NEWSLETTER CORONAVIRUS

SIGNIFICANT LEGAL ASPECTS

1. Introduction

On January 30, 2020, the situation relating to the new coronavirus (2019-nCoV) has been

declared to be a public health emergency of international concern by the World Health

Organization. Since then, a series of measures have been adopted in order to protect people’s

health and safety and to mitigate the economic effects of said emergency situation.

This document has two main objectives:

i) To make an accurate analysis of the measures and recommendations adopted

by the Spanish government and by all the competent Public Administrations,

especially those measures having the greatest economic, business and legal

impact.

ii) To estimate the legal institutions, mechanisms and solutions already existing in

the Spanish legal system, which may be apt to deal with the economic and legal

consequences caused by the above mentioned health emergency situation.

 

MEASURES AND RECOMMENDATIONS BY THE AUTHORITIES

2. Declaration of state of alarm and measures adopted by the Spanish Government (Royal

Decree 463/2020 dated 14 March 2020)

 

2.1. Declaration of state of alarm

 

The Royal Decree 463/2020 dated 14th March 2020 declares a state of alarm in order to

manage the health emergency situation caused by COVID-19 in Spain. In addition, it

establishes restrictions on freedom of movement, temporary requisitions and compulsory

personal performances, restraints of educational and training activities, restraint of

commercial activities, activities carried out in cultural facilities, in recreational venues,

hospitality and restoration activities and other additional measures in relation to places

of worship and to civil and religious ceremonies, measures aimed to strengthen the

National Health System throughout the whole nation, measures to guarantee the supply

of goods and services necessary for the protection of public health, transportation related

measures, measures to guarantee food supply, customs transit measures, measures to

guarantee electrical supplies, oil derived products and natural gas, measures on crucial

operators of essential services and measures relating to public and private means of

communication.

 

2.2. Measures to limit freedom of movement of people; freedom to attend workplaces

which remain open

 

During the time the state of alarm is in force, citizens will only be allowed to move on

public roads and streets in order to carry out the activities described in article 7 of the

Royal Decree.

Amongst the activities therein described, citizens are allowed to go to work provided that

the workplace remains open in accordance with the following provision.

 

2.3. Measures of restraint to commercial activities, activities of cultural and recreational

facilities, hotel and restaurant activities and other additional activities

 

These measures, being especially relevant economically , consist in closing retail

establishments, with the exception of retail commercial establishments releting to food,

beverages, basic necessities and essential products, pharmaceutical, medical, optical and

orthopaedic products, hygiene products, hairdressing salons, press and stationery, fuel,

tobacconists, technological and telecommunication equipment, pet food, internet

commerce, telephone or correspondence, dry cleaners and laundries. Any other activity

or establishment that in the opinion of the competent authority may cause a risk of

infection is suspended.

Museums, archives, libraries, monuments, as well as all venues where shows and

functions open to the public sporting events and leisure activities are held, as indicated in

the annex to the Royal Decree, are temporarily closed or suspended.

Hospitality and restaurant activities are suspended (with the exception of home delivery

services) as well as parades and folk festivals.

 

2.4. Suspension of procedural time-limits

 

The additional provision number two of the aforementioned Royal Decree, for present

purposes, establishes the suspension of procedural time limits.

The exceptional nature of the state of alarm, with the drastic measures that it entails,

especially limitations to the free movement of citizens in the above mentioned cases,

justifies the suspension of the procedural time-limits, as follows:

 

1) In general, suspension of time limits affects all Courts activities in every field ,

provided that they will start running again when the Royal Decree declaring the

state of alarm, or the extension thereof, will no longer be in force.

 

2) However, as an exceptional measure, guard duty will be maintained in the criminal

law field and the suspension shall not apply to the habeas corpus process, to arrests

and detentions to orders of protection and to urgent actions in the field of prison

surveillance nor to any precautionary measure regarding violence against women or

minors. In the investigation phase, the competent judge or Court may order the

performance of any other urgent action which may be regarded as not to be

delayed.

 

3) Suspension of the procedural time limits shall not apply in the following cases either:

- Procedure for the protection of fundamental human rights provided for in

articles 114 and following of Law 29/1998, dated 13th July 1998, regulating

administrative litigation, or filing of judicial authorizations or ratifications

provided for in article 8.6 of the aforementioned law.

