COVID-19 : From 1 to 14 June

This fortnight we highlight the formulation of annual accounts and corporate tax, the resumption of deadlines, telematic trials, the gradual return to the workplace, insolvency proceedings and criminal compliance.

In a new edition of our Special COVID-19 Newsletter, we analyse the most relevant developments approved in the last two weeks from all areas of business law. The progressive de-escalation, the resumption of activities and the start of the gradual return to work have been key issues in the last fortnight. The deadlines for compliance with accounting obligations and their consequences for corporate income tax have been finalised, and this week sees the resumption of procedural and administrative deadlines. In this issue we also analyse the importance of criminal compliance in these times, and assess the possibilities offered by insolvency proceedings.

COMMERCIAL ARRANGEMENTS

In the last two weeks, amendments to some of the existing measures have been approved, without actually constituting new measures. In this regard, the following has been provided for:

1. Formulation of accounts. The deadlines for compliance with the obligations to draw up and approve the accounts have been specified.

2. Moratoriums. The application to purely conventional moratoria of the favourable regime described below is conditional upon the sectoral framework agreements entered into by the lender signing the moratorium having been communicated to the Banco de España for registration and subsequent publication on its website.

3. Resumption of deadlines. The suspension of deadlines for the exercise of rights and actions ends and resumes on 4 June 2020.

TAXATION

1. Corporate income tax.

As a consequence of the health crisis and social confinement, Royal Decree-Law 8/2020 of 17 March (amended by Royal Decree-Law 19/2020) approved several extraordinary measures to allow listed and unlisted companies more time to prepare and approve their annual accounts. This possibility may lead to many companies having to prepare their 2019 corporate income tax self-assessment without having their annual accounts duly prepared and approved. The aforementioned Royal Decree-Law 19/2020 has regulated a mechanism that allows a new self-assessment to be filed until 30 November 2020 in the event that the finally approved annual accounts differ from the information used in the self-assessment to be filed in the voluntary period, without surcharges, but with interest for late payment.

2. IBI and IAE. The Madrid City Council has approved, on 29 May 2020, the announced IBI and IAE rebates for certain activities that have been seriously affected by the health crisis.

3. VAT. The effects on VAT, Corporate Tax and Personal Income Tax of the renegotiations of rental contracts that are taking place during the crisis caused by COVID-19, taking into account the regulations in force and the rulings of the Directorate General for Taxation issued in previous years. New rulings have just been published on this issue in the VAT field: The DGT confirms that only if the renegotiation of the rental price is agreed before the accrual, VAT is avoided due to the agreed discount.

LABORAL

The last two weeks have been marked by the gradual de-escalation, the resumption of activities and the gradual return to work. They have also been weeks of intense news in labour matters. Different bodies have issued various interpretative criteria and guidelines for action in the face of the doubts generated by the regulation of the ERTEs. The first online labour trial has been held and systems are being set up to hold conciliations by telematic means. Finally, the possible repeal of the labour reform is back in the public debate and the generalisation of teleworking is creating an intense discussion on its regulation.

1.The Order for the implementation of phase 3 of the Plan for the transition to a new normality is published. Order SND/458/2020 provides for measures to make restrictions more flexible, prevention and hygiene measures and maintains, whenever possible, the promotion of the continuity of teleworking for those workers who can work remotely. However, it also provides that companies may draw up protocols for returning to work in person in accordance with labour and occupational risk prevention regulations, which must include recommendations on the use of protective equipment appropriate to the level of risk, a description of the safety measures to be applied, the regulation of the return to work with staggered working hours for staff, whenever possible, as well as the reconciliation of work and family life.

2. The Directorate General of Labour has issued various official letters in response to consultations raised in relation to the regulation of ERTEs. In them, it sets out its interpretative criteria regarding different matters, such as the composition of the negotiating committee for ERTE ETOPs (recognising the preference for trade union representation even if not all the authorised trade unions are present) or the application of Royal Decree-Law 18/2020, dealing with issues such as the definition of ERTEs due to total or partial force majeure, the disaffection and partial resumption of activity, the communication to the labour authority of the total waiver of the ERTE or the disaffection of personnel and possible subsequent assignment of the same if the circumstances so require.

