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Covid–19 coronavirus: introduction of flexible measures for Czech corporations

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Cech Jakub
Jakub Cech

Senior Associate

Prague

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06 April 2020

The Czech government has submitted to the Parliament a proposal introducing certain measures aiming to mitigate the impact of the Covid–19 coronavirus epidemic on, among others, corporate affairs (the Covid Bill). 

The Covid Bill introduces higher flexibility in relation to taking corporate decisions, approving financial statements and appointing corporate directors at the time when movement and physical meetings are restricted by protective measures declared in connection with the Covid–19 epidemic.

The Covid Bill is likely to become law in short order. Then, any Czech corporation will be allowed to take the benefit of the following rules:

  • General meetings (in Czech valné hromady), boards of directors (in Czech představenstva, správní rady, rady jednatelů) and supervisory boards (in Czech dozorčí rady) will have the power to adopt their decisions by means of distant communication even if articles of association currently do not provide for such distant form of decision-making in the corporation. 
  • The directors (or supervisory board members in case of supervisory board meetings) will have the power to define rules for adopting decisions in the distant form if the articles of association of the corporation do not provide sufficient regulation.
  • Corporations will be relieved of the obligation to approve their 2019 financial statements until mid-2020. It will be sufficient to approve these financials at any time when the protective measures declared in connection with the Covid-19 epidemic are still in force, and even within 3 months after they are lifted (but in no case later than on 31 December 2020).
  • The term of directors and members of supervisory board that would normally expire while extraordinary measures are in place (or within one month after they are lifted) will be extended by operation of law so that the term expires three months after the extraordinary measures are lifted (unless the director or member explicitly disagrees to the extension).
  • The extension applies also to a director or member of supervisory board whose term expires while extraordinary measures are in place, but before the Covid Bill becomes applicable law. The director or member can opt in the extension unless the vacated position has already been filled.
  • The board of directors or supervisory board that loses its member is given the power to appoint a substitute member for the time until the next general meeting, even if articles of association of the corporation currently do not provide for such a possibility.

Expected date of effectiveness

The Covid Bill has been scheduled for debate in the emergency regime in the Parliament of the Czech Republic on 7 April. It is therefore expected to become law fairly quickly.

Conclusion 

The proposed measures support Czech corporations in withstanding the crisis without exerting unreasonable effort on managing corporate law issues. Most notably, corporate bodies will be empowered to act in a distant form even in corporations whose corporate documents do not provide for this possibility. This possibility will not be, however, automatically available. To be able to use this option, the governing bodies of the corporations will have to issue specific rules for adopting decisions in the distant form. The Covid Bill, however, does not specify clear requirements of how these rules should be structured, including a specification of what kind of verification of identity of the participants will be deemed sufficient. The preparation of these rules in the absence of clear guidance may therefore result in unnecessary additional burden for corporations.

 

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