- Procedures of collective dispute and for the protection of fundamental rights

and public freedoms regulated by Law 36/2011, dated 10th October 2011,

regarding social jurisdiction.

- Judicial authorization for mandatory custody due to mental disorder provided

for in article 763 of Law 1/2000, dated 7 January 2000, concerning Civil

Proceedings.

- The adoption of measures or provisions for minors’ protection provided for in

article 158 of the Spanish Civil Code

 

4) Finally, as a general exception , any judge or Court are allowed to order any judicial

actions that they may considers necessary in order to prevent irreparable damage

to the legitimate rights and interests of the parties in a proceeding.

On its part, the Permanent Commission of the General Council of the Judiciary, in an

extraordinary session and in view of the Royal Decree 463/2020, has allowed the

suspension of all judicial proceedings in the country for as long as the state of alarm will

be in force.

Only the essential services of the Administration of Justice shall be maintained,

guaranteeing specific actions.

 

2.5. Suspension of administrative time-limits

 

In addition to the foregoing, the Third Additional Provision also orders the suspension of

administrative time limits therefore suspending all deadlines relating to proceedings

against public entities for all the duration of the Royal Decree except for the following:

- The competent authority, through a substantiated resolution, may agree upon

the measures deemed to be strictly necessary to avoid serious damages to the

rights of the interested party in a proceeding. That is, only as long as the affected

party agrees with the measure or with the fact that the time limit is not

suspended.

- The aforementioned suspension will not affect the proceedings and resolutions

that refer to situations strongly related to the facts justifying the state of alarm.

Some Self Governing Communities have issued similar provisions with suspension of

administrative time limits to proceedings in their jurisdiction.

 

2.6. Suspension of expiry and Statute of limitations

Finally , Additional Provision Number Four orders the suspension of expiry and Statute

of limitations of all claims and rights whatsoever for the duration of the state of alarm.

 

3. Urgent measures to react to the economic impact of COVID-19 (Royal Decree Law

7/2020)

Last Friday, March 13th, a day before the declaration of the state of alarm, the Royal

Decree 7/2020 came into force. It includes measures of special commercial interest,

including the following:

 

a) Support measures in the field of Tourim industry

 

- Thomas Cook budget line:

The budget line set out in article 4 of the Royal Decree-Law 12/2019, dated 11

October 2019, which adopts urgent measures to mitigate the effects of the

opening of insolvency proceedings of the Thomas Cook business group, will be

extended to all companies and self-employed workers with registered office in

Spain and whose activity was included in the National Classification of Economic

Activities (CNAE) of the tourism field indicated in the First Additional Provision

of this Royal Decree. To the budget initially provided for in article 4 of Royal

Decree-Law 12/2019 an additional 200 million euros will be added.

Instructions have been given to the Official Credit Institute (ICO) to carry out the

necessary procedures with financial institutions in order to make the extended

budget line available to companies within a maximum period of ten days from

its entry into force.

 

- Companies’ bonus for permanent seasonal contracts in tourism and

hospitality:

Tourism and hospitality companies that generate productive activity in

February, March, April, May, June and that in the same period hire or maintain

workers with permanent seasonal contracts, may grant a bonus in said months

of 50 percent of business contributions to Social Security for common

contingencies, as well as for the concepts of joint collection of Unemployment,

Wage Guarantee Fund (FOGASA) and Professional Training of said workers. This

bonus will be applicable from January 1, 2020 until December 31, 2020.

The bonus set out in this article will be applicable in the whole country, except

for Balearic Islands and Canary Islands in February and March 2020.

 

b) Transitional financial support measures

- Postponed payment of tax liabilities:

For the purposes set out in article 65 of the General Tax Law, Law 58/2003,

dated 17 December 2003, a postponement of the payment of tax liabilities

corresponding to all declarations and self-assessments whose submission and

payment dedline falls between the date of entry into force of the Royal decree law ( included)

and May 30, 2020 (included), as long as the requests submitted

up to that date meet the requirements referred to in article 82.2.a) of the General Tax Law.

