{"id":4040,"date":"2021-02-04T17:05:15","date_gmt":"2021-02-04T16:05:15","guid":{"rendered":"https:\/\/old.prosman-pavlovic.sk\/?p=4040"},"modified":"2021-02-04T17:05:16","modified_gmt":"2021-02-04T16:05:16","slug":"quick-questions-about-the-rapid-amendment-to-act-on-critical-infrastructure","status":"publish","type":"post","link":"https:\/\/old.prosman-pavlovic.sk\/en\/quick-questions-about-the-rapid-amendment-to-act-on-critical-infrastructure\/","title":{"rendered":"Quick questions about the rapid amendment to Act on Critical Infrastructure."},"content":{"rendered":"\n
\"critical-infrastructure-prosman-pavlovi\u010d\"<\/figure>\n\n\n\n

The\nGovernment of the Slovak Republic has approved the proposal of the Ministry of\nEconomy which aims to set out, inter alia, the conditions for the transfer and\ntransition of critical infrastructure elements. It derives from the nature that\ndisruption or destruction of their activities would have serious unfavourable\nconsequences for exercise of economic and social function of the state and its\ninhabitants. <\/p>\n\n\n\n

From\nthe point of view of goals, it is not possible to deny the government a\nlegitimate intention to protect the national security interests of Slovakia in\nthe field of energy, pharmaceutical, metallurgical and chemical industry.\nSimilar efforts emerged within the European economic policy after the financial\ncrisis of 2009. Legislative changes were adopted by the governments of France,\nGermany and Italy, their modification is aimed at protection of strategic\ncompanies from sectors such as arms production, energy and IT companies. Step\nby step, they extended by the space industry, artificial intelligence, etc.<\/p>\n\n\n\n

The\nmethod chosen and its speed by which the government wants to implement this is\nquestionable. The protection of public interest is in the proposal implemented through\ncontrol over the transfer and transition of critical infrastructure element to\na new owner. The control shall be carried out with the prior consent of the government\nto such transfer or transition. The so-called indirect transfer of an element is\nalso defined by the government as the object of such consent:<\/p>\n\n\n\n

“Indirect\ntransfer of an element means a change in persons who have a direct or indirect participation\nof the operator to at least 5% of its registered capital or the voting rights\nor have an option to exercise the influence on the management of the operator that\nis comparable to the influence corresponding to such share.”<\/em><\/em><\/p>\n\n\n\n

Any\ntransfer of a critical infrastructure element, whether direct or indirect, without\nthe prior consent of the government shall be invalid. <\/p>\n\n\n\n

The\nobligation to request such consent concerns a wide range of entities, which are\nas follows: <\/p>\n\n\n\n

Operator,\nlien creditor, liquidator, a\nbankruptcy trustee, bailiff or other person\nauthorized to transfer the element, or the person who has a right to acquire\nthe element. <\/p>\n\n\n\n

When\ngranting consent, the government may also lay down conditions to ensure favourable\neffects from the point of view of public order and national security. <\/p>\n\n\n\n

A\nvery important government\u00b4s authorisation is the possibility to withdraw the\ngranted consent. This should only happen if the consent was granted on the\nbasis of false or incomplete information or essential circumstances decisive for its granting have not been stated.<\/p>\n\n\n\n

Article\nIII of the amendment which amends the Bankruptcy and Restructuring Act is very\ninteresting. It authorizes the state to file the petition in bankruptcy.\n<\/p>\n\n\n\n

According\nto the Ministry of Economy, the submitted proposal is in accordance with the\nConstitution, constitutional laws, rulings of the Constitutional Court of the\nSlovak Republic, laws as well as international treaties by which the Slovak\nRepublic is bound and European Union regulations.<\/p>\n\n\n\n

However,\nit raises some doubts. Let\u00b4s start with succession. This very common unilateral\nact may be significantly affected by this amendment. It should be assumed that\nheritage may include 5% or more of the share on the person having influence on the\noperator. According to the author’s opinion, the idea that the state reserves\nthe right to give its consent to a will is absurd, but mainly it is in conflict\nwith the Constitution. Succession is one of the fundamental rights guaranteed\nby the Constitution in Article 20 (1), so therefore, the conclusion that the\nproposed amendment is in accordance with the Constitution is questionable.<\/p>\n\n\n\n

In\npractice, the invalidity of transfers and transitions without the prior consent\nof the government will certainly cause difficulties, especially in case of\nindirect transfers. Let\u00b4s have a look at the example: we have three ownership\nlevels A \u2013 critical infrastructure operator, B – 5% owner of A, C – 60% owner of\nB, then the transfer of a share in the company C also requires the consent of\nthe government. In this context we must bear in mind that many times we are\nspeaking about publicly listed companies on stock exchanges, it is hard to\nbelieve that the government’s intention would be to withdraw the shares of\ncritical infrastructure operators from the organized securities market. <\/p>\n\n\n\n

When does the obligation to\nrequest prior consent arise? This is the question which also remains\nunanswered. This is only for the case of dealing with a share of 5% or more or\neven for a transaction that achieves a share of 5%. Or, do we need a prior\nconsent in case of any change on person having 5% or more % of the operator? A\nlinguistic version of the proposal would indicate this. <\/p>\n\n\n\n

