By the end of January this year, the Member States of the European Union had to implement Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 (“the Directive”). However, the amendment to the Act amending Act No. 125/2008 Coll., on conversions of commercial companies and cooperatives (hereinafter “the Amendment”) transposing the Directive into the domestic legal system is still lying in the Chamber of Deputies awaiting discussion[1]. Although it is not certain when the legislative process will come to a successful conclusion and Czech legislators will live up to the EU commitment, it makes sense to prepare for the changes. In the following lines you will find the most important things that await us under the amendment.

The Directive primarily aims to harmonise rules across Member States. The main areas affected are cross-border mergers and cross-border demergers, cross-border relocation of registered office and cross-border transfer of assets to a shareholder. At the same time, the amendment also deals with the national problems in the area of conversion that the practice of recent years has shown.

Of course, it cannot be ruled out that partial amendments will be adopted during the legislative process, but the essentials of the Amendment should remain the same.

Cross-border relocation of the registered office – to facilitate cross-border mobility of business corporations, the possibility of using cross-border relocation of the registered office also in relation to countries other than EU Member States or EEA countries is introduced.

Another legislative novelty will be the demerger by spin-off, which will enable the spin-off of part of the assets of the divided company and their transfer to one or more newly emerging or existing successor companies according to the spin-off project, while the company being divided does not cease to exist and becomes a shareholder of the respective successor company; the fundamental difference between the newly introduced spin-off and the classic spin-off is that in a spin-off the company being divided acquires a share in the successor company, as opposed to a spin-off where the share in the successor company is essentially acquired by the shareholders of the company being divided; a spin-off by demerger will then find its application in particular in situations, where it is more appropriate that the shares in the successor company are acquired directly by the company being demerged and not by its shareholders; if such a situation should arise under the current wording of the Act on Conversions, it is necessary for the shareholders to waive the right to exchange shares, or alternatively, in connection with such a division, the shareholders must receive a supplementary payment.

Appointment of the expert left to the company – the expert in the valuation of assets, previously appointed by the court, will now be chosen by the company itself by selecting from a list of experts. This will reduce the bureaucratic burden on courts and save companies the court fees.

Simplification of the information obligation – the obligation to publish a notice on depositing the conversion project in the Collection of Deeds and a notice to creditors in the Commercial Bulletin will be replaced in the amendment with the obligation to also deposit a notice for creditors, employees and shareholders of the respective company about their rights in the Collection of Deeds of the Commercial Register, together with the project. However, there remains an alternative option to publish this information via the website of the company involved in the conversion.

The time limit for creditors to exercise their right to adequate security is reduced from 6 to 3 months. The shorter period for exercising the right before the court will run not from the date when the registration of the conversion in the Commercial Register became effective against third parties, but from the date of publication of the conversion project in the Collection of Deeds of the Commercial Register.

Obligation to have assets valued by an expert’s report – the current wording of the Act on Conversions applies the exception from the obligation to have assets valued by an expert’s report only in relation to a change of legal form and relocation of the registered office to the Czech Republic; the amendment now generally establishes the possibility of using an alternative procedure under Section 468 et seq. of Act No.90/2012 Coll, on Commercial Companies and Cooperatives (“TCA”), for all cases where the Act on Conversions requires the valuation of assets by an expert’s report, and firmly establishes that the 6-month period provided for in the TCA in relation to the determination of fair value in such cases is calculated as of the date of registration of the conversion in the Commercial Register.

The amendment will also introduce several other partial changes, for example, enshrining rules already in force and established by practice. The deadline for implementation has already passed and it can be expected that the legislators will try to adopt the Amendment as soon as possible. We can only hope that the deadline has been exceeded in order to improve the letter of the legislative novelty and that the adopted amendments will serve their purpose in practice.

[1]See Parliamentary Print 459, Amendment to the Act on Conversions of Commercial Companies and Cooperatives – EU, https://psp.cz/sqw/historie.sqw?o=9&t=459

Author: Veronika Odrobinová, Karel Nejtek