In April 22nd, 2020 edition, the Diari d’Andorra publishes an opinion article written by Laura VILAMAJÓ, partner of the law firm RAMÉNTOL PUJOL, regarding the special diligence that company directors and businessmen must have in these times of economic crisis derived from COVID- 19, and proposes some advices in this regard.

You can go directly to the opinion article in Diari d’Andorra by clicking here.

Here is the content of the article translated in English:

ADMINISTRATORS AND ENTREPRENEURS FACING THE COVID-19 CRISIS

The Omnibus Law and the recently aprouved Law 5/2020 of new exceptional and urgent measures due to the situation of sanitary emergency caused by the pandemic of the SARS-CoV-2 contain useful aids for companies and businesses, that will mitigate the effects of this forced stoppage of the economy and of its predictable slow and lasting recovery.

We know what it takes to run a business, large and small, we are aware of the renting costs in some areas of Andorra, and therefore companies and businesses, which situation was already complicated, can be in serious difficulties to face their obligations, at a time when -for sure- their turnover has dropped, and when they should anticipate a long and expensive economic recovery.

It is in these times that both businessmen and corporate managers must be very careful.

Indeed, article 49 of Law 20/2007, of October 18th, on joint stock and limited liability companies, imposes on the directors a duty of care and diligence when being informed of the situation of the company, to participate actively in its administration and to investigate any management irregularity, at risk of incurring liability and having to compensate the company for the damages caused (article 50 of the Law). It also provides for direct action by the members and even the creditors of the company, against the directors, for the damages caused by their acts or omissions (Article 52 of the Act).

At the same time, the Decree regarding the cease of payments and bankruptcies of October 4th, 1969, obliges the business owners or administrators of companies, which cease in general their payments, to request, within the following eight days, a request of declaration of cease of payments or bankruptcy proceedings before the Andorran Court of Justice. Articles 69 and 70 of the Decree contain the personal bankruptcy declaration of the company’s leaders who have committed certain irregularities, including acts of inexcusable recklessness or serious infractions of the rules or uses of commerce, such as the abusive continuation of an unprofitable operation, which cannot lead the business to a situation other than cessation of payments.

In the exceptional and urgent measures approved, no provision is established that mitigates, suspends or removes the duties and responsibilities of the said administrators.

All of the above mentioned implies that, when the company is in a complicated economic situation, and is not expected to be reinstated, the directors must be diligent enough to take appropriate action, and must also be diligent in deciding to file a request for a court settlement or bankruptcy, because otherwise they may, very easily, be personally involved, with their own assets, for the payment of company’s debts.

In the light of the Government’s measures, it is true that what is needed is being done to prevent many businesses and companies from having to declare their payments suspended, but, unfortunately, we will surely find companies, shops, bars, restaurants, hotels, etc., whom will face difficulties to recover, or whom already before the closure of activities due to the Covid-19 were going through difficulties and their situation will have been severely worsened.

These businesses which will have to close presumably, despite the extensive aid provided by the Government, will be forced to terminate their leases. In such a case, the notice period has been reduced to one month, according to the Article 37 of the recently approved Law 5/2020 of new exceptional and urgent measures for the health emergency situation caused by the SARS-CoV-2 pandemic. However, in case of early termination of the contract, the obligation to indemnify the landlord with an amount equivalent to one month’s rent for each remaining year of contract, which is set out in article 56 of the current Leases Act of urban estates, remains.

Indeed, despite the fact that Law 5/2020 shortens the period of notice to be given by tenants, it does not exempt them from the obligation to compensate the landlord with an amount equivalent to one month’s rent per year remaining of contract, and this obligation may involve a significant amount to be paid.

Under these conditions, the suspension of payments seems a less onerous path, that does not necessarily imply a closure of the business or a bankruptcy, but can lead to a court settlement and can save the situation of the company or business and preserve the assets of its administrators.

Laura VILAMAJÓ
Partner – RAMÉNTOL PUJOL

If you need more information or assistance, please contact us at mail@ramentolpujol.ad or calling + (376) 810 010.

Cordially.