On December 22, 2017, the Law on amendment and supplement of the Labour Code1 was promulgated in issue 102 of the State Gazette. The said law aims at ensuring additional protection of the rights of employees and workers in situations where their employers fail to pay outstanding remunerations (salaries, wages) and compensations – by introducing a prohibition on transferring companies with debts.

A number of safeguard measures have been introduced, including:

enhancing the control functions of the General Labour Inspectorate by granting it powers to carry out inspections where labour remunerations and compensations are due, including after the termination of the employment;

entitling employees and workers through amendment to Art. 417 of the Civil Procedure Code to file an application for issuing an order for immediate payment (enforcement) based on the effective prescriptions of the General Labour Inspectorate, thus facilitating the process of using legal protection mechanisms;

imposing restrictions on employers with overdue payments for salaries and compensations to participate as contractors and sub-contractors in public procurement procedures.

Only the amendments to the Commerce Act will be discussed within this article. Such amendments are aimed at putting an end to schemes where companies (their commercial enterprises or shares of their registered capital) are transferred over to persons without any personal property in order to avoid proper payment of remunerations, compensations and social insurance contributions due to employees and workers or to the National Revenue Agency2.

The above determines the particular amendments – by changing the provisions of Articles 15 and 129 of the Commerce Act the legislator imposes restrictions on transferring enterprises or shareholdings if there are outstanding debts for labour remunerations, compensations and social insurance contributions due to employees and workers, including such employees and workers whose employment has been terminated within 3 years prior to the said transferring.

Because of a number of practical complications, having led to discontent with the business, the aforementioned amendments were followed by new urgent ones – by means of § 37 of the Transitional and Final Provisions of the Markets in Financial Instruments Act3 (promulgated in issue 15 of the State Gazette, dated February 16, 2018).

New paragraphs to Art. 16 of the Commerce Act have been created, according to which entries into the Commercial Register are to be allowed only after a standard form declaration on the absence of any outstanding obligations under Art. 15, par. 4 of the Commerce Act is provided by the transferor. The Registry Agency is to immediately inform the General Labour Inspectorate about the submitted declaration; the latter may upon signal or at its own initiative start a verification check on the authenticity of the declared circumstances – where a discrepancy between the facts declared and the facts established has been found, the results from the verification check are to be forwarded to the prosecution authorities.

Art. 129, par. 2 of the Commerce Act has been supplemented in a similar way, namely: entries into the Commercial Register regarding transfers of shares are to be allowed only after standard form declarations are provided by the transferor of the shares and the director of the company on the absence of any outstanding obligations under par. 1 of the same article. Verification checks on the submitted declarations are to be carried out in the same way as those concerning the transfer of an enterprise (as outlined above).

Practice will show if and to what extent the new provisions will be applied effectively. Although the law amendments are well justified in terms of the objectives pursued, it is not yet entirely certain whether the latter are to be achieved through the introduced measures as there is still a relatively easy way to circumvent the imposed restrictions (when transferring shares from the capital of an LLC).

Footnotes:

1 See the Law on amendment and supplement of the Labour Code on the website of the State Gazette

2 You may find more information about the legal restrictions on selling companies with unsettled debts in News article Personal liability for public debts of the company.

3 See the Markets in Financial Instruments Act on the website of the State Gazette