This content is from: Local Insights

Strategic companies

The new Bill on Strategic Companies, which was approved on November 5 2009 by the Slovak Parliament, sparked vigorous political discussions. The opposition, together with representatives of employers' associations and business associations, warns that the bill may have a harmful effect on the business environment and discourage investment.

Pursuant to the bill, some companies from the energy or utilities sector, or companies with more than 500 employees that are important for the protection of health, the country's security and the proper running of the economy, and are declared as strategic by the government, would qualify for a state buyout when bankrupt. The state would have a pre-purchase right to a company's assets in order to stabilise it. Once reasons for these measures cease to exist the state could sell the company to a strategic investor on the basis of a public tender. The price for a state buyout is to be set according to offers received in a public tender or by an appraiser.

If the state accepts the offer for a pre-purchase right to the strategic company's assets, the bankruptcy trustee must conclude a purchase agreement with a legal entity designated by the government within 60 days of such offer. If the Slovak Republic does not accept the offer for a pre-purchase right within 120 days, the state's pre-purchase right to the strategic company's assets expires.

The government claims that the bill, which will be in effect until December 31 2010, will prevent mass job losses and will be used only to mitigate the dismal economic situation of strategic companies and the effects of the economic crisis.

But the bill has been criticised by the opposition, business associations and chambers of commerce, and has opened up a number of legal questions. The Business Alliance of Slovakia cautioned that: "The law will limit the ownership rights of owners of companies, which will be declared as strategic, by preventing free disposition of their assets and by setting the pre-purchase right of the state in case of the sale of a company. The bill makes room for the government to take responsibility for an incorrect decision by the owners of large companies. However, it is standard business practice for wrong decisions by owners to lower the price of a company, which enables new owners to purchase such company at a lower price and then develop it further. The current government shall not interfere with the running of individual companies; rather it shall create better conditions for trade, which would be the most effective way to increase economic growth and the standard of living."

The bill, approved by Parliament, is being analysed by the President, who has 15 days to decide whether he will sign it or return it to Parliament for further debate. At the time this article was prepared, it was not yet clear how the President would decide. Provided the President signs, it will be interesting to observe the application of this bill in practice.

Ľuboš Frolkovič and Petra Legrand Hollá

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