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Spanish Government has enacted RD 463/2020, on March 14 declaring the state of emergency in the national territory for 15 days, renewable due to the serious health crisis “Coronavirus” that exceeds the capacity of the Health public system. Uncertainty, fear, collapse and chaos arise. With this release we at Amber LBA wish to offer analysis and a basic roadmap to help overcome the crisis: What to do?
RD 463/2020, among the bans, requisitions, confiscations, and mandatory services as correspond to an emergency situation, as regards the legal-private and business law we must highlight the following measures:
- Limitation to freedom of movement, although allows: “Going to the workplace to perform work, professional or business activity, and (…) to financial and insurance entities”.
- Prohibition of opening to the public of a large part of retail stores and provision of personal services and certain activities included in a list (except only for essential supplies of food, hygiene, fuel, medicines, and some listed items)
- Procedural measures: Suspension (i) of procedural terms and deadlines during the emergency period, excepting, among others, collective dismissal or temporary work suspensions (e.g “ERE” / “ERTEs”); and (ii) statute-barred period / legal actions and rights.
- Assurance of goods, supplies and services for public health: “Intervene and temporarily occupy industries, factories, workshops, farms. (…) Temporary requisitions of all kinds of goods and imposing personal services (…) ”.
- Customs: priority is given to the essential supplies and ability of transport of goods and passengers is reduced in offer and frequency.
Just a few days before: a) RD-Law 6/2020, declaring the period of isolation or contagion for this disease, as qualifying work accident or illness and b) Decree-Law 7/2020, which, together with support measures for vulnerable groups, includes the possibility of entrepreneurs or professionals whose turnover in 2019 does not exceed € 6,010,121.04, to be approved extension of term of tax debts due on or before May 30, 2020 for up to 6 months (the first 3 months interest-free).
As expected in an open economy, these measures immediately cause the current sudden, deep, widespread cash crisis, and even threaten the feasibility of self-employed Micro SMEs, SMEs companies (which continue to be a large number in our country) and even large companies, an effect that can be seen, depending on the case, in, for example:
- Dramatic loss of income (e.g. manufacturers or distributors supplying products to retailers and businesses forbidden to operate; sports, leisure and cultural centers).
- Delays and non-payments to suppliers due to cash flow difficulties.
- Inability to comply with product delivery or service provision due to lack of raw materials or necessary services.
- Layoffs and loss of salary earnings preventing employees from meeting payments, etc.
… And in the meantime, without the possibility of filing court claims while emergency period continues
In addition, internationalized companies will suffer the additional effects derived from different legal systems and legal costs: there is globalization in the economic, social fields but not in the legal field, without institutions with a global scope of authority. The EU must lead a good coordination of the Member States – viruses know no borders. The de facto situation of force majeure, or hardship causing unfair unbalance due to sudden, deep unforeseen changes, may work in favor (a relief for the company from fulfilling a payment and/or indemnification obligation with a creditor or supplier), but also may allow a relief or even exonerate its clients from their same obligations to the company.
No panic!. It is time to take control and make prompt decisions with the support of professionals, obey the authorities, and act diligently:
- Analyze and assess the situation of assets, rights and obligations and all contingent/ liabilities: review contracts, agreements and implications arising therefrom, especially their clauses (e.g. definition of failure or default, force majeure, clauses for revision or adjustments) and relevant provisions; and.. cash-flow forecast.
- Identify resources and imaginative solutions (assets, negotiation with clients / suppliers and business partners, banks, shareholders, family members, managers / employees, public aid …).
- Decide measures and legal instruments as appropriate to the situation.
- Draw up a flexible action plan according to the dynamics of the crisis.
- Get down to work, initiating contacts and negotiations looking for collaborative agreements, moratoriums, refinancing in order to maintain operations and .. future viability.
Authorities may challenge that all the effects of the restrictions qualify as events of force majeure or a material adverse change/event or effect, or hardship to the grounds of an agreement, often in investments) and effects, or, by the Government allowing to “go to work” (i.e. to “keep the activity” ?”), a strict interpretation will be imposed and force-majeure exemption can apply only to those undertakings subject to express prohibition to operate under the Appendix included in the RD-Law (e.g. retail, restaurants, etc.) or when a direct relationship between the emergency officially declared and the damages can be proved. New measures clarifying doublts and completing this are expected. But prior losses should not be masked here “putting them in the same box as losses caused by the coronavirus-emergency declared term.
Yet, when the emergency state is lifted, the “day after” what remains and how to manage it may be worse, but also an opportunity, see what and how remains, and how to manage the reconstruction, or redirection and measures for that can be tougher. In any case Spanish legislation provides for legal instruments to deal with business crises, so the sooner they are tackled, the better for all parties concerned.
In businesses and legal entities: labor law allows the termination of employments for reasons of force majeure, financial, technical, organizational, or production reasons -whether temporary (ERTE) or definitive (ERE). In the Business Law field, agreements and contracts will likely have to be re/negotiated with this approach, and at corporate level we must remind that according to law, if the net equity falls below 50% of the capital, and 2 months elapse without proper measures being adopted, the Directors may become directly and personally liable for company liabilities; and reorganization and bankruptcy regime and he equivalent to chapter-11 procedures.
For the natural person, with some requisites and conditions there are protective measures and personal bankruptcy, too.
We all hope that the Government issues new measures to relief or postpone certain deadlines and obligations of economic activity, businesses, undertakings, employment relations, etc. while the confinement continues.
Amber Legal & Business Advisors
María-Antonia García Solanas – Lawyer