Amendment to the Conversion Act 2024 practically

On 19 June 2024, an amendment to Act No. 125/2008 Coll., on Transformations of Commercial Companies and Cooperatives, designated as Act No. 62/2024 Coll., was published in the Collection of Laws (the "Amendment"). This Amendment aims to transpose Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 (the "Directive") into the Czech legal order, thus finally catching up with the more than one and a half year delay since the transposition deadline of 31 January 2023.

One of the key changes is the specification of rules for cross-border relocation of the registered office of a corporation to and from third countries, i.e. outside EU or EEA Member States. The previous version of the law did not address this possibility, which caused uncertainty. The amendment now clearly states that relocation of the registered office to or from third countries is possible under similar conditions as in the case of EU or EEA Member States.

Another important point is the introduction of a new form of division of a company - spin-off. A demerger transfers part of the company's assets to a newly established or existing company without dissolving the company being demerged. There are two forms of spin-off: spin-off with the creation of a new company and spin-off by merger. A spin-off by merger allows part of the assets to be contributed to another company in exchange for shares, which may lead to a change in the ownership structure.

The amendment also simplifies the procedure for the appointment of an expert for the valuation of a contribution in kind. The expert will now be selected by the converting company itself from a list of experts, rather than by the court, which should speed up the process. This change reflects the terms of Act No. 90/2012 Coll., on Business Corporations, and introduces exemptions from the obligation of expert valuation for investment securities and other assets that can be valued at fair value.

Another significant change is the reduction of the deadline for creditors to file claims from six to three months from the publication of the conversion project. The amendment also refines the definition of claims that can be secured and includes future or contingent claims arising from liabilities prior to the publication of the conversion project.

In line with the Directive, the Amendment abolishes the obligation to publish a notice in the Commercial Bulletin, which should reduce the administrative burden. Instead, it will be necessary to publish the conversion project and the notice to creditors and other affected persons in the commercial register and, where appropriate, on the websites of the entities concerned.

Another important innovation is the extension of the powers of notaries to issue certificates for cross-border conversions. A notary will have to refuse to issue a certificate if he finds that the purpose of the conversion is abusive or fraudulent, or is aimed at circumventing the law or committing a criminal offence. If the notary has serious suspicions but not certainty, the public authorities must provide the necessary cooperation to the notary.

The amendment will come into force on 19 July 2024 and brings significant changes to streamline and clarify the processes of company conversions in the Czech Republic. The aim is to facilitate the cross-border mobility of commercial corporations and thus promote business in the EU internal market. Whether these expectations will actually be fulfilled will only be possible to assess after the Amendment comes into force and is put into practice.