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Legal update

15 Mar 2020

Due to the worldwide outspread of coronavirus (Covid-19) and its risks Lithuania, just like many other countries in the world, has declared quarantine throughout its territory.

Many restrictions on the activities of the public and private sectors have been imposed and new decisions affecting business are passed every day. During these unprecedented times businesses face many hardships and require quick legal support.

You may wish to contact a lawyter to discuss a situation if during these times you need assistance with: 

  • Enforcing contracts and recovering debts;
  • Resolving disputes in court and arbitration;
  • Applying for insolvency procedures;
  • Changing or terminating employment contracts;
  • Dealing with travelling restrictions;
  • Paying taxes;
  • Receiving state subsidies;
  • Challenging imposed fines or other decisions and actions of state authorities.
  • Protecting your privacy.

What should be considered? Below we present a summary of most popular issues related with Covid-19 affecting business and our recommendations.

  -         Performing contractual obligations and enforcing “force majeure” clauses

 While some businesses are facing serious challenges related with the quarantine affecting their ability to do business and perform their contractual obligations, other businesses tend to try and take unfair advantage of the situation by trying to enforce force majeure clauses simply to avoid performing its obligations during these hard times and saving some funds until the quarantine is lifted.

The Ministry of Economic Affairs and Innovation of Lithuania has issued a statement indicating that quarantine does not relieve the companies from performing its contractual obligations and the attempts to solve your own problems at the expense of others are intolerable and run counter to the principle of solidarity, which must be fully respected today.

If you are facing difficulties with performing your contractual obligations or you have questions regarding the enforcement of force majeure clauses, we would advise to first consider the terms and conditions of concluded contracts, which usually include a provision on force majeure and provide a list of events that parties agreed to recognise as force majeure in the future.

If your contract stipulates an epidemic as a force majeure, it is quite easy to rely on such clause, but if your contract stipulates only the actions of the state authorities as a force majeure, you may still be required to show how such actions of the state combating COVID-19 affected your ability to perform your obligations.

After the relevant force majeure closes are reviewed, we would also recommend to consider the provisions of applicable law on force majeure. Under the laws of Lithuania in order for certain circumstances to be recognised as force majeure, all of the following conditions must be met: (i) such circumstances were not present at the time of the conclusion of the contract and could not have been reasonably foreseen; (ii) the circumstances of the case render the contract objectively unenforceable; (iii) the party failing to perform the contract could not control or prevent those circumstances; (v) the party had not assumed the risk of such circumstances or of their consequences.

In Lithuania the Chambers of Commerce, Industry and Crafts issues certificates attesting to force majeure and a party wishing to rely on the force majeure may wish to procure such certificate to be issued. Please note, however, that such certificates are considered by the courts of Lithuania only as one of the evidences of force majeure circumstances, but does not have any legal effect as such.

It should be stressed out that where it is essentially possible to fulfil an obligation, but due to the quarantine this became more complicated and/or more expensive for one party, then it is not a matter of force majeure, but rather a matter of applying the rules on performing obligations in hardship circumstances.

We encourage all business partners to communicate and inform the other party about any difficulties they are facing in performing their obligations.

We also encourage businesses to not tolerate any actions of contractors which are not in line with applicable laws, contract clauses or the principle of solidarity and seek effective and immediate protection of their rights.

-         Dispute resolution

Even though the quarantine does not prohibit the activity of courts in Lithuania, the Judicial Council has recommended not to organise any verbal court hearings during the quarantine. The court hearings are being rescheduled and postponed and businesses should consider that dispute resolution in Lithuanian courts might take more time than usual.

The right of the creditor to recover the debt by initiating insolvency proceedings might soon be restricted.  The Judicial Council have suggested to suspend certain provisions of the Insolvency Law of the Republic of Lithuania and recently the Government has approved a draft of the law incorporating the following suggestions:

  • to suspend the obligation of the head of the company to apply to the court to initiate the insolvency case during the quarantine and 3 months thereafter;
  • to suspend the right of the creditors to initiate the insolvency case in respect of the debtor until the end of the quarantine;
  • to suspend the possibility to terminate the restructuring procedures due to the non-performance of the restructuring plan during the quarantine.
  • The draft of the law is to be considered by Seimas soon. It thus follows that after the law will be passed the ability of creditors to initiate the insolvency procedures in respect of their debtors will be limited.

It would be advisable for the business to consider resolving their disputes amicably through negotiations or through arbitration. It should be noted that even if your agreement does not stipulate an arbitration clause, the agreement to resolve the dispute with the help of arbitration can be made by parties at any time, even when the dispute has already arisen.

 We also suggest to consider initiating debt recovery procedures and, if necessary, insolvency procedures of the debtor as soon as practicable.

 -         Tax benefits

The State Tax Inspectorate has published a list of taxpayers affected by COVID-19. The taxpayers that are on the list and who have an obligation to pay taxes after 16 March 2020 or 2 months after the end of the quarantine shall be exempt from any late payment interest and shall not face any recovery of taxes. Also, after the end of the quarantine the companies will be able to conclude with the state a tax loan agreement with no interest.

 The list of economic activities includes almost 250 various types of activities, from coffee shops to airlines and aircraft lessors. The list of companies can be found here.

 Businesses who have not found themselves on the list, but are still affected by COVID-19, may apply to the tax authorities with a request for aid measures by submitting a request and indicating how their business was affected.

 There is also a number of other tax benefits (such as exemption from the real estate tax, exemption from the land tax) that may be applicable and we advise the businesses to take advantage of suggested measures.

 -         Employment subsidies

 In case the downtime is announced for an employee or a group of employees, companies may receive subsidies and self-employed persons may also receive payouts from the state.

  The amount of subsidy to be paid by the state may, at the discretion of the employer, may be either:

  •  90% of the employee’s salary, but no more than 607 Eur gross (minimum monthly salary), or
  • 70% of the employee’s salary, but no more than 910,50 Eur gross (1,5 minimum monthly salary).

The employers wishing to receive the subsidy must inform the State Labour Inspectorate and shall have certain additional obligations (such as to maintain no less than 50% of work places for at least 3 months after the end of payment of subsidies).

 If self-employed persons comply with certain criteria established by law (registered for a period of at least 3 months during the last year, does not work under the employment contract, etc.), such self-employed persons may be entitled to single payout of 257 Eur each month. We encourage the businesses to apply for state subsidies and save the working places.

  -         Employment issues

 The main issue each business should discuss with its employees is the ability for an employee to work remotely.

 In certain cases (e.g. when the presence of the employee at the work place may cause damage to the health of others) employers must suggest working remotely and in other cases (e.g. when so requested by a pregnant woman) must comply with the request of an employee to work remotely, unless this is technically impossible or causes significant inconvenience.

 In case there is no possibility for an employee to work remotely, the employers should consider the following options:

  • Declaring downtime;
  • Reducing the employee’s working time;
  • Agreeing with an employee on using annual leave;
  • Terminating the employment contract due to reduced workload. 

Please do get in touch if you need support or want to have a conversation about how COVID-19 might impact your business or you personally. Please send all your enquiries to info@sulijapartners.com.

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Šulija Partners Law Firm Vilnius, registered office Jogailos street 4, 3rd floor, Vilnius, LT-01116, Lithuania, fax +370 52051926, e-mail: info@SulijaPartners.com

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