22. 8. 2019
A large amendment to Act No. 315/2016 Coll., on the Register of Public Sector Partners and on Amendments and Supplements to Certain Acts (“RPSP Act”), which will come into effect on 1 September 2019, is the result of more than two years during which the RPSP Act has been applied. In particular, it reflects the needs of application practice, whether by the public sector, public sector partners (“PSPs”) or authorised persons. One of the declared objectives of the amendment is also to reduce the administrative burden on the PSPs and the related narrowing of the scope of legal relations, which entails the obligation to register in the Register of Public Sector Partners (the “Register”).
Of the broadly conceived changes, we would like to present those that might be most relevant for you or otherwise interesting for you.
New definition of a public sector partner
The amendment seeks to define more clearly the entities to which the RPSP Act applies. For this reason, the definition of a public sector partner has been narrowed, and hence the circle of persons subject to registration in the Register.
The amendment has exempted from the scope of the RPSP Act, for example, certain entities in the financial sector, persons who receive performance from a public undertaking in the ordinary course of business of the public undertaking and in the course of carrying out core economic activities of the public undertaking, and other entities stipulated by law.
For subcontractors, the amendment more precisely defines the obligation to register in the Register, as the corrective “knows or should know” used so far appeared too general and caused considerable problems in practice. According to the newly drafted correction, a subcontractor is obliged to register if he “knows or, considering all circumstances, should know” that the performance which it supplies is intended for the public sector partner and, therefore, by such performance it contributes to the implementation of a contract concluded with the public sector.
Verification of identification of beneficial owner
The amendment introduces the obligation to set the date by which verification of identification of the beneficial owners (“BOs”) of a public sector partner must be carried out as at 31 December. Whereas this date has not yet been set (which in practice has caused considerable application problems), since the amendment will take effect, the verification of BOs identification in the Register will have to be carried out no later than 28 February.
Under the new legislation, the authorised person may verify the identification of the BOs at any time, on a voluntary basis, i.e. outside verification events envisaged by the RPSP Act.
Given the ambiguity during what period of time a public sector partner is obliged to remain registered in the Register, the amendment stipulates that the duration of a contract means the period during which the public sector partner receives funds, or acquires property, rights to property or other property rights.
New rules for determining the value of performance under a contract
One of the criteria for assessing the obligation to register a public sector partner in the Register is also the value of performance under a contract. In practice, there have been problems in calculating the limit from which registration in the Register is mandatory for recurrent performances above EUR 250,000. To eliminate this problem, the amendment introduces 14 new specific rules to determine a performance value under a contract. These rules should also make it clear whether there is a reason for an entity to register in the Register. The new rules include, e.g., that all performance values shall apply excluding VAT; for two or more contracts, the performance values received under several contracts shall not be aggregated; and that in determining the values of property, rights to property or other property rights, the counter value in terms of money, which a public sector partner is obliged to provide, and not the value of the property provided (e.g. the value of rent paid), shall be used.
The financial limits have remained unchanged, the limit of (i) EUR 100,000 in case of a one-off performance value and (ii) EUR 250,000 for performance values in aggregate.
Material corrective as protection from formalistic decision-making of courts
The amendment introduces a so-called “material corrective” to protect the parties from the formalistic decision-making of the court on sanctions imposed in cases of breaches of the law where the gravity of such breaches is negligible. In such cases, the court shall say “guilty” but shall not impose a sanction for breaching the law (e.g. deletion, fine). Until recently, for example, the registering authority was obliged to delete a public sector partner from the Register if it failed to reliably prove that the BO data entered in the Register were true and complete. However, from the effective date of the amendment, this will not apply (and there will be no deletion) if, given the manner in which the obligation was breached, its consequences, the circumstances in which the obligation was breached and the degree of fault, the gravity of breaching such obligation is negligible.
The amendment also determines the point at which the registering authority assesses the facts as part of the proceedings on qualified complaint, when the legal situation and factual circumstances at the time of initiation of the proceedings are decisive for the registering authority. In this situation, it seems fair for the court to rely on the facts at the time of the initiation of the proceedings on qualified complaint; the additional remedy of breaches or the supplementation of data should not lead to non-imposition of a sanction and discontinuing of the proceedings.