In any case, the criteria are not binding, but merely informative, as the administration does not have the power to make legal interpretations, which is attributed exclusively to the courts.

Likewise, these official notices are sent to the General Treasury of the Social Security in different matters related to the exemption from contributions. This body has published its newsletter “Noticias Red” of 28 May 2020, in which it provides further information on contributions relating to the aforementioned Royal Decree-Law 18/2020.

3. Common guidelines are defined for inspections on ERTEs. The Labour Inspectorate has issued a document to ensure that the actions of the Special Directorate and the provincial inspectorates in ERTEs derived from COVID-19 are homogeneous throughout the country.

The document deals independently with the casuistry of different sectors (primary, industrial, services, construction, transport and other particular cases) taking into account the different periods since the declaration of the state of alarm (until 29 March, the period between 30 March and 9 April, as well as the period after the latter date).

4. Action procedure for occupational risk prevention services in the face of COVID-19 as of 22 May 2020. The update of the action procedure brings the document into line with the new strategy for diagnosis, surveillance and control in the transition phase of the COVID-19 pandemic and updates the definition of particularly sensitive workers, the guidelines for vulnerability and risk management in the health and social-health fields and in non-health and social-health fields.

5. The Ministry of Health has updated the instructions on the performance of diagnostic tests for the detection of COVID-19 in companies. These instructions indicate the tests to be carried out when suspected cases are detected, stressing the crucial role of prevention services and their collaboration with the health authorities for the early detection of cases susceptible to infection. These instructions require all clinical diagnostic health centres, services and establishments, regardless of their ownership, to notify the competent health authority of the Autonomous Community in which they are located and/or provide their services of any confirmed cases of COVID-19 of which they have become aware after carrying out the corresponding diagnostic tests, and any public or private entity that acquires material for carrying out diagnostic tests for the detection of COVID-19 must notify the said health authority.

6. Royal Decree-Law 19/2020 is published, adopting complementary agricultural, scientific, economic, employment, Social Security and tax measures to mitigate the effects of COVID-19. The regulation provides for a number of labour measures, including the recognition as an accident at work of the Social Security benefits caused by personnel providing services in health or social-health centres who, in the exercise of their profession, have contracted COVID-19, in relation to the unemployment benefit for artists in public performances or in the field of employment and the agricultural Social Security system.

7. Telematic trials and conciliations are already a reality. On 18 May 2020, the first telematic trial was held in the social jurisdiction before the 2nd Social Court of Vigo. For their part, the different mediation, arbitration and conciliation bodies are setting up means that allow conciliation proceedings to be held telematically.

8. The repeal of the labour reform and the regulation of telework in the public debate. Following the announcement of the full repeal of the labour reform and the subsequent rectification of the scope of this repeal, restricted to certain aspects of the reform, a debate that had already arisen prior to the COVID-19 crisis has been reopened, the outcome of which is uncertain for the time being.

For its part, the spread of teleworking has created an intense discussion on the desirability of regulating teleworking and the possible obligations associated with it in greater detail.

LITIGATION AND ARBITRATION

Lifting of the suspension of procedural and substantive time limits and resumption of court proceedings. As of 4 June 2020, the suspension of procedural and substantive deadlines, agreed under the second and fourth additional provisions of Royal Decree 463/2020 of 14 March, which declared the state of alarm, will be lifted. Likewise, from that date onwards, the aforementioned legal proceedings will also be carried out, whenever possible, taking into account health, organisational and/or procedural requirements.

Telematic hearings in civil proceedings. The hearings have been held in the Community of Madrid using the online videoconferencing application Zoom with satisfactory results. For the time being, these hearings only involve professionals, although the courts do not rule out the possibility of holding other proceedings in which parties or witnesses also take part. This implements the possibility provided for in RDL 16/2020, of 28 April, on procedural and organisational measures to deal with COVID-19 in the field of the Administration of Justice, of holding telematic hearings during the state of alarm and up to three months after the end of the state of alarm.

