COVID-19: Implications for Businesses in Albania
Due to the situation caused by the COVID - 19 pandemic, the Albanian Government has ordered a number of non-essential services (bars, restaurants, shopping malls, retail stores – other than alimentary stores and pharmacies) have been ordered to shut down.
Other businesses are still in operation, but due to the shut-down of public transport (available only for healthcare staff and aid services, police etc.) the transport of persons is severely restricted.
The transport of goods is allowed, but under specific permits issued by the police, which have been difficult to obtain for many businesses.
Additionally, the Government has issued curfew orders, restricting the ability of citizens to freely circulate in the city. At the time of writing, it is possible to walk in the streets only between 5:00 – 13:00.
Current Support Measures
The financial measures taken by the Government to fight the impact of the COVID -19 pandemic, are as follows:
1) 2.5 billion ALL, or USD 25 million approx., financial support for the Ministry of Health, for medical equipment and materials or support of medical staff;
2) ALL 10 billion, or USD 100 million approx., sovereign guarantee for loans to be granted to businesses that are objectively unable to pay salaries for their employees;
3) ALL 6.5 billion, or USD 65 million approx., financial support (exact measures to be still clarified) for most immediate needs of:
• most vulnerable members of society;
• small business;
• support for unemployment.
4) ALL 2 billion, or USD 20 million approx., financial support to the Ministry of Defense for Humanitarian Operations;
5) ALL 1 billion, USD 10 million approx., as a reserve fund to the Council of Ministers for any unforeseen emergencies.
Additionally, the Government has promised that:
• late payment interested for overdue payment of electricity bills by active customers (category families and small business) will be erased, with a financial impacts estimated at ALL 15 billion, or USD 150 million approx.;
• profit tax will be rescheduled for the second semester of 2020 and on, for businesses with an annual turnover between ALL 2 million – ALL 14 million, or USD 20 thousand to 140 thousand approx.;
• the deadline for the submission of balance sheets to tax authorities will be postponed until the 1st of June 2020 (the current deadline expires by end of March).
The Government and the Bank of Albania have also issued a joint order to lending institutions, for the deferral of 3 months for loan installments due between March 13 2020 until May 31 2020, for those borrowers (both individuals and business) whose financial situation is deteriorating from the current situation caused by the COVID -19 pandemic.
The deferral is however not automatic, but based on the application of the borrow and the credit analysis, to be made by lenders within 3 days of the receipt of a deferral application.
Implications for Labor Relations
Due to the current situation, both employers and employees are facing significant pressure and the working day is severely restricted.
The Government expects the employers to continue paying salaries under normal conditions, and for such purpose, it has promised to issue a sovereign guarantee for loans to be granted to businesses that are objectively unable to pay salaries for their employees.
However, businesses that have seen their activity severely disrupted or shut-down due to the restriction measures taken in relation to the COVID - 19 pandemic do not see this only as a cash flow problem that may be bridged through loans, but as severe risk of going concern due to uncertainties on time and market conditions after the emergency has passed. Many businesses are considering termination the employees or even liquidating.
On the legal side, the Albanian labour code (art. 129) obliges the employer to continue paying his employees also if there is no business due to circumstances out of the employers control. However, under art. 129(4) this obligation does not apply in case of business interruption due to force majeure circumstances.
Implication for Contracts
As mentioned, the COVID - 19 pandemic situation has caused a number of businesses to be shut- down by order of the Government. Additionally, other businesses that are formally in operation are facing severe due to Government imposed restrictions on transport and individual circulation. Consequently, many businesses are currently unable, in full or in part, to meet their contractual commitments.
The Albanian civil code does not explicitly define “force majeure”. However, as a general consideration, art. 476 of the Albanian civil code provides that a party in breach of its contractual obligations shall be labile to compensate the damage caused to the other party, unless he proves that the failure to perform the obligation was not due to his fault.
Additionally, different types of typical contracts provide for specific consequences and remedies in cases of impossibility to perform due to circumstances out of the control of the parties.
Therefore, unless the relevant contract contains specific provisions on force majeure, the party unable to perform due to the COVID - 19 pandemic situation may invoke exemption from damage compensation liability on the basis of art. 476 of the civil code (as well as under other more specific impossibility provisions for that type of contract, if any is available under the civil code).
However, businesses must be very careful in invoking exemption from liability due to force majeure, as the mentioned provisos of the civil code will offer safeguard only for failures to perform which are directly and immediately caused by the relevant event.
For example, a business that has been ordered by the Government to shut -down will be entitles to claim exemption in full from damage compensation due to failure to perform, while a business that is facing difficulties due to restrictions will be only able to claim exemption for delays, but is still required to perform.
Additionally, the nature of contractual performance is also relevant, and in general, providers of intellectual services (advisory services, IT and other similar services that may be performed remotely) will face limitations to their ability to claim damage compensation exemption for failure to perform, due to the current restrictions.
Finally, as long as the payment systems are in operation, business would not be able to claim damage compensation exemption for failure to make payments, as long as an insolvency filing has not been made.
As regards the contract continuation, unless the relevant contract contains specific prolonged force majeure termination provisions (or there are specific civil code termination provisions for that type of contract) each of the parties may invoke article 488 of the Albanian civil code. Under this article, if in a contract of mutual obligations, the execution of the obligation of a party is made impossible by no fault of either party, then none of them has the right to demand damage compensation, but each of them has the right to demand from the other party to return what was given for the execution of the obligation, which would cause the termination of the contractual relation.