It is important to note that this postponement will also be applicable to those

tax liabilities set out in letters b), f) and g) of article 65.2 of the General Tax Law.

Therefore, the approved postponement covers liabilities deriving from

withholding taxes and payments, output taxes (like VAT) and instalment

amounts of Corporate Tax.

The conditions of the postponement will be the following: a) The term will be

six months and b) No default interest will be accrued during the first three

months of the postponement (this means, in practice, the application of an

annual interest rate of 1.875% on the amount of the postponed liability).

In order for the postponement to be granted the debtor needs to be an

indiviadual or an entity with a volume of operations not exceeding 6.010.121,04

euros in 2019.

- Request for an extraordinary postponement of the repayment schedule for

loans granted by the General Secretary of Industry and Small and Medium

Enterprises:

The beneficiaries of the financial support instruments for industrial projects

may request the postponement of the payment of the principal amount and /

or interests of the current annuity, as long as their payment deadline falls in

less than 6 months from the entry into force of this Royal decree-law, wher the

health crisis caused by COVID-19 has caused for these beneficiaries downtime,

a reduction in the volume of sales, or interruptions in the supply of the value

chain that makes it difficult or impossible to make the payment. Should this

request be granted, it will imply the corresponding restraining of the refund

schedule.

 

c) Public procurement measures:

The application of direct or indirect measures of any kind by the management bodies

of the General State Administration to deal with COVID-19 will justify the need to act

immediately, under the provisions of article 120 of Law 9 / 2017, dated November

8th, relating to Contracts in the Public Sector.

In accordance with the above, the emergency procedure will be applicable to all

contracts signed by the General State Administration, its public bodies and other

Public Law entities in order to comply with the measures related to people's

protection and other needs adopted by the Council of Ministers and to face COVID19.

 

4. Royal Decree-Law 6/2020 of 10th March adopting specific urgent measures in the

economy and for the protection of public health

On Wednesday, March 11th, the Royal Decree-Law 6/2020 entered into force. The

abovementioned includes among its measures, to exceptionally consider periods of

isolation or contagion of workers as a consequence of the COVID-19 virus as an accident

in the workplace for the purposes of temporary incapacity.

 

5. Other recommendations of business interest issued by the Public Administrations

regarding the COVID-19

At a regional level, it should be noted that, amongst the recommendations included in the

Agreement of March 13th, 2020, of the Andalusian Government Council, in compliance

with the Order of the Health and Family Council pursuant to which prevention measures

are adopted for public health reasons as a consequence of the COVID 19 the following

provision is added: Whenever possible companies ought to promote smartworking,

flexible hours, staged shifts and meetings by videoconference. Also companies aree

encouraged to elaborate plans of continuity of the business that could anticipate the

actions to be carried out considering the situation caused by the Coronavirus.

 

POSSIBLE ACTIONS AND RECOMMENDATIONS TO FOLLOW

 

6. Approach to those legal institutions, mechanisms and solutions already existing in our

legal system to face the economic and legal consequences caused by the health

emergency situation

 

6.1. Duties of entrepreneurs and corporate bodies

 

6.1.1. Specific measures. Action plans:

Considering the existing situation entrpreneurs and, where appropriate, corporate

bodies, must comply with the regulatory provisions issued by the competent

authorities, adopting and communicating the specific applicable measures within their

organizations.

On the other hand, corporate bodies and, where appropriate, their delegate commissions

and management committees, must analyse the impact that the actual situation has on

the entity, establishing an action plan that contemplates specific and gradual measures

to be adopted depending on the circumstances and their evolution. The action plans must

be prepared considering the different activity areas of each company (labour, businessfinancial, operational and commercial fields).

In this exceptional situation, corporate bodies must be monitoring the evolution of

events and of the execution of the measures at any time. The meetings and measures

that are being adopted and executed must be adequately documented so that diligent

action can be credited.

In this sense, in order to comply with the measures and recommendations of the

authorities and after analysing, in each case, the legal and statutory rules applicable to

each entity, it would be maybe possible to hold the sessions online, as well as adopting

agreements in writing without holding a meeting in accordance with the provisions of

corporate regulations relating to Boards of directors.

