Less than a month after its third reading in the Chamber of Deputies, the Senate approved an important amendment to the Act on Conversions of Commercial Companies and Cooperatives[1]. The new text introduces several important new features. First of all, the possibility of relocating the registered office has been extended – this will now be possible even outside the European Union within the limits of the Conversion Act. The amendment adds a new form of transformation – division by separation. It also simplifies the information obligation and changes the obligations regarding the appointment of valuation experts.

The legislators adopted the amendment at the instigation of the European Union. This is an implementation, delayed by more than a year, of the Directive[2], which places demands on the Czech Republic in the areas of cross-border relocation of registered office and transformation of legal entities.

Relocation of the registered office of legal entities

Until the amendment comes into force on the thirtieth day after its promulgation, the transfer of the registered office to countries outside the European Union is governed only by a superficial regulation in the Civil Code[3]. Despite the existence of a special law regulating the conversion of companies and cooperatives, the legal framework in the case of relocation of registered office outside the EU is uncertain. Entities intending to relocate their registered office outside the EU must take into account the fragmentation and brevity of the legislation, as the Conversion Act does not offer them a solution. The amendment deals with this weakness of the current regulation and thus the relocation of the registered office to third countries should not be a problem.

Division by separation

Another major change introduced by the amendment is the introduction of division by separation as a new form of conversion. Companies will now be allowed to separate part of their assets and invest them in newly created or existing entities. Unlike a spin-off, where the shareholders of the company, to which the property is transferred, are the shareholders of the company, from which the property was transferred, in the case of a division by separation, the shareholder of the successor company is directly the company, from which the property was separated. The new form of conversion can be viewed as a specific type of contribution, either to one or more newly formed companies or to a company or companies already in existence, in which case the process is called a separation by merger.

Abolition of the obligation to appoint an expert when valuing assets

In certain cases, the Conversion Act requires a valuation of the assets by an expert appointed by the court. The amendment abolishes the last part of this obligation and allows companies to select the experts themselves from a list of experts. The practical benefit of such a change is obvious – it will reduce the administrative burden on all parties involved.

Changes to the duty to provide information

The amendment replaces the current obligation to publish a notice of the deposit of the conversion project in the Commercial Bulletin with the deposit of this information in the collection of documents of the Commercial Register of the participating companies together with the conversion project and a notice to creditors, employees and partners. The conversion will thus not be subject to the fees associated with the publication of the notice in the Commercial Bulletin.

Lex ČEZ

Before concluding, we consider it appropriate to address the media-hyped provisions of Section 311 et seq. of the amendment, which introduced special rules on the division of a joint stock company whose shares are admitted to trading on a European regulated market. This regulation, dubbed the CEZ lex, would allow majority shareholders to displace minority shareholders when voting on the division of listed companies. However, after long deliberations and six meetings of the Constitutional Law Committee of the Chamber of Deputies, this passage was removed from the bill.

Conclusion

The amendment to the Act on Conversions is a long-awaited implementation of the European Directive, which aims to reduce the administrative burden of both the state and legal entities. It clarifies the regulation of relocation of registered office outside the EU, introduces a new form of conversion – division by separation – simplifies the information obligation and abolishes the obligation to have a court appoint an expert to value the assets in certain cases. This will probably be a business-friendly change – and hopefully practice will confirm this.

[1] Act No. 125/2008 Coll., the Act on Transformations of Commercial Companies and Cooperatives.

[2] Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 on certain aspects of company law (codified version), as amended by Directives (EU) 2019/1023, (EU) 2019/1151 and (EU) 2019/2121 of the European Parliament and of the Council and Regulation (EU) 2021/23 of the European Parliament and of the Council.

[3] Act No. 89/2021 Coll., Civil Code.