Czech Republic: Companies in Quarantine – What are the Implications of the New Measures during an Epidemic?
The current emergency measures adopted in response to the new coronavirus, SARS CoV-2 epidemic, in the Czech Republic affect the life of each of us as well as companies, their shareholders and members of their corporate bodies. In this respect, the Ministry of Justice prepared a bill (referred to as Lex Covid) that is to allow, among other things, the work of corporate bodies under the current state of emergency and related epidemiologic measures. The bill is expected to come into effect in the next few days (“Lex Covid”).
FUNDAMENTAL CHANGES IN LEGAL ENTITIES
In Sections 18 to 22, Lex Covid regulates issues affecting not only companies but also other legal entities such as cooperatives (the affected legal entities are referred to below only as “companies” for the sake of simplification. In this article, we focus in particular on limited liability companies, joint-stock companies and European companies (Societas Europaea), and, if relevant, unlimited liability companies and partnerships in commendam). Major novelties include:
- Change in the mode of general meetings and meetings of other (corporate) bodies,
- Extension of corporate body members’ terms of office of and co-option, and
- Extension of the time limit to discuss annual financial statements.
Companies may follow the procedures set forth by the special measures of Lex Covid only for the duration of the “emergency measure during an epidemic” (this is a statutory term for a series of measures adopted in relation to the current epidemic and the state of emergency declared for the territory of the Czech Republic). Nonetheless, the consequences of some special measures will go beyond the end of the emergency measure (see below).
CHANGE IN THE MODE OF GENERAL MEETINGS AND MEETINGS OF OTHER BODIES
One of the major issues related to the emergency measure is that meetings of corporate bodies, such as general meetings and meetings of boards of directors, supervisory boards and administrative boards, are practically impossible. That is why Lex Covid allows for using technologies to hold such meetings or to adopt resolutions remotely in writing, even if this option is not expressly stipulated (or admitted) in the articles or memorandum of association (for the sake of simplification, these documents are referred to below only as “articles of association” which are to cover both terms in this article).
There is essentially no change for companies which have expressly regulated this matter in their articles of association – they may hold meetings remotely under the conditions specified in their articles. Companies which have not regulated this matter in their articles of association will have to hold the meetings remotely under the conditions stipulated in the Czech Companies Act (i.e. Section 175 et seq. for limited-liability companies and Section 418 et seq. for joint-stock companies).
In case of companies that are not subject to any special statutory conditions (typically unlimited companies), such conditions for holding meetings of the supreme corporate body remotely will be set forth by the company’s governing body. The governing or supervisory bodies will provide for the conditions of their meetings themselves. Under Lex Covid, members of the respective bodies must be notified of the conditions specified in this way well in advance.
For the sake of completeness, we have to say that a company will proceed under Lex Covid if it is to complete a process of adopting resolutions remotely or a technology-enabled meeting after the end of the emergency measure, provided that the company has started the process or convened the meeting before the emergency measure ceases to apply. Nobody will be able to seek the invalidity of a resolution on the grounds that the articles of association did not allow for such a mode of meeting as they are replaced directly by Lex Covid.
EXTENSION OF CORPORATE BODY MEMBERS’ TERMS OF OFFICE OF AND CO-OPTION
The bill also foresees situations in which corporate body members’ terms of office expire by lapse of time while the emergency measure is still in effect. In order to avoid de facto “corporate interregnum” due to the failure to appoint new members, Lex Covid provides for automatic extension of all corporate body members’ terms of office that would normally expire by lapse of time while Lex Covid is effective. The term of office will be extended to up to 3 months after the termination of the emergency measure. A body member’s term of office expiring within 1 month of the termination of the emergency measure will also be extended. In these cases, the term of office will be extended to 3 months from the termination of the emergency measure.
Corporate body members not wanting to remain in office may contact the respective company and object to the extension of their term of office no later than the date of its termination.
Corporate body members’ terms of office that expire in the time between the promulgation of the emergency measure and the date of effect of Lex Covid will not be extended but renewed based on the respective corporate body member’s consent. In such a case, the term of office is renewed on the date of delivery of the consent to the respective company and expires in 3 months from the termination of the emergency measure. This procedure may only be applied if the respective body has not appointed or elected a new person to fill the vacancy. In that case, if the consent is delivered to the company, the former corporate body member’s term of office will not be renewed.
Even if not admitted in the articles of association, Lex Covid allows for co-option, i.e. temporary appointment to fill a vacancy in the corporate body by the body itself provided that the number of its members has not fallen below one half.
EXTENSION OF THE TIME LIMIT TO DISCUSS ANNUAL FINANCIAL STATEMENTS
As part of the adopted measures, the time limit to discuss companies’ annual financial statements is also extended. Instead of 30 June, a usual deadline for companies with their financial year identical to the calendar year, the time limit is extended this year to three months upon termination of the emergency measure. However, the last date to discuss the annual financial statements is 31 December 2020. This measure is nonetheless without prejudice to duties stipulated by public laws (including in particular the duty to submit a tax return; you can find more details in our Tax Package and Tax Package 2 articles).
We firmly believe that the above-mentioned measures will help you ensure that your companies remain in operation, at least at the corporate level, in spite of these difficult times. Our corporate practice group is of course always ready to assist you not only in the matters described in this article. Above all, we wish all our clients good health and a lot of strength.
HAVEL & PARTNERS labour law experts are available for you to consult on any issues related to this program. For additional information on any matter related to labour issues in Czech Republic, please contact Jan Koval (email@example.com) partner of HAVEL & PARTNERS, or visit www.havelpartners.cz.
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