The workforce of the future: key HR legal considerations

Over the last couple of years, organisations have been working through a significant transformation journey in the way they work and operate. Automation and technology are replacing or significantly impacting human tasks and jobs, changing the skills that organisations require in their workforce. At the same time, workforces are demanding a new ‘deal’, with organisations exploring more flexible ways of working through non-traditional working patterns.

This already fast pace of change has been accelerated further over the last 16 or so months by the Covid-19 pandemic.

The ongoing change and pace of transformation will mean that general counsel and in-house lawyers are kept very busy. Advising on and managing risk for an evolving and non-traditional workforce bears significant complexity and challenge.

We consider below some of the key HR legal considerations that organisations are having to consider and get to grips with as they develop their workforces of the future in a number of key areas. These HR legal considerations are part of a broader jigsaw of legal (real estate, data privacy etc), regulatory (in financial services and other regulated sectors) and HR (eg workforce strategy, culture, taxation, mobility and reward and benefit) considerations, which cannot be dealt with in isolation because of the level of interconnectivity between them.

Remote and hybrid work

The pandemic proved that people could transition and adapt quickly to remote work. Indeed, a recent PwC Hopes and Fears survey (February 2021) of 32,500 members of the public across 19 countries found that a remarkably low percentage of people who find that they can work remotely want to go back to the office full time – just 9% want a traditional commute and work environment full time and 72% prefer a mix of in-person and remote working.

There has been much publicity over the last few months in terms of how organisations will approach the future location of their workforce, ranging from some organisations moving to a pure remote working environment, others looking to bring their workforces back to the office on a full-time basis with the majority looking to implement a hybrid working model. In the case of pure remote working and hybrid working, there are some key HR legal considerations.

Organisations will need to carefully review and amend their contracts of employment and policies and procedures. Do contracts of employment reflect the flexibility of new working arrangements to be implemented and, as importantly, reflect any minimum requirements on office based work, eg for training? While specific remote working policies are not mandatory, policies that organisations may wish to consider reviewing and amending include flexible working, equipment and expenses as well as data privacy and confidentiality policies to ensure that information remains secure.

Managing health and safety obligations is often more complex for a remote workforce, including that remote workers have a safe place to work but very importantly ensuring the well-being of the workforce. How can working hours be effectively monitored when the lines between work and home life are more blurred in a remote working environment?

It can be more difficult to stay close to your workforce when face to face contact is limited. For example, measures and processes may need to be set up or adapted to review mental health and well-being. The approach will ultimately differ across different industries and between organisations.

At the same time, the implementation of remote working and hybrid working policies should be reviewed carefully to ensure that the workforce is treated fairly and consistently. The Office of National Statistics in April 2021 released data that employees who worked mainly from home were around 38% less likely on average to have received a bonus compared to those who never worked from home (between 2013 and 2020) and employees who mainly worked from home between 2012 and 2017 were half as likely to be promoted compared to other employees, when controlling for other factors. The impact of any increase in permanent home working on geographic pay differentials remains to be seen – even where changes are driven by the market, they should be monitored to ensure any equal pay risks are identified.

It will therefore be critical to ensure that appropriate measures are put in place to ensure that differences in pay and benefits (including incentive-related pay), progression and every other aspect of working arrangements are equivalent between those coming into the office for all of their working hours, the hybrid workers and those working only remotely so as not to inadvertently detriment employees, or groups of employees, because of any protected characteristics. For example, if certain employees are unable to attend the office for health-related reasons. As well as having appropriate policies and procedures in place, the training of HR and decision-makers, especially those with line management responsibilities, will be key.

There are also other considerations that organisations should consider when implementing remote and hybrid working, including: understanding how employees are spending their working time without infringing on their privacy; and re-evaluating and changing performance management policies and procedures especially where they are focused on measures and metrics that might no longer be appropriate for the new ways of working.

Global remote working

With the move to remote working, many employees do not wish to be confined to working from home within the UK or their normal country of work. According to a number of recent surveys, almost half of UK employees would like to work from abroad when travel restrictions are lifted. While some of the same challenges and considerations as are outlined above will apply, there are some additional complexities that GCs, in-house lawyers and HR specialists need to be aware of.

