Less than 20 days after the adoption of the Emergency Measures and Actions during the State of Emergency Act (the Act), some of its vague texts had to be corrected and some of its provisions – amended, due to the fact that they have proven unacceptable to society and business. It seemed that the voice of the innovative part of our society had been partially heard, and certain legal provisions, aimed progressively at adapting the law enforcement to the evolving digitalization of a number of public processes, were adopted for the first time.
1. Repeal of the judicial vacation and holding of distance meetings
Taking into account that, for the sake of prevention from the spread of Covid-19, society was encouraged to work from home (home office), and instead of physically holding meetings, the business began to make radical use of any type and format of video conferencing, such opportunity was legally foreseen for public authorities and the court.
After the publication of the Act, meetings of state and local bodies, councils, committees, commissions, etc. are allowed to be held at a distance. This is a very sensible amendment as the meetings will be held in accordance with the legal requirements for quorum and personal vote without violating the rights of interested parties.
For the time being, until suspension of the state of emergency, open court hearings, including sessions of the Commission for Protection of Competition, may also be held remotely. Besides from that, parties and other participants shall be provided with direct and virtual participation in the meetings.
All e-government supporters are hoping that this long-awaited step in the right direction will show even to the biggest critics of digitalization its obvious benefits, even when it comes to the traditionally conservative systems of the court and the administrative authorities with jurisdictional functions, and will be sufficient justification for a change in the Bulgarian legislation in this direction after the lifting of the state of emergency.
Apropos, we could refer to this legal text as one of the few beneficial and constructive things that has happened so far as a consequence of this crisis situation.
2. Suspension of terms
The first version of the Act provided for the suspension of a number of terms in an absolute manner, which, in turn, would inevitably lead to blocking the judicial and administrative activities. At the same time, as pointed out in paragraph 1 above, there are also adequate ways for processing cases and administrative procedures without the risk to the health of those involved in the process and without negatively affecting the constitutionally guaranteed rights of the citizens, including the right to timely justice. The amendments in the Act apparently aim to precisely review the initial approach and due to this, the following corrections were adopted:
Regarding the procedural terms:
The principle laid down in the initial version of the Act remains, namely that during the state of emergency procedural terms shall be stayed for the parties. The amendments to the Act are aimed at introducing exceptions to this principle. For this purpose, an Appendix to the Act (to Art. 3, Item 1) was adopted, listing in detail the proceedings for which the procedural terms shall not be suspended during the state of emergency even for the parties. Among the said terms 21 criminal proceedings are included, as well as 7 civil and commercial proceedings, and 16 administrative cases.
Оbviously, the main purpose of this amendment is to avoid the delay in the administration of justice, unless it is necessary due to the objective impossibility of the parties. It is logical and fair to postpone the proceedings and suspend the procedural terms only when the parties concerned are unable to participate and defend their respective rights, and not in general. The opposite would lead to the possibility for abuse of rights and consequently damage the rights of the other party, which is, by all means, not fair.
Regarding the limitation periods:
The law explicitly provides that the limitation periods, the expiration of which leads to loss or acquisition of rights of individuals, shall be suspended. Logically, in a situation of limited free movement between populated areas, limited access to the financial system and an economic environment which makes difficult the performance of any monetary obligation, limitation periods should be suspended in order to allow bona fide individuals to exercise their legal rights as soon as the situation passes.
Once again, presumably in order to avoid blocking the administrative process, the initially introduced provision providing for the suspension of the terms for fulfillment of the instructions, given by an administrative authority to parties or participants in proceedings (except for proceedings under the European Structural and Investment Funds Management Act), was repealed.
We particularly underline that the terms, the suspension of which has been repealed pursuant to the latest amendments, shall be resumed as of the expiration of a 7-day term from the publication of the Act. This provision aims to provide certain predictability for citizens and state authorities in this dynamic law-making environment where, otherwise, everyone shall have to adapt in an immediate manner.
