Popovici Nitu Stoica & Asociatii | View firm profile
With a fewnotable exceptions, all companies are struggling these days. For some itis about organizing general business survival, for some it is about dealingwith the short-term cash-flow management, some are restructuring their businessand resetting the employment scheme, while for some the only option was tofreeze production and apply for various public support measures.
However, certainindustries are more flexible and were able to redress, at least partially. Thisis not good only for themselves, but they are also maintaining employment,supply chains, and in the same time they found a way to contribute with theservices and products needed during this period. And of course, all this bringshope and helps building up a momentum.
Each day we seecompanies facing the new realities and pushing for business reconversions and,just to name a few, we have cosmetics companies switching to disinfectants,chemical companies going for biocides and clothing companies delivering gownsand other protection equipment. In the same time, we hear the officials askingthe state-owned companies to pursue their planned investments and helppreserving economic traction, while other private entities declared in themedia they were ready to accommodate various needs should the government ask.
Risks. The role of old and newstrategic businesses.
As this is aglobal threat we are facing, it is worth keeping an eye on global organizationsand other nations’ statements and behaviors.
As expected,throughout, the stake lies with securing the basic resources (e.g., food,energy, drugs and medical services).
Onthe food supply threat, the United Nations Food and Agriculture Organizationalready warned that coronavirus measures could cause global food shortage[1]. While at the countries’ level we couldalready see that:
· France is callinglaid off people to start working in agriculture[2];
· Switzerland introducedrestrictions on the export of protective equipment[3];
· Russia considersrestricting grain exports[4];
· Kazakhstan bannedfood exports to non-Eurasian Economic Union countries[5];
· Hungary bannedthe commercial export on hydroxychloroquine sulfate, an ingredient believed tohelp in coronavirus treatment[6].
Therefore, aspriorities change, the focus can shift from the classic strategic players(e.g., infrastructure, energy, telecommunication). Besides the usual keysectors, it may be that new strategic businesses emerge, becoming essential formaintaining the overall balance.
In the givencontext, we could think of private courier services, logistics operators,various on-line retailers and platforms, food companies and so on.
So, as much ofthe economy was already impacted by the blow taken by the private sector, it isonly natural for authorities to assess, monitor fluctuations and reviewoptions.
Atfirst, this could be just a de facto judgment,but it is important for owners to understand where their business stands in theoverall economic system right now, as well as to know that authorities have themeans to interfere.
What can the authoritiesactually do?
The authoritiesmay chose getting involved in order to preserve or put the strategic businessto good use. The cornerstone for such potential interference is alreadyacknowledged under the State of Emergency Decree no. 195/2020 where, amongother, the restriction of the right to private property and of the right toeconomic freedom was expressly decided.
We analyzeavailable options on three levels:
a) The requisition
This is anexceptional measure allowing the authorities to basically take over any type ofassets/ businesses (with just a few exceptions), if the public interest sorequires. Requisition is meant to be temporary, but of course that if theassets subject to this measure are perishable, requisition becomesdefinitive.
Those affected byrequisition are entitled to indemnification, following certain specialprocedures detailed under the Law no. 132/1997.
Thisis a drastic measure and should be handled with caution, but it has two greatadvantages, namely it has a broad applicability (from the requisition of abatch of essential drugs to the requisition of private healthcare facilities,as in the case of Spain[7]) and it offers quasi-instanteffect.
b) The national criticinfrastructure
TheEmergency Government Ordinance no. 98/2010 deals with identifying andprotecting those activities which qualify as national critic infrastructure[8].
Once a company isqualified as such, certain procedures come in place, mainly aimed atidentifying risks affecting that activity and designing the requiredcountermeasures. Obviously, the purpose is to ultimately ensure full businesscontinuity, because any disruption would likely throw the national system offbalance.
Annex 1 to thesaid Ordinance provides the sectors capable of generating national criticinfrastructure, namely from energy and natural resources, food and healthcare,to telecommunications, transports and chemical industries.
The procedure foraddressing new national critic infrastructure is a lengthy one and, unlessamended punctually during this period, probably this would not be the preferredpath for the authorities to pursue.
But it couldprove a fine instrument especially for the post-pandemic period, as this can bethe starting point for re-shaping the new business order.
c) National security risks andthe role of the Country’s Defense Supreme Council in transactions
According to theDecision no. 73/2012 issued by the Country’s Defense Supreme Council, thelatter may step in during merger control processes for assessing the takeoveroperations that raise national security risks. Areas under scrutiny include,among other, citizen and community safety, energy safety, safety of informationand communication systems, agricultural protection, the security of vital resourcessupply systems, transportation security.
Therefore,it is expected for the Competition Council and the Country’s Defense SupremeCouncil to raise awareness on their radar, assessing thoroughly and activelyinfluencing strategic sectors for which this is not a good time to switchownership or, simply put, sectors for which disruptions stemming from sensitivemanagement changes, business restructurings and cultural shifts are undesirable(see the case of Germany, already considering to tighten rules on foreigntakeovers[9]).
[1] http://www.fao.org/news/story/en/item/1268059/icode/
[2] https://www.euractiv.com/section/coronavirus/news/covid-19-france-calls-unemployed-to-work-in-fields-as-borders-stay-closed/
[3] https://www.swissinfo.ch/eng/covid-19_swiss-restrict-exports-of-protective-equipment-as-coronavirus-hits/45642960
[4] https://www.bloomberg.com/news/articles/2020-03-27/wheat-futures-rise-as-russia-considers-grain-export-quota
[5] https://akipress.com/news:638007
[6] https://nationalpost.com/pmn/health-pmn/hungary-bans-export-of-coronavirus-treatment-ingredient
[7] https://www.businessinsider.com/coronavirus-spain-nationalises-private-hospitals-emergency-covid-19-lockdown-2020-3
[8] Fullanalysis on this topic available at https://pnsa.blog/infrastructura-critica-sectoare-esentiale-angajati-cheie/
[9] https://www.bloomberg.com/news/articles/2020-04-07/merkel-s-government-plans-to-tighten-rules-on-foreign-takeovers