Working for periods of time in another country or countries will mean the introduction of additional mandatory laws that need to be taken into account in the employment relationship. These laws are aside from potential tax (corporate and employment) and social security considerations. These laws may apply for any work performed in that country or will kick in depending on the length of time spent working in a country. In some cases, the terms of any applicable collective agreement may need to be taken into consideration. Employees’ terms and conditions and overall packages should reflect these additional entitlements to the extent they exceed home country entitlements. Organisations should also be reviewing less obvious provisions such as business protection provisions – confidentiality and post-termination restrictions – to ensure they are still appropriate and enforceable for such an international population.

Where an employee is working in a different location to their normal place of work, it may be appropriate to change their employer to a local employing entity where the employee is actually based. One trend we are seeing is for organisations to employ those employees who will be able to work remotely through a specific employment vehicle, commonly referred to as global employment companies or central employing entities to manage risk and create ‘centres of excellence’ in HR, tax and legal functions to manage a more complex population of employees.

Existing data privacy guidance, cyber security measures and training programmes in place should be re-evaluated and updated to ensure they are sufficiently robust and reflective of the new working patterns. In particular, does an employee working remotely overseas present a higher risk in relation to the secure transfer of data? If an employee processes personal data, there may also be data protection issues to consider especially where the employee is working outside of the EU without there being appropriate safeguards in place and the recipient of the data provides adequate protection.

Status

There has been significant focus on status over the last few years, especially focused on non-traditional engagement models such as gig economy workers, and the rights such individuals should receive. This has been a pattern not only in the UK but globally, with countries at different stages of legislating for these new engagement structures. It is likely to be an ongoing area of focus for all legal advisers and may drive new forms of engagement as individuals make new demands on organisations for more flexible ways of providing their services, beyond hybrid working and gig working.

The quest for personalised employee experiences and flexibility that works both for the organisation and individual is pushing the boundaries of employment and engagement models. Beyond the traditional categories of employee, worker and self-employed contractor in the UK, we could start seeing new or hybrid categories such as ‘gig employees’ whereby the individuals work on specific ‘gigs’ but retain some of the security and rights of employment, including some level of pay between assignments, basic employment benefits such as holiday and sick pay, continuity of employment etc. Designing innovative engagement models that maximise flexibility is one key way for legal teams to support the business in developing their employee value proposition, making their organisation an employer of choice.

Employee engagement in implementing change

With such significant change being introduced now and in the future, the key stakeholders to bring on the journey are the workforce and their representatives. Some of the workforce will be anxious about their future given the pace of change; other parts of the workforce will be encouraging and demanding change to create a more flexible working environment. There will also be plenty in between. However, in all cases, employee engagement, whether legally required or not, will be key to implementing change and retaining an engaged workforce. Those organisations that achieve effective change in our experience are those that focus on communication and consultation with their workforce.

Depending on the level of change and existing flexibility in contractual documentation, introducing change may require employee consent. It might also require prior consultation of employees, employee representatives or trade unions based on the UK redundancy consultation framework and/or depending on the terms of reference of employee representative bodies or collective agreements with recognised trade unions. This will be very likely where job roles and responsibilities will change to meet an organisation’s demands.

To maintain good employee and industrial relations, organisations should in any event consider proactively engaging with representative bodies and trade unions to share information and seek views and agreement on key and evolving workforce topics, including hybrid work, reskilling and the changing make up of the workforce as well as the future relationship between the organisation and the representative body and trade union.

Conclusion

The journey for every organisation to the right workforce of the future will vary significantly. What’s clear is that it touches on so many aspects of business – legal, HR, tax, operations to name but a few – and has no fixed end point. It is also happening in the context of wider societal, legal and regulatory change. Many organisations have environmental, social and governance (ESG) considerations at the top of their board agenda and the article outlines specific areas that impact on ESG – whether it is effectively managing workforce health and safety and well-being for a remote workforce, ensuring diversity and inclusion objectives (including in relation to pay gaps and equal pay) are not impacted, the workforce remains engaged and is effectively consulted on change as well as managing governance in an increasingly regulated environment and for an increasingly varied and complex workforce.

