Managing the Coronavirus Situation: Force Majeure, Labour Law, Tax Law and Corporate Law Tools for Business (updated 19.03.2020)

The spreading coronavirus provoked the Government of the Republic of Lithuania to take drastic preventive measures – suspension of educational institutions, non-formal education (circles), activity of museums, cinemas, sports clubs and similar institutions prohibited. From Monday, March 16, for 15 days, departure or entry is prohibited in the country, except in special cases and Lithuanian citizens returning to their place of residence, going to work or owning permits; in-store sales (except at grocery stores, pharmacies, specialized veterinary pharmacies, food markets) is prohibited; the access of cruise ships to the Klaipeda State Seaport is prohibited; all events and gatherings in the open air and in closed spaces are prohibited; activity of catering places, restaurants, cafes, bars, nightclubs and other places of entertainment is prohibited, except when food is taken away or in other way delivered to the citizens; activity of health centres, sanatoriums, recreation centres is prohibited, except individual rehabilitation services relating to treatment; beauty services will be no longer provided. It is not excluded that, depending on the situation, the quarantine period may be extended.

For many business sectors, this situation means that as long as costs often remain the same, profits are either lost or significantly reduced. The question is how to deal with the employees and what to do when it is impossible to fulfil contractual, financial and tax obligations? What steps should be taken by the businesses to avoid bankruptcy?

Article 6.204 of the Civil Code of the Republic of Lithuania provides that, if in the course of performing a contract, the circumstances, which were not known until the conclusion of the contract, occur (and at the time of the conclusion of the contract these circumstances could not have been foreseen and these circumstances are beyond the control of the aggrieved party and the risk of occurrence of these circumstances was not assumed by the aggrieved party), and this 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. Such circumstances shall be deemed to be a constraint on the performance of the contract and shall be notified as soon as they occur by submitting a reasoned and well-grounded request for the modification of the contract. Obviously, quarantine in the country is a valid reason to request for the modification of the contract. Of course, such a referral itself does not give a party the right to unilaterally modify the contract – the other party must accept the proposed changes. In the absence of a consensus, the dispute may be submitted to a court which will decide either to terminate the contract or to modify the terms of the contract in order to restore the balance of the parties' contractual obligations.

Another possible model of actions is proving that your company is dealing with difficulties due to force majeure. 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 conditions for recognizing force majeure are analogical to those for modification of the contract on the basis of changed circumstances. 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, the counterparty – suppliers, customers, and partners – must be informed immediately. In the event of failure to report in time, the defaulting party shall be partially liable for damages that could otherwise have been avoided. In case of force majeure there is no civil liability, i. e. default interest and penalties are not paid, the party shall be exempt from damages and other penalties provided for in the contract (except for the obligation to pay interest).

Given the consequences of the coronavirus for business sectors, 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, in order to obtain certificates of force majeure, the Chamber will need to be convinced not only that there are circumstances related to the coronavirus that have made it difficult for the company to fulfil its contractual obligations (the declaration of an extreme situation alone does not relieve the business of its obligations), but also it has to be argued that precisely these circumstances are the one that led to the failure of performing the contract. This means that in each case the existence of force majeure is determined on a case-by-case basis, taking into account the facts.

If the contractor intends to invoke force majeure, at least for temporary defaults, it should first consider to perform the contract by alternative means, i.e. modify the terms of the contract (on the basis of the mentioned Article 6.204 of the Civil Code, negotiate different terms, change the price, suppliers, etc.), and, if there is such a possibility, try to perform the obligations arising out of the agreement under the updated terms.

In cases where the contract is already started to be performed, restitution may be applied, taking into account the costs incurred by the other party before the occurrence of force majeure, and partial payment for services or goods.

If you are unable to pay your taxes on time, you are 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. Similarly, if there are no tax arrears at the moment, but obviously you will not be able to pay your tax on time, you have the right to submit a request due to deferral or spreading the time limit for discharging arrears in payments until they are formed, but not earlier than 20 days before the due date. You must already have submitted the relevant tax return to the STI before applying for tax deferral or spreading the time limit for discharging; i. e. the amount of tax for which you are requesting to defer or spread the time limit for discharging must be known and declared. Of course, such a request does not oblige the STI, so you should justify why you cannot pay the full amount at this time (for example, loss of income due to the state order to stop certain activities during a pandemic; making the necessary payments would put you in a critical situation; you would be at risk of insolvency and would be unable to fulfil your other obligations, such as paying salaries to employees, and so on), and that deferring payment of taxes or spreading the time limit for discharging arrears in payments would stabilize your financial situation and make payment of the tax possible. The STI has published criteria for deciding whether to grant your request (you can find them here).

It should be noted that when applying due to spreading the time limit for discharging arrears in payments or deferral of payment, it is also necessary to request that the STI also not commence or suspend (if already initiated at the time of application) the arrears retrieval until the date of the tax loan agreement.

The application and the documents required for the examination of the application are accepted electronically through the My STI field of the STI portal.

Also, the deadline for filling in an advance profit tax return is extended by two weeks: companies will be able to fill in an advance profit tax return for the first quarter of this year until March 30.