 

6.1.2. Regular functioning of corporate bodies:

Without prejudice to the evolution that may occur, it is advisable that, in addition to the

specific issues outlined in the previous section, corporate bodies continue to carry out

their functions and comply with their relevant legal obligations.

In this regard, as indicated in the previous section, physical presence must be replaced

by alternatives means provided for by the applicable and statutory regulations.

Most companies are currently preparing their annual accounts for 2019 and, in this

regard, said companies shall continue with the preparatory work and actions aimed to

complete theirfinancialstatements. Should this not be possible, it will have to be properly

documented and justified.

Likewise, if there are entities that have summoned ordinary general meetings, each case

ought to be assessed in order to decide whether said meetings can he held or not.

If an ordinary general meeting has been mantained , the appropriate corporate body

entitled to call off the meeting should be identified and in case the meeting will still be

held as planned rights of the shareholders shall be preserved by holding said meetings

online, using remote voting and representation mechanisms

 

6.1.3. Breach of financial obligations

If, as a consequence of the emergency, there is an impact that prevents or may prevent

the regular fulfilment of obligations, it will be necessary to analyse in each case, if filing of

creditors pre-bankruptcy claim is applicable, in accordance with the provisions set forth

in Spanish Bankruptcy Law. Such claim should be submitted within two monthsfrom when

the insolvency situation is known or should have been known, in order to avoid liability of

the directors and the freezing of some judicial enforcement and seizure proceedings that

may occur.

 

6.2. Contractual situations

In compliance with our legalsystem, contracts are binding and compel the partiesto abide

by the provisions thereby agreed upon according to the applicable law.

However, under these exceptional circumstances, it is necessary to analyse whether, in

each case concepts such as force majeure and the jurisprudential concept called “rebus

sic stantibus” (Hardship) clause shall be applied.

In any case those conceptsshall not be applied on a general basis, each contract and their

covenants having to be examined individually before resorting to other legal remedies.


6.2.1. Force Majeure

Force majeure is defined as the occurrence of an extraordinary, unpredictable event that

could in no way have been avoided, not even using all possible diligence and in which no

negligent or malicious action can be accounted on the party who intends to use said

concept as an exception.

 

The two requirements to be met in order to consider an event as force majeure are: (1)

said event could in no way be foreseen nor (2) could it be avoided, it being impossible to

resist to and it must necessarily be elsewhere originated.

 

As far as debtors are concerned , force majeure could: (1) exonerate them from liability

for non -compliance; (2) release them from fulfilling their obligations; or (3) suspend the

fulfilment of the obligation in those cases in which it could be simply temporary

 

It should be assessed whether force majeure shall be applicable to some contractual

relationships and if any definition or application of force majeure has been provided for

in said contracts.

 

In addition to the case of force majeure, our Supreme Court has distinguished those cases

in which the provision is considered to be exorbitant or excessively burdensome (rebus

sic stantibus clause).

 

6.2.2. Rebus sic stantibus clause (Hardship)

It is a jurisprudential concept that can give rise to termination or amendment of a

contract due to the supervening alteration of the concurrent circumstances at the

moment of its conclusion.

 

In this respect, the following requirements shall be fulfilled: There must be (1) an

extraordinary, unforeseeable and not ascribable to anybody alteration of circumstances

at the time of performance of the obligations in relation to those existing at the time the

contract was concluded; (2) an exorbitant disproportion between the obligations of the

parties which results in a mismatch of performances; and (3) the absence of any other

remedy, this clause being a subsidiary one.

 

This being a very exceptional concept it will have to be evaluated on a case-by-case basis;

however it has been granted, defined and updated in recent Supreme Court rulings, such

as STS 2823/2014, 5090/2014 and 1698/2015, and it is therefore considered to be a

possible suitable remedy for breach of contract disputes caused by the impact of this

health emergency.

 


6.3. Employment relationships

Untilspecific measures are approved in this crisis, in the line requested by social operators

("express" temporary employment dismissal -ERTE by its Spanish acronym-, freezing

companies’ obligation to pay social security contributions during the suspension period,

100% unemployment benefit for workers on suspended contracts, etc.), some initial

suggestions can be made in order to manage the serious economic consequencesthat the

crisis is already provoking on companies:

▪ Temporary contracts for a specific project or service may be terminated,

especially in companies performing activities discontinued as an effect of

the annex to the Royal Decree.