It will be vital for every organisation’s future success that it plans for and implements the right workforce of the future strategy for it and effectively navigates the related complexities, monitors the evolving landscape and retains an engaged workforce.

Termination for ‘change of situation’ or layoff – which to use for cutting employment?

The Covid-19 pandemic has presented an unprecedented challenge to the global economy. A lot of businesses ran into severe difficulty and even went on the verge of bankruptcy. Many employers cut employment directly by terminating employment contracts with employees instead of reducing salaries or arranging for employees to await job assignments to reduce labour costs. When cutting employment, many employers first consulted with their employees about mutual termination and then terminated employment contracts by entering into mutual separation agreements with the employees to mitigate the legal risk that the employers’ unilateral termination may incur. If the consultation failed, employers would have to go to unilateral termination. Continue reading “Termination for ‘change of situation’ or layoff – which to use for cutting employment?”

A Philippine employer’s guide to legal compliance in the procurement and administration of Covid-19 vaccines

More than a year has already passed since the Covid-19 pandemic began, yet the Philippines is still struggling to slow down the spread of the virus. New cases per day continue to reach four digit figures despite the mandate for the continued implementation of strict public health standards nationwide. The government’s quarantine measures in the NCR Plus (the National Capital Region plus four adjoining provinces), however, appear to have worked with the continuing decline of new cases along with the reduced positivity rates in the extended area. Continue reading “A Philippine employer’s guide to legal compliance in the procurement and administration of Covid-19 vaccines”

It’s not funny anymore: a primer on workplace harassment in Puerto Rico

In a notable development for employers doing business in Puerto Rico, on 7 August 2020, the local government enacted Law 90, titled the Law to Prohibit and Prevent Workplace Harassment in Puerto Rico (our translation, hereinafter the ‘Workplace Harassment Act’), to prohibit workplace harassment (commonly referred to as ‘mobbing’). Previously, workplace harassment had not been recognised or protected under the law in this jurisdiction, although plaintiff-side practitioners had long argued for such protections. The law went into effect immediately upon its enactment. At this time, employers are expected to be in full compliance and have anti-workplace harassment policies in place. This, along with Puerto Rico’s Wrongful Discharge Statute, Law 80 of 30 May 1976; and strong local anti-discrimination and other workplace protections, distinguishes Puerto Rico from many other jurisdictions in the US. Puerto Rico is currently the only jurisdiction in the United States with a workplace harassment law in place, and all employers doing business here should ensure to have adjusted their policies and practices accordingly. Continue reading “It’s not funny anymore: a primer on workplace harassment in Puerto Rico”

Mexico’s outsourcing ban: rethinking current employment structures

After a series of long-winded negotiations between the federal government, employees’ representatives and the entrepreneurial sector, the Mexican Congress approved, and the federal government enacted on 23 April 2021 the much prophesied labour reform to ban outsourcing through significant amendments to the Mexican Federal Labour Law (FLL), Federal Fiscal Code, Income Tax Law and Value Added Tax Law, among others. With several hefty restrictions on the labour, tax and social welfare fronts, the federal executive was clear in its intent to put an end to outsourcing and insourcing practices; a goal that had long been pursued and that prompted past, less radical reforms to the FLL.

Here are some of the key elements of Mexico´s new labour reforms:

  1. A ban on outsourcing.
  2. The introduction and regulation in the FLL of specialised services as the sole exception to the subcontracting prohibition.
  3. A disavowal of deductions and/or accreditation of outsourcing-derived expenses against income tax and value added tax.
  4. Further regulation of Mexican workers’ profit-sharing rights.

What does this mean for Mexican companies?

Prior to the reform, the FLL allowed and regulated outsourcing in Mexico, enabling businesses to indirectly hire employees through a third party. Over the years, providers of personnel and payroll administration services, designed complex cost-cutting solutions from which companies not only benefited but were then able to deduct and/or credit any expenses arising therefrom against their taxes.