Another legislative framework, subject to wide discussions before the spread of the virus, was the one regulating the field of measures against money laundering. A type of vacation was envisaged in the said field, whereas, pursuant to the newly adopted Art. 24, all terms for obliged entities to prepare their internal rules under the Measures Against Money Laundering Act, respectively to align them with the relevant legal requirements, shall be suspended. While in the other provisions aimed at liberalization of the applicable regime there is a specific logic related to the supply chain disturbances, the limitations in free movement of citizens, as well as the limited access to financial resources, this specific amendment is somehow without reasonable justification. Logic seems to rather support the concept that in the current period the business is able to direct all of its potential to a better internal organization of its activities and to correction of its internal processes. In this relation, it is necessary to prepare any missing internal rules and procedures accordingly, which, otherwise, in the fast-paced everyday life, may have been neglected compared to other urgent ongoing tasks, which now may not be so dynamic, considering the shrinking commercial turnover.
3. Exceptions from the extension of terms
The previous version of the provisions of the Act did not provide for the explicit suspension of public procurement procedures. However, by the extension of a number of terms with ‘one month as of the termination of the emergency state’, the path for their further development was practically blocked.
In times of a rising economic crisis, the public procurement is a possible mechanism for financing from the state. Logically, after finding a solution for timely realization of the administrative activities related to public procurement, namely in a distanced manner, which also does not pose any risk for further spreading of the pandemic, the limitations for their normal development were repealed. For the said purposes, the extension with one month as of the termination of the emergency state of terms in procedures related to public procurement, concession procedures, proceeding under the Protection of Competition Act, as well as terms in some other proceeding explicitly listed in the newly adopted Para. 2 of Art. 4 of the Act, was repealed. Due to the specifics of the relevant legislation regulating public procurement, concessions etc., it is explicitly provided that this rule shall also apply in cases when the procedures are initiated pursuant to a regulation adopted by the government in accordance with the applicable laws.
The above amendment shall enter into force as of the expiration of a 7-day term from the publication of the Act.
4. No consequences in case of late payment under credit agreements
One of the most controversial texts in the initial version of the Act was related to the ubiquitous and universal abolition of all sanctions for late payment (in the form of default interest and penalties) during the state of emergency. The said, naturally, may be expected to have only one effect, and that is full demoralization of both the debtors who are unable to fulfill their payment obligations, and the debtors unwilling to do so. This means that whoever, for one reason or another, would like to delay their payment, shall have the legal possibility to do so, without any consequences whatsoever. Logically, a question arises and that is if this provision aims to mitigate the situation of the Bulgarian citizens who are encountering difficulties due to financial or health reasons, then why it releases from all legal liability also persons who are not only in no need of support, but are also ready to directly harm the interests of others and in this way contribute to the deepening of the economic crisis.
The lack of clear answer to this reasonable question led to the most essential change of the Act, namely the one of Art. 6. After the said amendment, the categories of private parties who are entitled to benefit from this exception (for the implementation of negative consequences in case of late payment of monetary obligations) were significantly narrowed. Apart from the categories of parties, the application scope of this provision was limited also with regard to the type of legal transactions. Therefore, it was adopted that during the state of emergency no legal consequences for late payment shall be applicable to debtors under financing agreements. Thus, in case the debtor fails to fulfil a payment obligation under a credit agreement or other type of financing, including leasing, factoring, forfeiting etc., which has been provided by a bank or other type of financial institution within the meaning of Art. 3 of the Credit Institutions Act, no default interests or penalties shall be due, the creditor shall not be allowed to make use of acceleration clauses, the creditor shall not dispose of the right to unilaterally terminate the agreement due to default by the debtor, as well as no seizure of properties shall be allowed. The said provision also encompasses the cases when the receivables have been acquired by other banks or financial institutions or third parties.
By means of this amendment, the legislator has shifted the burden to the strongest part of the economy – the banking system, which shall have to bear the impact during the state of emergency.