3. The General Council of the Judiciary has published a guide to telematic court proceedings. The guide offers guidelines and recommendations to reconcile the preferential application of these technological means to the process with full respect for the principles and guarantees established by law. It addresses, in four sections, the aspects related to the preference for the use of telematic means, the form of holding, the place and the minimum technical requirements that must be taken into account in order to carry out the different procedural acts telematically. It can be consulted at HERE.

4. The importance of criminal compliance in times of COVID-19. The health crisis we have been experiencing has been a major challenge for companies, which have had to adapt against the clock to the health restrictions imposed to control the pandemic, modifying, if not completely changing, their production systems and the way they provide their services.

In this context in which teleworking has spread, or in which working conditions have had to be modified in almost all workforces, the importance of having an adequate crime prevention system should not be lost sight of, since the criminal risks for companies, even though they have seen a reduction in their activity, far from disappearing, have in many cases increased due to the new ways of working and the exceptional situation in which we find ourselves.

RESTRUCTURING AND INSOLVENCIES

In Spain there are currently different restructuring instruments: pre-bankruptcy, homologation of refinancing agreements, out-of-court payment agreements and insolvency proceedings. In this edition we highlight some attributes of the latter, which may be of interest to some companies in certain circumstances.

1. The fact that RD 16/2020 does not oblige debtors in difficulty to file for insolvency proceedings does not mean that they cannot do so if it is in their interest to do so. The Insolvency Act establishes the duty of the administrators to apply for insolvency proceedings within two months of the occurrence of the state of insolvency, otherwise they may incur personal liability.

On the occasion of the COVID-19 crisis, Article 11 of RD 16/2020 established an exception. This exception means that the duty to file for insolvency proceedings will not be enforceable on the administrators until 31 December 2020.

However, certain misinterpretations are taking place: the fact that the duty to file for insolvency proceedings has been extended until the end of 2020 does not mean that debtors who need to file for insolvency proceedings cannot have recourse to insolvency proceedings at any time before 31 December 2020.

There are reasons why, in the current crisis, and beyond the associated stigma, insolvency proceedings can protect and help companies in difficulties. The commercial courts are in operation during the state of alarm and certain insolvency proceedings are legally considered to be worthy of preferential processing.

2. Insolvency proceedings can be a useful tool for debtors who need to ‘hibernate’ their companies during the COVID-19 crisis. The purpose of insolvency proceedings, as well as pre-insolvency proceedings, is to provide the debtor with a stable negotiation framework to reach a refinancing agreement or a composition agreement with creditors.

The period for such a negotiation to take place will depend on a number of factors and may be of significant duration. During this period, the company will enjoy a number of ‘protective shields’ which, for example, will make it immune from enforcement or seizure by its creditors (including public claims), or attempts to terminate essential contracts.

Thus, until a conventional or liquidation solution is reached, insolvency can provide an opportunity to protect and hibernate those companies that need it to restructure as a consequence of an unprecedented crisis such as that of Covid-19.

3. A declaration of insolvency usually means a rapid improvement in the debtor’s cash position. Generally speaking, an insolvency filing allows the debtor to stop paying its previous debts without creditors being able to enforce or attach its claims. Insolvency proceedings allow the debtor to continue to make payments associated with operating or working capital contracts necessary to maintain the debtor’s business.

In addition, during insolvency proceedings, not only does debt service not have to be paid, but in some cases interest does not even accrue. Operational restructuring measures (labour measures, termination of burdensome contracts, etc.) and financial restructuring measures (write-offs, deferrals, etc.) may also be adopted.

This improves the debtor’s cash position during the insolvency proceedings, and also makes it easier to reach an agreement with the relevant majority of creditors that will ultimately enable the insolvency to be overcome.