As of the date of publication of the labour reform in the Federal Official Gazzete, companies with sub-hiring practices (whether through insourcing or outsourcing) are now required to directly employ all personnel needed to attain their corporate purpose. In order to align with the new labour framework, a large number of Mexican companies are facing the need to (i) undergo internal labour restructures to redistribute human resources from the services companies to the operative entities; (ii) revise and in some case terminate services agreements; and (iii) amend their corporate purpose to include a very specific definition of the company´s core business, allowing them to sub-hire specialised services providers for all those activities not related to the company´s preponderant economic activity.

In connection with the mandatory profit-sharing rights of the employees (PTU), a fundamental point of pushback from the private sector, the PTU went from a pre-reform distribution of 10% of a company’s profits among its workers, to a post-reform payment cap to this benefit at three months of the worker’s salary or the average PTU received by the worker in the previous three years (which ever is more beneficial to the worker).

Finally, in addition to the tax impact, severe sanctions that vary from steep fines to the classification of simulation conducts as tax fraud, apply to both the contractors and the beneficiaries of the unregulated third-party services.

Entry into force and relevant deadlines

In general terms, the entry into force of the Reform Decree is on the day after its publication, meaning 24 April 2021. However, companies with existing insourcing or outsourcing structures have until 1 August 2021 to turn over their employees to the operating entities. A waiver to the general requisite to transfer the assets (that are essential to the company’s operation) from the transferor to the transferee, has been given to those companies which complete the employer substitution within the next 90 days of the entry into force of the decree. Also, provided that said deadline is met, the substitute employer will be able to maintain the risk premium of the substituted employer.

An exception to the rule

As part of the provisions included in the Reform Decree, the FLL contemplates a sole exception to the sub-hiring prohibition by allowing the subcontracting of specialised tasks or services and further defines them as all those activities that are not related to the corporate purpose of the company or the main economic activity of the contracting party. This includes shared complementary services between companies of the same business group.

However, there is one caveat, all companies and individuals that render or wish to render specialised services or perform specialised tasks in favour of third parties must obtain an authorisation from the Ministry of Labor and Social Welfare by registering with the Public Registry of Specialised Services and Task Contractors that was created for such purposes. Said authorisation will be subject to prior analysis of a series of requisites, including proof of compliance with all tax and social security monetary obligations.

On 24 May, the Mexican Ministry of Labor and Social Welfare, published the general rules for the registration of specialised services providers, setting forth the requirements and obligations to be fulfilled to obtain and maintain such registration. Including the obligation to renew the registration every three years and to quarterly report all the services agreements that were executed by the specialised service provider during the preceding quarter. Aside from the obligation to renew the authorisation every three years, the Ministry of Labor and Social Welfare may revoke it at any time, should it become aware of a breach of the specialised services provider’s obligations.

It is to be highlighted that in case the subcontractor fails to comply with these obligations, the beneficiary of the specialised services shall be jointly liable in the employment relationship with the workers of the service provider. Also, those who render specialised services without the necessary registration before the Ministry of Labor and Social Welfare or those who benefit from them, could be subject to fines ranging from $9,000 to $225,000 per each affected employee.

Takeaway

It is fair to say that to maintain business-as-usual in connection to outsourcing practices has been rendered utterly unviable. For nearly 70% of Mexican companies that relied on the subcontracting of personnel to carry out their business, the financial impact in terms of increased profit-sharing payments, social security quotas, taxes and implementation costs has proven to be severely burdensome. In the midst of a pandemic environment, it remains to be seen if this labour reform was the right path to attend to and protect the labour rights of Mexican workers at the risk of adding to the already 2.7m jobs lost during the past year. For now, subcontracting specialised services is still a viable option which as restricted as it is, still gives companies and workers certain breathing room.

Employment law in Malaysia – an overview/recent developments

In Malaysia, employment issues are governed primarily by statute and contract. In respect of enterprises with large scale workforces, which would include the financial, manufacturing, industrial and plantation sectors, collective agreements between employers and registered trade unions are important in regulating the employment relationship between the parties.

