Act No. 90/2012 Coll., on Commercial Companies and Co-operatives (Act on Commercial Corporations) (hereinafter referred to as the "Acton Commercial Corporations") will undergo more extensive changes as of 1 January 2021 as a result of an amendment to Act No. 33/2020 Coll. (hereinafter referred to as the "Amendment"). Our law firm has prepared a series of articles on selected novelties to help you prepare for the amendment. The Amendment clarifies some previous ambiguities concerning documents produced by companies
This article was written in 2022. If you are looking for up-to-date information on this topic, please do not hesitate to contact us at office@arws.cz or by phone on +420 245 007 740. We will be happy to advise you.
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The current treatment of the Relationship Report will be improved (the "Report"). Knowledge of the amount of equity is required to prepare the Report. It will now be specified exactly which financial statements are to be used as the basis for determining the amount of equity - the financial statements prepared for the financial year immediately preceding the financial year for which the Report is prepared[1] . Information on the amount of share capital is essential for the compilation of a summary of legal actions taken at the instigation or in the interest of the controlling person which exceed 10% of the controlled person's equity. Actions below this limit do not need to be disclosed in the Report.
The amendment also expands the scope of information that is either excluded from the Report or is sufficient to be presented only in general terms. The Report is deposited in the collection of documents and it is not appropriate for it to contain certain information that the company often does not have to provide even directly to the shareholder (let alone to the general public). In particular, the non-disclosure of specific information that is the subject of a business secret is a positive development. However, the report must include such information in a reasonable degree of generalisation to continue to fulfil its purpose, while at the same time not disclosing trade secrets.
The Report shall also expressly exclude information which is subject to protection or classification under special regulations. In such a case, the Report shall include an indication that it is incomplete and a justification as to why the otherwise required information is not included. The Report should retain some informational value and it is not sufficient to simply omit information without explanation.
If the controlled entity prepares an annual report[2], the Report is part of it and is subject to audit. The controlled person shall deposit the Report in the collection of documents as part of the annual report. If the controlled person does not prepare an annual report, it shall file the Report in the collection of documents within the same period as the financial statements for the period covered by the Report.
The amendment also fixes the range of persons who may propose an expert review of the Report. Any shareholder may do so, but he or she must have serious reasons for doing so, which should be documented. The court always decides on the motion for appointment of an expert and the fiction of appointment of an expert in case of inaction of the court is deleted. The expert's report shall then be deposited in the collection of documents directly by the expert and shall also be delivered to the other parties to the proceedings.
Apart from the CCC, the amendment also modifies related legislation, including the Act on Public Registers. The deadlines for the mandatory publication of financial statements remain unchanged. The court still has the possibility to impose (even repeatedly) a fine of up to CZK 100,000 for failure to properly file the documents in the collection of documents. The court may still initiate proceedings for the dissolution of a legal entity with liquidation even without a petition if the legal entity repeatedly fails to file documents in the collection of documents or if the failure to file documents and to provide mandatory information to the registry court may have serious consequences for third parties and there is a legal interest. The Registry Court shall draw the attention of the legal person to this practice and allow it to remedy the deficiencies. What is new, however, is the introduction of new instruments motivated by the desire to remove inactive companies from the register so that they cannot be used as intermediate links in financial fraud. Thus, if a legal entity fails to file accounts for at least 2 consecutive accounting periods, the registry court will ask it to submit all missing accounts within 1 month. If the legal entity fails to deliver the summons in its own hands without the possibility of substitute delivery, the registry court will initiate proceedings for the dissolution of the legal entity. The court may even decide to dissolve the legal entity without liquidation, especially if the assets of the dissolved legal entity would not be sufficient to cover the costs of liquidation.
The obligation to draw up a report on the business activity and the state of assets (hereinafter referred to as the "activity report") remains only for public limited companies which do not draw up an annual report - it therefore only applies to public limited companies whose financial statements are not subject to a statutory audit. If the company prepares an annual report, all the information should be contained in the annual report and the MD&A would be a mere repetition of the same. The Annual Report should provide comprehensible and less technical information even for laymen who are not familiar with accounting. A public limited liability company is obliged to file the management report in the collection of documents within the same time limit as the financial statements drawn up for the same period.
The amendment introduces an obligation for all legal entities to keep minutes of the proceedings of the supreme body (general meeting), including annexes, for the entire duration of their existence. This also applies to the retention of documents related to decision-making outside the meeting in written form, e.g. in the case of per rollam decision-making.
If a legal entity is dissolved with a legal successor, the legal successor shall ensure the preservation of the documents. In the event of dissolution of a legal entity with liquidation, the liquidator shall ensure the preservation of documents and in the event of dissolution without liquidation, the insolvency administrator shall ensure the preservation of documents - both are obliged to preserve documents for 10 years after the dissolution of the legal entity.
As can be seen, the amendment brings a number of significant but also cosmetic changes. If you are unsure whether the amendment applies to you and whether you need to change anything about your current practice, please do not hesitate to contact us, we will be happy to help!