However, it remains that no remedies against decisions of the District Court in Žilina on fine imposition and deletion from the Register are admissible, which, in our opinion, constitutes a rather problematic legislation on the edge of constitutionality.
Introduction of disqualification from registration in the register
The amendment introduces that, at the same time a public sector partner is deleted from the Register by virtue of law, the public sector partner is prohibited from registering in the Register for two years from the effective and valid date of the registering authority’s decision on deletion. Under the current legislation, there is nothing to prevent a public sector partner who has breached its statutory obligations to re-register in the Register, even on the very day after the deletion.
The two-year prohibition on re-registration in the Register does not apply to voluntary deletions from the Register.
Introduction of joint and several liability of statutory body
The amendment to the RPSP Act introduces joint and several liability of the statutory body in case of breach of obligations under the RPSP Act.
The registering authority may currently impose a fine of up to EUR 100,000 on each member of the statutory body. Under the new legislation, when imposing a fine on statutory body members, the registering authority must ensure that the sum of all fines imposed on these members does not exceed the cap limit of EUR 100,000, e.g. if the company has 5 executive directors, the maximum aggregate amount of the fine that may be imposed by the registering authority will be EUR 100,000 and not EUR 500,000, as has been the case so far.
Also, statutory body members shall have joint and several liability for payment of the fine imposed on the statutory body, i.e. statutory body members are jointly and severally liable for payment of the fine.
Narrowing the circle of persons designated as “top management”
We consider a change in the definition of top management to be an extremely important contribution of the amendment. This change was made through an amendment to Act No. 297/2008 Coll., on the Prevention of Legalization of Proceeds of Criminal Activity and Terrorist Financing, known as the AML Act.
The amendment will narrow the circle of persons considered to be top management. Until the amendment to the RPSP Act was adopted, under Section 6a(2) of the AML Act, the top management meant “a statutory body, a statutory body member, a proxy holder, and an officer having direct management powers of the statutory body”; from the effective date of the amendment to the RPSP Act, only “statutory body or statutory body members” will be considered to be top management. Under the new legislation, in the case of registration of top management, only registration of the statutory body or members of the statutory body of a public sector partner is required.
The change was required by the application practice, as there were situations when several dozens of natural persons (as officers having direct management powers of the body) were registered in the Register.
The public sector partner is obliged to align the data on top management members registered in place of the BOs with the new wording of the RPSP Act no later than 29 February 2020.
(Non-)mandatory indication of permanent residence of the bos
Especially in foreign jurisdictions there are cases where the BOs, or data on their permanent residence, are classified or protected. Therefore, the amendment allows the indication of the registered office or place of business of a public sector partner instead of permanent residence of the BOs.
In such a case, it must be proven that there are objectively justified circumstances for which the indication of the address of a BO’s permanent residence could jeopardize the BO’s security or interfere with its personality protection rights or jeopardize the security or interfere with the personality rights of its close persons. The circumstances for which the authorised person has not indicated the address of the BO’s permanent residence shall be specified in an affidavit annexed to the registration application. The reasons specified in the affidavit will not be public.
Changes relating to securities issuers
In the case of issuers of securities admitted to trading on a regulated market that are subject to disclosure requirements, a practical simplification will apply to the registration of the BOs, in which only the statutory body and members of the statutory body of a public sector partner instead of the top management will be registered as the BOs. Instead of data on the permanent residence of a statutory body member, it is sufficient to indicate only the registered office or place of business of the public sector partner without having to prove justified circumstances for which the authorised person has not indicated the permanent residence address.
Time limits to align registration
Under the transitional provisions of the amendment, a public sector partner is obliged to ensure the reconciliation of data on top management members registered in place of the BOs no later than 29 February 2020. Within the same time limit, a natural person and a legal entity that are parties to a contract with the public sector concluded before 31 August 2019 and who meet the conditions for registration in the Register from 1 September 2019 are obliged to ensure their registration in the Register if the value of performance to be received by the public sector partner after 1 September 2019 exceeds the value of performance stipulated in the RPSP Act (i.e. EUR 100,000 / EUR 250,000).
Authors: Ondřej Majer, Ján Kapec, Patrícia Jamrišková
Published on: Lexology