Continue reading “Employment law in Malaysia – an overview/recent developments”

Focus on compliance with data protection in Italy

On 25 May 2018, Regulation (EU) 2016/679, known as GDPR (General Data Protection Regulation) – on the protection of natural persons (‘data subjects’) with respect to the processing and transfer of personal data – became completely applicable in all EU member states.

As an EU regulation, the GDPR is a provision to be directly applied in its entirety throughout the EU territory. As clarified by the European Commission, it originates from the desire, and the need, to harmonise and simplify the rules on the processing and transfer of the personal data of natural persons, providing both data controllers (and processors) and data subjects with legal certainty.

However, it would be a mistake not to consider the legislation and peculiarities of each member state in which the GDPR is applicable. Indeed, the principles and provisions provided for by the GDPR must be applied taking into account the implementation rules of each member state, adapting to local compliance obligations in each case.

Specifically, for example, to adapt national law to the new regulation, the Italian law maker adopted Legislative Decree no 101/2018 of 10 August 2018, adapting the GDPR to the relevant national legislation, represented by Legislative Decree no 196/2003 (the Privacy Code, and together with the GDPR, the Data Protection Law).

Data protection and the employer-employee relationship

With respect to the above, Article 88 of the GDPR provides that each member state may lay down more specific rules by law and national collective bargaining agreements (NCBA) to ensure the protection of the rights and freedoms regarding the processing of employees’ personal data in employment relationships.

The above, for instance, allows a continuity in terms of individual and trade union protection and prerogatives, as provided for by Italian law, in primis by the Statuto dei Lavoratori (Law no 300 of 20 May 1970, the Statute).

As a matter of fact, by means of Article 4, the Statute preserves the confidentiality of employees, defining the cases in which audio-visual equipment or other instruments from which the possibility of a remote control of employees’ activities may derive, even only potentially. The same Article 4 requires the employer to provide workers with adequate information on how to use the tools submitted and requires a full compliance with the Data Protection law by referring directly to the provisions of the Italian Privacy Code.

Under Italian Law, the employees’ control is not only limited to the ‘workplace’, eg, where it could be implemented through the installation of a video surveillance system (Video-surveillance Provision – 8 April 2010 and the European Data Protection Board (EDPB) Guidelines no 3/2019 on processing of personal data through video devices) but also extends to devices, apps and general tools used to perform the employment services. In this respect, before the application of the GDPR, the Italian Data Protection Authority issued Guidelines for the use of internet and e-mail in public and private workplaces, which clearly define the limits between legal and illegal controls.

Please note that this is only an example of how a correct and compliant application of the provisions of the EU Regulation should be implemented considering local legislation.

In compliance with both the Statute and the Data Protection Law (Article 25(1) of the GDPR), the employer must implement measures to protect employees’ personal data ‘from the design’ of the processing (privacy by design) and by default (privacy by default), in compliance with the ‘accountability principle’. And compliance with the principle of accountability also means adapting to local regulations.

The five most common underestimated tasks in the application of the GDPR in Italy

Based on the experience of our GDPR team, corporations fail to comply with the EU and Italian provisions in particular in the following five cases more often.

i) Adoption of security measures and policies. As reported on 2 June 2021 by the Italian Data Protection Authority during the presentation of the report on the activities carried out during the past year: ‘2020 was characterised, at global level, by the negative record of cyber-attacks, facilitated by the increased use of telematic channels as a result of the pandemic and which, a few weeks ago, became real hostile acts in the context of the conflict for the cyber domain’.

The high number of cyber attacks and personal data breaches have undoubtedly raised the awareness of both data controllers (and processors) and data subjects about the importance of the issue, but on the other hand they have revealed a low level of compliance by the actors involved, which goes through the importance of adopting security measures, policies and tools that help prevent them.