In cases where taxpayers are temporarily out of business activities due to the quarantine and coronavirus pandemic (do not enter into or execute any transaction; do not settle transactions with economic entities; receive no income other than interest on the cash funds held in the taxpayer's bank accounts), they may be temporarily exempt from submission of tax returns and / or other documents specified in legal acts to the STI submission (in accordance with the Rules approved by the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania No. VA-28, 31 of March, 2009).

Although the General Data Protection Regulation (GDPR) provides a general prohibition on the processing of personal health data, however, in the case of epidemics, an exception is determined, when processing of data is necessary due to the reasons of public interest in the field of public health. The employer is entitled, complying with the GDPR, to get an information from his employees about whether they have symptoms of COVID-19, whether a diagnosis of COVID-19 has been made, whether the employee was traveling abroad, or had contact with anyone diagnosed with COVID-19 and any other information which is necessary to protect employees, clients and fulfil his responsibilities as an employer. However, it is important to know that this information cannot be publicly disclosed by the employer or documented without a specific reason (if it is not necessary to prove the employer's obligations or if it is not required by law). It should be remembered that the employer is not entitled to exercise the functions of other competent authorities, such as informing others that a particular employee is ill with COVID-19, unless the situation itself requires protecting others immediately.

If the employee has returned from abroad or had contacts with persons from countries at risk, the employer should oblige the mentioned employee to work from home and take any additional measures necessary to protect the remaining employees. If the remote work is not possible, the newly adopted amendment of the Article 49 of the Labour Code should be followed: in the event of an emergency or quarantine announced by the Government of the Republic of Lithuania, in order to ensure the health protection of workers and third parties, the employer must offer to the employee, whose health condition threatens the health security of other employees, to work remotely in a motivated written form. The employer's offer to the employee to work remotely must state the reason, the deadline and the legal basis for the offer of remote work. The employee must inform the employer in writing of his / her consent to work remotely within one working day. If the employee refuses to work remotely or fails to respond to the employer's offer to work remotely, the employer, no later than one working day from the deadline for the employee to reply to the employer's offer, shall dismiss the employee in writing, not allowing him to work and denying him / her payment of wages. The employer's decision to dismiss the employee must state the length of the dismissal, the reason for the dismissal and the legal basis.

Therefore, due to virus spreading, the safest option would be to ensure the remote work for employees. Using this method of work, written requirements for the workplace are applied (if there is any), working tools are made available for work, arrangements shall be made for their provision, rules on the use of work equipment are adopted, the workplace unit, department or person in charge (to which the employee must report for the work performed in accordance with the procedure established by the employer) shall also be indicated. The employer must comply with the employee's request to work remotely at least 1/5 of the full-time rate, upon request of a pregnant woman, of a woman who have recently given birth or breastfeeding woman, of an employee raising a child of age under three years and an employee raising one child under fourteen or a disabled child under eighteen (if due to the production necessity or organization of work it would not result in excessive costs). The refusal of an employee to work remotely shall not be a valid reason for termination of the contract of employment or for alteration of the working conditions.

In the event of a reduction in workloads, the employer may grant leave (annual paid or unpaid) on employee‘s request. However, the employer cannot force employees to take annual leave at exactly the time when it is advisable not to perform work duties in the workplace due to the spread of the new coronavirus.

Possible compromise also could be reduction of working time rate, when it is agreed that, for example, instead of the usual 40 hours a week, an employee would temporarily (until coronavirus threat is reduced or eliminated) perform the job duties for 30 hours a week or less, or working time regime would be changed.

Parents, adoptive parents, grandparents and guardians, i. e. employees raising children, when because of setting up an infection control regime in educational institutions the need to care for young children (kindergarten, elementary school) occurs, may receive sick leave for 14 days. Article 11 (4) of the present Law on Social Insurance for Sickness and Maternity of the Republic of Lithuania provides that, when a regime to restrain the spread of infectious diseases is imposed in educational institutions according to the procedure established by legal acts and, therefore, the necessity arises to nurse a child educated under a preschool, pre-primary, or primary education program, a sickness allowance from the State Social Insurance Fund resources shall be paid up to 14 calendar days. Sickness allowance shall be paid after dismissal or termination of service or at the end of the insurance period if temporary incapacity on child care of the insured person, which has started during the insurance period, continues after the dismissal or the termination of service or the end of the insurance period. A draft amendment to this law is currently prepared and will be considered soon, it proposes that the above provisions be supplemented by the following: when the infectious disease control regime or the state-level extreme situation lasts for more than 14 calendar days, the sickness allowance dedicated and paid shall be paid until, accordingly, the regime limiting the spread of infections shall be withdrawn or a state-level emergency is lifted or the deadline for its notification is reached.