▪ Smartworking should be encouraged by giving clear instructions in writing

to workers, this not implying that the obligations to record working days

should be disregarded . Also, special shifts, flexible working hours, leaves,

etc, may be condidered.

▪ Holidays can be granted to the staff in the next few days.

▪ Force majeure may be alleged in order to carry out ERTE, especially in

companies whose activities have been discontinued as an effect of the

Royal Decree, according to articles 47.3 and 51.7 of the Workers' Statute

and Royal Decree 1483/2012, dated 29 October.

The procedure exonerates the company from a negotiation period with the

workers' representatives, however it requires the approval of the

Employment authority. It must be initiated by means of an application

addressed to the Employment authority (Andalusian Regional Government

or Ministry of Labour) and a simultaneous communication to the workers'

representatives. The Employment authority will obtain a report from the

Employment Inspectorate and must render a decision within five days.

The effects of the authorisation shall be dated back from the date of the

event causing force majeure. The company shall decide on the suspension

of contracts or reduction of working hours where appropriate, without the

need for an agreement with the workers' representatives

Companies are still compelled to pay social security contributions ,

although exemptions may be granted and the workers will receive

unemployment benefit during the period of discontinuance.

This provision applies regardless of the number of workers in the company

and the number affected by the suspension.

▪ ERTE (temporary employment dismissal) may also be started for economic,

organizational or productive reasons, following a mandatory period of

consultation effective fifteen days after the communication of

discontinuance measures. This will be the case of companies not affected

by the closure of activities and that will wait to measure the extent of the

crisis in their production process.

▪ Collective dismissal (ERE by its Spanish acronym) may also be initiated on

the grounds of force majeure if the company considers that there is a

structural impossibility to maintain the employment relationship, by means

of a procedure similar to the one described for ERTE.

▪ ERE may also be initiated for economic, organizational or productive

reasons in accordance with the procedure in force under Article 51 of the

Workers' Statute, with its relevant formal obligations, consultation period

and duty to negotiate in good faith.

▪ In companies with less than 100 employees, if termination affects less than

10 employees, they may procced to individual dismissals for economic

reasons.

 

6.4. Postponement of tax payments

In those cases where it is convenient to improve the liquidity of the taxpayer, deferrals of

tax payments shall be managed, especially taking into account the new features referred

to in paragraph 3.1(b) above.

Notwithstanding the fact that we will update on any new development regarding this

matter, please note that the State Tax Administration Agency has published the following

instructions:

https://www.agenciatributaria.es/static_files/AEAT/Contenidos_Comunes/La_Agencia_

Tributaria/Le_Interesa/2020/Instrucciones_presentacion_aplazamiento.pdf 

 

6.5. Analysis and necessary review of insurance policies and their coverage

Finally, from the perspective of coverage of insurance policies currently underwritten with

insurance companies, extreme precautions must be taken in revision of policies when

communicating any insured event that may occur in relation to the current health

emergency (amongst others, health and life insurance, default of insured claims, etc)

when identifying the circumstances that increase the contracted risks and file any claim

that may arise, given that, in general, insurance companies do not cover claims arising

from extraordinary risks, including epidemic.


6.6. The need to avoid future harmful own acts in settlement documents that may be signed

The wording of contractual or settlement agreements should be carefully assessed in

order to ensure that they adequately and sufficiently cover the company against claims

from third parties who may have access to those documents.

 

The analysis of possible liability claims

Potential liability claims against Public Administration for actions or omissions related to

this situation that may cause undue damage to individuals must be carefully analyzed.

***

ZURBARÁN ABOGADOS

March 15, 2020

 

Should you have any questions on the issues reported, please contact:

 

Hermes Graván

hgravan@zurbaran.net

(+34) 954 295 080

 

Ignacio Martín

imartin@zurbaran.net

(+34) 954 295 080

 

David Pined

dpinedo@zurbaran.net

(+34) 913 196 600