Specifically, the adoption of internal policies is one of the tasks that is too often underestimated.

ii) Appointments. Adopting internal policies that regulate the security of the information processed and define roles and responsibilities is a tool that not only serves to ensure the compliance of the organisation with the applicable Data Protection Law, but also reduces the risk of any damage that may directly affect the business of the company. The internal policies and procedures to be adopted must be tailored for each case, based on the characteristics and risks that each situation presents and must comply with any additional procedures already applied by the company. For economic reasons or due to a lack of thought, it often happens that to comply with the obligations deriving from the applicable law, standardised internal policies or procedures are adopted which, in fact, are not suitable for the organisation adopting them.

iii) Training. Once policies and procedures have been adopted, training and raising the awareness of staff on the correct application of these policies and procedures is essential. Systematically educating and updating who must daily apply it contributes to reducing the risks to which the data controllers or processors are exposed.

Defining roles and responsibilities, also through the adoption of internal procedures and policies, makes it possible, among other things, to meet another requirement that is often underestimated by both data controllers and processors and which concerns the ‘records of processing activities’.

iv) Monitoring. Introducing monitoring plans that take the form of continuous verification of the actions taken by the data controller to ensure compliance with the Data Protection Law – as well as effective implementation and compliance with policies, procedures, organisational and security measures – is one of the tools aimed at ensuring full compliance with the so-called accountability principle. The principle requires the data controller to proceed with the identification and management of risks relating to the processing operations carried out.

v) Continuous updating processes. It is frequent to find records adopted in order to comply with the GDPR but which are never reviewed and updated and which often no longer correspond to the actual reality to which they refer, which has changed and evolved in the meantime.

***

With respect to the above mentioned, since the entry into force of the GDPR, the Data Protection Law has certainly represented an interesting challenge for Europe, for the recipients of what is prescribed in the Regulation and for the subjects that it wants to protect. A challenge which, in view of a constantly evolving scenario, does not seem destined to end and which, although with common objectives, the legislators and the authorities of each member state will have to continue to meet.

Restructuring and insolvency in Austria: an update

Measures to mitigate the effects of the Covid-19 pandemic on the Austrian economy

On 16 March 2020, the Austrian government imposed drastic measures to contain the SARSCoV2 virus, commonly known as Covid-19. The international Covid-19 crisis resulted in a seven week complete lockdown in Austria, with only ‘critical infrastructure’ such as banks, supermarkets, pharmacies and hospitals remaining open for business.

Simultaneously, the Austrian government applied several economic measures, at-tempting to cushion the severe impact of the lockdown for the Austrian economy. Austria quickly set up the Covid-19 Finanzierungsagentur des Bundes GmbH (COFAG) commissioned with ‘the provision of services and the taking of financial measures necessary to maintain the solvency and to bridge liquidity difficulties of companies in connection with the spread of Covid-19 and the resulting economic effects’, which was equipped with a total financial framework of €15bn. COFAG’s central financing instrument is the issuing of bridge guarantees for up to 100% of the credit value applied for at banks as well as the granting of fixed-cost subsidies. COFAG does not grant any financial aid to undertakings considered to have been in financial difficulties before the onset of the Covid-19 pandemic.

In addition, after these initial emergency measures the Austrian legislator adopted numerous legislative changes, also in the field of insolvency law, to mitigate the economic impact of the coronavirus crisis.

Changes in insolvency law due to the Covid-19 pandemic

Duty to file for insolvency

The Austrian insolvency regime differentiates two scenarios, each of which leads to an obligation to file for insolvency under the Austrian Insolvency Act:

  1. Illiquidity. Illiquidity is assumed, if the debtor is unable to pay more than 5% of its due (monetary) liabilities and cannot obtain the necessary means of payment in the foreseeable future.
  2. Over-indebtedness. Over-indebtedness occurs, when a company is both arithmetically over-indebted (ie the liabilities of the debtor exceed its assets) and a positive going concern prognosis is not feasible.

When Austrian companies are either illiquid or over-indebted, their respective management is obliged to file for insolvency proceedings immediately, and at the latest within 60 days after the insolvency was triggered if the management took reasonable, yet unsuccessful restructuring measures to prevent insolvency. If the debtor’s insolvency is caused by a natural disaster such as the coronavirus, the 60-day period is doubled to 120 days. In the course of the Covid-19 crisis the Austrian legislator clarified that epidemics or pandemics also lead to an extension of this period to 120 days.

