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Companies and Coronavirus: Breakdown of the New Legislation

April 16, 2020

What companies need to know

Since the coronavirus pandemic reached Austria in early March, the federal government has issued numerous Covid-19 ordinances and laws. Prof. Georg Kodek, the Academic Director of the Master of Legal Studies at the WU Executive Academy, who also sits on the bench of the Austrian Supreme Court, took a close look at them: this is what companies need to know now.

Pic of social distancing during coronavirus
The many regulations around Covid-19 do not only affect private persons, but to a large extent the entrepreneurs.

Hardly a day goes by without the Austrian government issuing a new ordinance, decree, or even a new law related to the coronavirus crisis. Commissioned by the Austrian Health Minister Rudolf Anschober, experts are currently investigating whether the manifold legal acts comply with the country’s constitution as much as they serve to protect citizens’ health.

Before the coronavirus crisis, municipal authorities were responsible for implementing the Austrian Epidemics Act, which entered into force about 70 years ago and was originally drafted to govern the response to local measles and scarlet fever outbreaks. As it turned out, however, the act proved insufficient to deal with the Covid-19 pandemic. Georg Kodek, who is also a professor at the Institute for Civil Law and Civil Procedure at WU Vienna, estimates that more than a hundred legal stipulations have been replaced or amended by five new Covid-19 acts.

The expert puts a spotlight on the most important legal stipulations that were issued, explaining what companies should look out for:

1. What’s the Deal with the Rent

For about 200 years, it has been laid down in the Austrian Civil Code that a tenant is not obligated to pay rent if the lease object cannot be used due to an epidemic. “Upon consultation, the full rent amount can be reduced or even waived,” Kodek explains. At the moment, many restaurants are keeping their kitchens staffed to offer food delivery services. “In such cases, rent can only be reduced,” the legal expert explains. Non-commercial property, however, is a different story. For the next three months, landlords will be unable to terminate lease agreements in the event that a tenant falls short on rent due to financial difficulties caused by the pandemic. Moreover, between April 1 and June 30, tenants have the right to defer their rent payments. The important thing – for both commercial and non-commercial leases – is to seek consensus: “Talk to your landlord and work out something with them,” Kodek says.

2. Much ado About Opening Hours

Since Tuesday, April 14, small shops with a sales floor less than 400 square meters in size have been allowed to open – much to the chagrin of shop owners in strip malls and shopping centers, who feel they are put at a disadvantage. Until early May, the only shops in malls allowed to open are the ones selling products for everyday use, namely supermarkets, tobacconists, opticians, banks, and drug stores. However, not all of them are actually open.

Portrait Georg Kodek

Prof. Georg Kodek

  • Academic Director of the Master of Legal Studies

From a legal point of view, they were always allowed to operate. But the owner is free to decide to close the shop (for economic reasons). It is possible that the lease agreement stipulates an obligation to operate a premise. But even if this is the case (for instance for a shop in a mall), there will surely be an exemption if all remaining shops are closed. After all, such an obligation to operate serves the purpose of guaranteeing that customers find a variety of stores to shop in. If there are no customers (due to legal restrictions), this aspect becomes void.

3. Paying out Dividends: Yea or Nay?

Recently, large corporations paying out dividends while simultaneously reaping state aid by using the short-time scheme have been making headlines. “Unless an exception applies, a GmbH is obligated to full dividend payout, meaning all profits must be paid out to shareholders,” Kodek says. But as dividends always depend on the profits accumulated in the previous business year, next year’s dividends will likely be much lower or even zero for a lot of companies due to the expected slump in the economy. An all clear from a legal perspective, but not necessarily with regard to ethics: “Of course, the optics are bad. A company paying out dividends can be considered solvent from a business perspective. This means it is relying on the short-time scheme even though it has enough capital.”

A temporary dividend ban, as imposed on companies in France, is currently not considered by the Austrian government. The European Central Bank, however, has recommended that all banks freeze dividends and share buybacks.

Symbolic pic of dividends paid out by companies
Even though dividend distributions are legally within the green zone, they are viewed rather negatively these days, especially from a moral perspective.

4. Insolvency law

Georg Kodek reports that several measures have been taken with regard to insolvency law. “The deadline for filing for bankruptcy has been extended from 60 to 120 days,” he states. So if a company concludes that it will not be able to repay outstanding debt, it now has four months to negotiate a restructuring deal with its creditors. “This will likely relieve the affected companies only to some extent: one the one hand, they gain time and can try to get back on their feet and in the black during this time.” On the other hand, there is an increased chance that many insolvency cases will occur in late summer or fall. What also helps companies: “Health insurance providers are currently not filing bankruptcy petitions; at the moment, they are unusually lenient with regard to the timely payment of premiums.”

5. Loans

According to new legislation applicable from April 1 to June 30, loan repayments can be delayed if the lender can present proof of an income loss related to the coronavirus pandemic. “Bringing proof might be difficult in some cases, but talking to one’s bank is always a good idea. In a lot of cases, presenting proof will be possible, for instance for income losses caused by short-time work and terminations. Another example is the loss of profits due to shops having been closed following a respective order by the authorities. If revenues have merely dropped, for instance at a tobacconist located in a mall, it can be helpful to present balance lists,” the expert says.

The bank will then suspend all claims for three months and extend the credit term by the same period. “Again: make sure to work out an agreement with your bank. It is always better to approach them proactively and in time. This will prevent a strained relationship with one’s bank, which most people depend on. Once you have received a reminder that a payment is overdue or your credit scores have been lowered, you will have a much harder time regaining your bank’s trust,” Georg Kodek says.

Pic of a repayment plan of companies
Loan repayments can be suspended in the meantime - in any case, it is recommended to actively seek agreement with the bank. Photo © CC0 Licence

6. Takeovers

Georg Kodek thinks that the coronavirus crisis has put a temporary halt to many takeover projects and that takeovers will become a hot topic again in four to six months’ time: “Especially if the target companies, in other words: the companies lined up for an acquisition, and also their competitors are struggling, they become attractive objects for a takeover,” Kodek says.

7. Virtual Voting

As of now, it is also possible to hold shareholder meetings online. Votes cast in a video conference are recognized by law. Also courts, among them the Austrian Supreme Court, have held virtual sessions. “This fact is particularly interesting for parties in charge of organizing shareholder meetings. It is not merely of ‘general interest’ that online meetings are held by the judiciary, but it serves as a point of orientation with regard to the respective stipulations for companies which are legally required to organize shareholder meetings,” Georg Kodek points out.

The Master in Legal Studies makes it easier to keep track of ordinances and regulations in times like these. For more information about the program, please click here.

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