Investors’\nconfidence will certainly not be supported by the government’s ability to\nrevoke a prior consent. What are the legal consequences when already given\nconsent will be revoked? What if the transferred share has already been\naffected by another change? Can we think about a procedure similar to withdrawing\nfrom a contract when transferring immovable property? The\namendment does not give us answers on this.\nIn addition to the substantive consequences of the\nrevocation of consent, the process of revocation and possible restriction of\nthis right is also worth considering.\nAt least from the point of view of legitimate\nexpectations and the passage of time, it seems important to set a time limit\nbeyond which consent can no longer be revoked. <\/p>\n\n\n\n

We\nare convinced that already mentioned Article III of the amendment which regulates\nthe possibility to file the petition in bankruptcy by the state is also able to challenge the investors\u2019\nconfidence. This may be due to the fact that:<\/p>\n\n\n\n

 \u201ethe operator of critical infrastructure\nelement or a person who has a qualified participation on the operator,<\/em><\/p>\n\n\n\n

a)\nhas entered into liquidation<\/strong> or <\/em><\/p>\n\n\n\n

b)\nbankruptcy proceedings or similar proceedings, enforcement proceedings or\nsimilar enforcement proceedings have been initiated against it<\/strong>, regardless\nof whether such proceedings are conducted in the territory of the Slovak\nRepublic.\u201c<\/em><\/p>\n\n\n\n

In order to properly understand the danger for investors, it is necessary to pay attention to the definition of qualified participation under the Bankruptcy and Restructuring Act<\/a>.<\/p>\n\n\n\n

 \u201e\u00a7 9 (3) <\/em>For the purposes of this\nAct, a qualified participation shall mean a direct or indirect share equal to\nat least 5% of the registered capital of the legal entity or of the voting\nrights in the legal entity or an option to exercise the influence on the management\nof the legal entity that is comparable to the influence corresponding to such\nshare; for the purposes of this Act, an\nindirect share shall mean a share held indirectly through legal entities in\nwhich the holder of the indirect share has a qualified participation.\u201d<\/strong><\/em><\/em><\/strong><\/p>\n\n\n\n

As a result of this bankruptcy provision there is a\nrisk for investors that the state will file the petition in bankruptcy against a\nperson with an indirect participation in the operator who is qualified through 5%\nshare of a company, which is separated from the operator, for example, by two\nother companies. The state authorisation thus defined is similar to latent\nnationalisation. We are afraid that such a risk may be unacceptably\nhigh for the investor. <\/p>\n\n\n\n

The discrepancy between the objectives of the bankruptcy\nproceedings and the vaguely defined amendment is also serious. The primary goal\nof bankruptcy is the property settlement of the creditors in a proportional\nmanner. However, this objective is contrary to unclear intentions to grant the authorisation\nto nominate a bankruptcy trustee and at the same time to consider continuing to\noperate the business, as this can only be limited or terminated with the\nconsent of the state. On the one hand, it is not unusual to run a business\nduring bankruptcy, of course, under condition that this increases the\nbankruptcy estate and that the losses in running the business are lower than in\nclosing the business. However, on the other hand, law does not provide a\nmechanism for financing a company during bankruptcy declared under this provision.\nRunning a business at a loss in bankruptcy will have an adverse impact not only\non the owners of the operator, but also on its creditors. In bankruptcy, it is\nhighly sure that external financing of the operator will be almost impossible.<\/p>\n\n\n\n

Amendment as a whole is in a tension with the\nprovisions of the Constitution on the protection of property rights. The main\nlimit for the chosen solution is the fact that it restricts the property rights\nof investors in companies forming critical infrastructure. It is not clear from\nthe proposal whether this happens only to the extent necessary as required by\nthe Constitution.<\/p>\n\n\n\n

The above-mentioned raises doubts about the\nconstitutional conformity of the amendment. <\/p>\n\n\n\n

We believe that a good intention of the government to\nprotect public order and national security interests will be possible to bring\ninto line with the fundamental rights guaranteed by the Constitution within the\nframework of discussion and comments.<\/p>\n\n\n\n

The\nintention of the article is not to exhaustively assess all benefits and risks\nof the proposed amendment, but only to briefly point out the fundamental\ndiscrepancies within the legal order concerning threats to investment in the\nsectors concerned. <\/strong><\/p>\n\n\n\n

We have also\nidentified other gaps in the proposed amendment, which are able to complicate\nits application when they create opportunities to avoid the effects of the law\nand also at the same time negatively affect the economic activity of investors.\n<\/strong><\/p>\n\n\n\n

We believe that the government, despite the declared need for rapid amendment of the issue, will not refuse discussion and comments of relevant entities.<\/strong><\/p>\n\n\n\n

\nIf you need advice on the matter or the preparation of the necessary documentation, do not hesitate to contact us<\/a>.\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"

Critical infrastructure-risky investment for investors? Will energy investments freeze? What impact will the amendment have on CI owners? More in the article.<\/p>\n","protected":false},"author":1,"featured_media":4047,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[215,217],"tags":[310,311,312],"_links":{"self":[{"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/posts\/4040"}],"collection":[{"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/comments?post=4040"}],"version-history":[{"count":4,"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/posts\/4040\/revisions"}],"predecessor-version":[{"id":4049,"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/posts\/4040\/revisions\/4049"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/media\/4047"}],"wp:attachment":[{"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/media?parent=4040"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/categories?post=4040"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/old.prosman-pavlovic.sk\/en\/wp-json\/wp\/v2\/tags?post=4040"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}