In addition, the Austrian legislator temporarily suspended the obligation to file for insolvency due to over-indebtedness until 31 January 2021, if the over-indebtedness occurred in the period between 1 March 2020 and 30 June 2021. If a debtor is over-indebted at the end of 30 June 2021, it must file for the opening of insolvency proceedings without undue delay, but at the latest within 60 days after 30 June 2021 or 120 days after the occurrence of over-indebtedness, whichever period ends later.

Shareholder loans

In order to increase the willingness of shareholders to contribute to the restructuring measures of insolvency-endangered companies, the Austrian legislator also provided for simplifications in the otherwise rather strict Austrian equity replacement legislation. While monetary shareholder loans would usually be considered equity replacing and therefore subordinate to creditor claims in insolvency proceedings if given for more than 60 days, such shareholder loans can now be granted for up to 120 days until 30 June 2021 and will not be considered equity replacing and thus not subordinate to creditor claims.

Financing of salaries of employees on short-time work

Bridge loans used to pre-finance salaries of employees on short-time work, which were taken out in the period between 1 March 2020 and 30 June 2021, and immediate repayment of such loans upon receipt of the short-time work subsidy, are not subject to Austrian insolvency voidance, if neither a pledge nor comparable security from the borrower’s assets was provided for the loan and the lender was not aware of the borrower’s insolvency when the loan was granted. This legislative initiative aims at further strengthening the willingness of banks to support companies through the Covid-19 crisis and save jobs at the same time.

Reform

On 22 February 2021 the ministerial draft of the Restructuring and Insolvency Directive Implementation Act (Restrukturierungs- und Insolvenz-Richtlinie-Umsetzungsgesetz) was published. The review period ended on 6 April 2021. The federal law is to come into force on 17 July 2021. The law contains regulations, among others, with respect to access to the restructuring process with the restructuring plan as the core of the process, which contains haircuts for creditor claims, the involvement of a restructuring representative, a stay of execution and contestation in case of failure of the restructuring plan.

In principle, the new Restructuring Act is to be applicable to all entrepreneurs, which also includes sole proprietors. However, certain companies in the financial sector, such as credit institutions pursuant to Section 1 para 1 of the Austrian Banking Act, as well as public bodies and natural persons who are not entrepreneurs, are expressly excluded.

The restructuring proceeding is intended to be available to companies in the event of ‘probable insolvency’. It must be initiated at the request of the debtor and is intended to enable the debtor to avert insolvency and ensure the viability of its company.

The restructuring proceeding is a proceeding with self-administration. According to the draft legislation, the debtor in the restructuring proceedings must in principle retain full or at least partial control over its assets and the day-to-day operation of its business. However, the court may make certain legal acts subject to the approval of a so-called restructuring officer or assign them to a restructuring officer.

At the debtor’s request, the court may order a stay of execution proceedings for a period of up to three months (extendable to a maximum of six months) to support negotiations on a restructuring plan. During this stay of execution proceedings, the debtor’s obligation to apply for the opening of insolvency proceedings due to over-indebtedness is suspended. On the other hand, no decision is to be taken on a creditor’s application for commencement of insolvency proceedings during the period of the restructuring proceedings.

The zone of insolvency: what directors and companies need to know

With global vaccination rates lifting consumer sentiment there are reasons to be optimistic about economic recovery from the global pandemic. However, new virus mutations, uneven vaccination rates, and reducing levels of government economic support measures all mean that the economic outlook remains uncertain and many market sectors will continue to face challenges in the medium term. Continue reading “The zone of insolvency: what directors and companies need to know”

The Luxembourg professional payment guarantee one year later – assessment of Luxembourg’s newest creditor-friendly tool

A year ago, the Luxembourg government announced the introduction of a new type of guarantee which was intended to better meet the needs of the market in terms of certainty and robustness. The Luxembourg law dated 10 July 2020 (the PPG Law) introduced the ‘professional payment guarantee’ (garantie professionnelle de paiement) (the PPG). Continue reading “The Luxembourg professional payment guarantee one year later – assessment of Luxembourg’s newest creditor-friendly tool”