If the remote work is not possible, the situation results in a shortage of work and the above-mentioned agreements cannot be reached, the employer, according to the most recent changes of the Article 47 of the Labour Code, during a declared emergency situation and quarantine can also record an idle time. In this case, during the idle time, when in the employment contract the full-time rate is agreed, the employer pays the employee at least the minimum monthly wage approved by the Government of the Republic of Lithuania. Except for state and municipal institutions or bodies, trade unions, religious communities (associations) or associations, the employer shall be reimbursed of the part of the wage costs incurred in respect of idle time in the amount and according to the procedure established by the Employment Law of the Republic of Lithuania. In the case of part-time work, this part of the guaranteed salary shall be reduced proportionately. It should also be noted that once the amendments of the Employment Law are adopted, private sector’s employers will be entitled to wage subsidies, which will be calculated as a percentage of the wages charged to the employee. I. e. 60% of the estimated funds or 90% of the calculated funds (subject to restrictions in the sectors of economic activity by the resolution of the Government of the Republic of Lithuania), but not more than the minimum monthly salary shall be compensated for the announcement of the idle time due to emergency and quarantine. During an emergency or quarantine, the wage subsidy will be paid for up to 3 months. Employers, who receive a subsidy, will have to keep employees’ jobs for at least 3 months after the end of the wage subsidy payment.

Article 48 of the Labour Code introduces another option – short-time working. Short time may be established when, due to valid economic reasons that objectively exist in a certain territory or sector of economic activity and that are recognised as such by the Government of the Republic of Lithuania, the employer is unable to provide employees with work and there are preconditions for the dismissal of a group of employees. In that case, there exists the possibility to set shorter working hours up to half the employee's working time rate, when reduced wages due to the reduction of working time are compensated to the employee by paying short-time work benefit in accordance with the Law on Unemployment Social Insurance of the Republic of Lithuania.

Considering that the term to convene an ordinary general meeting (OGM) (not later than 4 months after the end of the financial year) of shareholders, provided Law on Companies of the Republic of Lithuania, is coming, it is recommended to follow the restrictions and recommendations approved by the Government. If you have not yet announced your planned OGM, it is best to convene it after the quarantine period. However, if OGM is already planned, there are several ways to proceed: postpone the meeting date to the post-quarantine period, cancel the meeting, or invite shareholders to participate in the OGM and vote in writing by completing the general ballot paper and transferring it by electronic means.

6.         Public procurement in exceptional cases where the protection of the public interest is necessary

March 17, 2020 The Parliament of the Republic of Lithuania adopted the Law Amending Articles 46 and 72 of the Republic of Lithuania Law on Public Procurement, which allows contracting authorities only in exceptional cases to carry out public procurement procedures without establishing grounds for exclusion and requiring suppliers to prove the absence of grounds for exclusion. It should be noted, however, that such procurement procedures are only allowed in exceptional cases where the protection of the public interest, including the protection of public health and the environment, is necessary. The purpose of the law is to enable the procurement of public interest interests to take place immediately. The aforementioned amendment to the Law on Public Procurement of the Republic of Lithuania stipulates that, in the case of international procurement through negotiation of special urgency, contracts may be concluded without following procurement procedures but also eliminating requirement to the contract.

For a business facing serious problems related to bankruptcy, the process of restructuring can become an opportunity to manage the difficulties. When the company is insolvent, but having current transactions and the ability to restore solvency in the future, the new Enterprise Insolvency Law of the Republic of Lithuania makes it easier to restructure than has been possible to date.

Advantages of the restructuring process:

• a compulsory out-of-court settlement solutions scheme for financial support, i. e. the possibility for a legal person to reach an agreement with the interested parties – creditors whose civil rights and / or obligations are directly created, modified or eliminated by this agreement – helping to save a business, giving the company a chance to survive and, in the event of bankruptcy, securing these creditors in the front row;
• to bring a restructuring case it is enough of the half of the creditors the claims of which represent more than 1/2 of the total amount of the court-approved claims of the relevant group of creditors with the approval of the restructuring plan (creditors in the restructuring process are divided into: 1) creditors whose claims are secured by a pledge and / or mortgage; 2) other creditors);
• default interest and interest payment during restructuring process is suspended;
• The Enterprise Insolvency Law provides the possibility of cancelling bankruptcy case and and initiating restructuring process, so due to changed circumstances this Law provides an easier way to save a business. Once a restructuring case has been opened, the approved creditors' claims in the bankruptcy case will be considered as claims in the restructuring case. Thus, even after the bankruptcy process is started and bankruptcy proceedings have been opened, there is a realistic opportunity for the business to recover.

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. In this way, the value depreciation of the property can be avoided and it is possible to transfer the entire business as a property complex, thus enabling the investor to "revive" the chosen business. It is also beneficial to the seller, creditors and employees of the company.

Get in contact with ILAW COVID-19 Crisis Management Team professionals:

✔️Support for business and general issues ➡️ Vilma Sabaliauskienė

✔️Force Majeure ➡️ Asta Macijauskiene

✔️Labor and Employment law ➡️ Tomas Bagdanskis, PhD, Vilius Maciulaitis, PhD, Mantas Mikalopas

✔️Data Protection ➡️ Asta Macijauskiene

✔️Commercial Law ➡️ Dziuginta Balciune

✔️Tax issues ➡️ Gediminas Valantiejus, Phd

✔️Migration issues ➡️ Svetlana Naumcik