5. The state bares part of the social security contributions under the 60/40 scheme
In the days following the adoption of the 60/40 state aid scheme, on the basis of transparent calculations, the business showed the state that it could not afford to accept its proposal under this form of support. The reason was justified not by the lack of desire, but rather by the logical argument that upon ceasing of all activity (for the most affected companies), the company shall not have enough funds needed to co-finance its respective part of the workers’ remuneration, taxes and social security contributions. Thus, only less than 8% of the eligible employers have actually benefited from the measure since its introduction. Probably, these were even not the most affected companies, because the latter have proven mathematically that they do not have the resources needed to show solidarity with the state, and to preserve their most significant resource from mass redundancies, namely their workers. Within a few days, what we expected has happened and now there are more than 30,000 newly registered workers on the jobs market, which, in turn, added more strain on the social system. The state has reduced is aid for up to 18 % of the payment due by the employer to the worker, according to certain calculations, instead of sharing the burden of paying unemployment benefits with the business, namely by providing stimulating in its amount and fair state aid to the business enterprises which have entirely or partially ceased their operation.
Thus, what was logical has now happened and by means of amending the Act, the state has undertaken to pay also part of the social insurance contributions of the workers in companies, which have applied and have been approved for this measure. More specifically, the state shall transfer in favor of the employer not only 60 % of the insurable earnings of each worker, for whom compensation has been requested, but also the amount of 60% of the social security contributions which are usually at the expense of the employer.
Additionally, the said amendment shall have a retroactive effect (ex tunc), i. e. as of the declaration of the state of emergency. However, the time limit for provision of the compensation remains unchanged – compensation shall be paid for no more than 3 months, as of 13th March 2020.
6. Amount of the unattachable1 income and other adopted amendments
It has been long necessary for the amount of the unattachable income to be aligned with the changed standard of life in the state, especially considering that this has already been made a few times in the past years with regard to the amount of the minimal salary, which, on its part, is supposed to reflect the threshold of social existence. Thus, pursuant to the Act, an amendment is adopted in the Tax and Social Insurance Procedure Code, concerning the unattachable labor income, and the latter is raised from 250 BGN to 610 BGN.
Rental agreements with the state
As the business became aware of the need to renegotiate the terms of the rental agreements for commercial properties affected by the state of emergency, the Act reflected this possibility also in the legal relations in which the state is a landlord. In particular, the government, the ministers, as well as other executive bodies and municipal councils have been given the power to issue orders for the reduction of rent or use fees, as well as for the full and partial exemption thereof, for the benefit of physical persons or legal entities – tenants or users of real estate – state property or municipal property, who have terminated their employment or ceased their commercial activities due to the measures and restrictions imposed during the state of emergency. The conditions envisaged for the implementation of this measure reflect the specifics of the situation and provide a generally sound basis for the re-negotiation of those relationships, which may also be significantly affected.
Return of prepayment by tour operators
Last but not least, a compensation procedure for canceled trips is regulated. An issue where a balance of the interests is sought by the most affected sector of the economy – tourism, and those citizens who have made reservations before the crisis began, and who expect to receive back the funds invested in reservations that they would not have possibility to use.
There are two alternative options – a tour operator whose organized trip has been canceled due to the state of emergency has to offer a voucher to the customer for the amount paid – this is one option. The second option provides that, if the customer refuses to accept the voucher, the tour operator shall reimburse all payments made by the consumer for the canceled trip within 1 month as of the termination of the state of emergency. The question remains whether mass bankruptcies in the tour operators’ sector will follow and whether many customers will be deprived of the opportunity to receive their repayments. In order to avoid such undesirable consequences, it may be necessary to tighten controls and deter those businesses that will abuse the law and “simulate” bankruptcy in order to avoid paying consumers the due amounts. What consumers expecting reimbursement can do at this stage is to keep in constant contact with the debtor entities, including to be as prepared as possible to seek their rights in court, in the event of adverse developments.
For more current topics related to the emergency legislation stipulating legal relations during the state of emergency, you can find information on our website: www.penkov-markov.eu Of course, you can reach us for additional information and assistance at: [email protected].
The above provides general information related to the adoption of the Measures and Actions during the State of Emergency Act and it is not exhaustive, whereas it serves only as a guide for interpreting the news as of April 8th, 2020.
The team of Penkov, Markov & Partners.