might be entitled to use statutory measures to request extensions of the tax payment terms for the maximum period of 3 years. The taxpayers representing the sectors affected by the crisis have the right to apply for an extension of the term for the payment of taxes, as well as to request that an extension of the term for the payment of taxes is granted to such late tax payments the term for the payment of which has been extended in accordance with Section 24 of the law On Taxes and Duties if the delay in the payment term has occurred due to the spread of COVID-19. Credit (loan) payments are considered a private contractual obligation and therefore are not postponed by the government order. However, ALTUM, the state development financial institution, is planning to provide two loan programs for entrepreneurs affected by COVID-19: the current assets loan and, credit vacation‘ loan guarantee. | In case of inability to pay taxes on time or if it is clear that the company will not be able to pay taxes on time, the company is entitled to apply to the State Tax Inspectorate (STI) under Article 88 of the Law on Tax Administration of the Republic of Lithuania due to deferral or spreading the time limit for discharging arrears in payments. In cases where taxpayers are temporarily out of business activities due to the quarantine and coronavirus pandemic, they may be temporarily exempt from submission of tax returns and / or other documents specified in legal acts to the STI submission. Due to COVID-19 caused quarantine, lot of the time limits for submitting documents, information or declarations to the Registers or STI are extended (mostly for 2 months) as well. Benefits are as well for companies with customs debts for customs-administered taxes and companies which provide assistance by supporting medical institutions with money, food, security measures and charity as well as assistance provided by fund-raising charities and support funds. Lenders of real estate and consumer credit are obliged to defer payment of the installments at the request of the borrower when at least one third of the income of the borrower or his spouse is lost. |
Managing the situation of employees
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| The parties of the employment contract may agree to organize work remotely. However, the employer cannot force the employee to do telework and the employee cannot demand telework. The employer and the employee may as well agree to provide either unpaid or paid (additional) leave. According to the Article 37 of the Employment Contracts Act, the employer may reduce an employee’s pay for up to 3 months over a period of 12 months if, due to unforeseen economic circumstances beyond the employer’s control (for instance as occurred with COVID-19), the employer cannot provide the employee with the agreed amount of work and payment of the agreed remuneration would be an unreasonable burden on the employer. The remuneration may be reduced to a reasonable extent, but not below the minimum wage. Before reducing pay, the employer must offer the employee other work (including remote work) if possible. If the continuance of the employment relationship under the agreed conditions becomes impossible due to a decrease in the work volume or reorganization of work (including as a result of COVID-19), an employer may extraordinarily terminate an employment contract (lay-off). Temporary salary subsidies will be paid to those employees whose employers are significantly impacted by the current extraordinary circumstances (and meet the established criteria). The amount of the subsidy will be 70% of the average monthly wage of the employee. The maximum amount of the subsidy is €1000. In addition to that, the employer must pay a wage of at least €150 to the employee. | The employee who has returned from abroad shall self-isolate in the residence for the period of 14 days. The employer must ensure remote work option, if possible. The allowed maximum weekly overtime is increased, stating that it may not exceed 60 hours a week (before – 56 hours) for employees in certain fields, including medical personnel. In case employer is not able to provide employees with work causing idle-time, employees are entitled to “downtime compensation” equal to the employee’s regular salary. In case downtime (idle time) occurs in workplaces of merchants of “industries affected by outbreak of Covid-19”, as determined by the Chamber of Ministers, employers are entitled to receive a state funding payment for employees in the amount of 75% of the average income of the employee, but no more than EUR 700 per month. State paid sick leave is available only to employees tested positive to COVID-19 and employees officially places in quarantine (does not include self-isolation). Employers are not allowed to unilaterally reduce salaries. | If the employee has returned from abroad or had contacts with persons from countries at risk, the employer must oblige the mentioned employee to work from home and take any additional measures necessary to protect the remaining employees. The employers can propose to employees to work remotely; declare idle time; grant leave on employee‘s request; working time regime could be changed; or short-time may be introduced. The costs incurred by employers, while the idle time is declared, will be reimbursed as a subsidy to the employer. Subsidy rates: i) 90% of the salary calculated to the employee, but no more than EUR 607 gross ii) 70% of the salary calculated to the employee, but not more than EUR 910.5 gross. For self-employed persons, the guarantee fund will pay EUR 257 per month, but it will not be paid to those self-employed persons who also work under an employment contract. Parents, adoptive parents, grandparents and guardians, i. e. employees raising children with regards to closed education institutions may receive sick leave for 60 days, but not longer than until the end of quarantine or the end of the emergency situation. |
Restructuring of the company
| ESTONIA | LATVIA | LITHUANIA |
|---|---|---|
| In order to open restructuring proceedings in Estonia the company must substantiate that: i) the company is likely to become insolvent in the future; ii) the company requires reorganization; iii) the sustainable management of the company is likely after the reorganization. Main advantages of the restructuring proceedings: calculation of a fine for delay or a contractual penalty is suspended until the restructuring plan is approved; enforcement proceedings are suspended; any bankruptcy applications brought against the company are put on hold until the approval of restructuring plan or termination of restructuring proceedings and etc. | Under Section 3 of the Insolvency Law “Legal protection proceedings (LPP) are an aggregate of measures of a legal nature, whose purpose is to renew the ability of a debtor to settle their debt obligations, if a debtor has come into financial difficulties or expects to do so”. LPP is carried out according to the Plan of Measures of Legal Protection Proceedings developed by the debtor and confirmed by creditors and court. Advantages of the LDD process: possibility to postpone payment obligations; possibility to increase the basic capital of a debtor - capital company; possibility to erase or suspend the side claims, such as accrued interest for delayed payments and contractual penalties. Specific regulations apply to handling tax debts in the LPP, including ban to reduce or erase the basic tax debt, divide the basic tax debt in instalments or postponing the payment for more than 6 months, etc. The maximum term for the execution of LPP is 2 years, which by consent of creditors may be extended for another 2 years. | Restructuring is possible when the company is insolvent, i. e. the company is unable to fulfil its property obligations in due time or the liabilities of the company exceed the value of its assets, but has current transactions and the ability to restore solvency in the future. The restructuring process provides some advantages, such as: a legal person to reach an agreement with the interested creditors helping to save a business (securing these creditors in the front row); default interest and interest payment during restructuring process is suspended; the Enterprise Insolvency Law provides the possibility of cancelling bankruptcy case and initiating restructuring process and vice versa. The Enterprise Insolvency Law also provides the possibility to sell a legal entity that is no longer able to fulfil its obligations as a property complex or to extract a substantial part of a legal entity, thus enabling the investor to "revive" the chosen business. It is also beneficial to the seller, creditors and employees of the company. |
