Ladislav Haladej has joined HAVEL & PARTNERS’ advisory group specialising in real estate, construction and the environment in the position of counsel. On the team, which is one of the largest with this specialisation in the Czech Republic and Slovakia and consists of over 30 lawyers, including 7 partners, Ladislav will focus on comprehensive real estate advice, especially on real estate development in all its stages.
“In the area of providing legal services related to real estate, construction and investment projects, including their financing, we have a substantial share of the Czech and Slovak legal market thanks to the size of our team and professional know-how. Further development of this area is our main priority for the next 10 years and we are devoting maximum effort to it. We are creating a strategic programming document “Real Estate 2020-2030” and we look at this issue very comprehensively,” explained the founder and managing partner of the firm Jaroslav Havel.“Personnel strengthening is also a part of this strategy, which is why I am glad that Ladislav Haladej has become a member of our real estate team. Thanks to his more than ten years of experience gained in providing legal advice to leading Slovak developers operating throughout Europe, he will be a great support for us in achieving our goals in the real estate market,” added Havel on the arrival of the firm’s new colleague.
Ladislav earned a Master of Laws degree and a Doctor of Laws degree from the Faculty of Law of Comenius University in Bratislava, and in 2010 he successfully passed the bar exam in Slovakia. Prior to joining HAVEL & PARTNERS, Ladislav practised as a lawyer specialising in real estate law and development and construction law at the law firm RELEVANS in Bratislava. He also gained experience in Law & Trust – advokátska kancelária, where he was responsible for providing comprehensive legal services in Slovak and English to the Slovak commercial real estate developer HB Reavis Group.
Authors: Adéla Havlová, Romana Derková, Marek Jaroš
Dear Clients and Business Friends,
We would like to inform you about the fundamental decision of the Regional Court in Brno No. 31 Af 70/2018-138 (see here) of 27 May 2020 on the interpretation of Act No. 134/2016 Sb., on Public Procurement (PPA). In its decision, the Regional Court has upheld that (i) the purchase of shares, business shares and businesses does not fall under the PPA, and that (ii) the PPA must be interpreted not purely linguistically, but according to the actual will of the legislators; in principle, an interpretation in conformity with EU law applies – i.e. in accordance with the meaning and purpose of the corresponding provisions of the EU Procurement Directive.
The judgment annulled the decision of the Office for the Protection of Competition (the “Office”), which in 2018 caused a great stir among the professional public in the field of public procurement (for the appellate review decision, see here). Under the annulled decision of the Office, the acquisition of a company’s business share (simply the purchase of shares) should have been considered a public supply contract and carried out in a procurement procedure under the Public Procurement Act (PPA). In assessing the fulfilment of the definition of a public supply contract, the subject matter of which is, inter alia, the procurement of items, the Office opted for a strictly formal interpretation, based on the definition of an item under the Civil Code, which includes, inter alia, shares. In light of the decision, the Office stopped the efforts of the Liberec Region to secure transport services through its own transport company, which it wanted to acquire by purchasing the ČSAD Liberec shares.
The Office’s decision caused a stir in 2018 mainly due to the fact that it is difficult to imagine and conduct a formal procurement procedure under the PPA for the purchase of a business, a business share or shares in an existing company. Tenders are hardly comparable and evaluable according to predetermined, fixed criteria, and also the qualification criteria imposed under the PPA on the participant in the procurement procedure as the tenderer fall short of their aim. At the same time, the contracting authorities awarding public and sector contracts also make such acquisitions legitimately, in the course of their business activities or to meet their legitimate needs.
The idea that the Office’s decision of 2018 will remain final did not give us piece of mind. We have been following the legislative developments in the field of public procurement in detail since 2012, via the participation of our experts in professional associations, in particular the Association for Infrastructure Development (AID) and the Association for Public Procurement (APP). We are pleased that the Liberec Region accepted our proposal for pro bono representation and, in cooperation with the AID and the APP, let us represent them in bringing an action. We based our arguments before the court on detailed knowledge of the legislative developments of the PPA and our experience with foreign interpretation practice, especially in Germany and Austria. We are very pleased that the Regional Court in Brno has agreed to those arguments. We believe that this judgment will become crucial for the future interpretation of the PPA in accordance with the purpose of EU directives and the intention of the legislators.
To be complete, we add that in the prepared amendment to the PPA, which is now after the comment-raising procedure of the Czech Government and which should take effect from 1 January 2021, we supported, for the AID and APP, supplementing the PPA so that the issue of acquiring business shares, businesses and shares was definitely resolved. The Office has commented constructively on this proposal and also supplemented the proposed list with receivables.
Authors: Ondřej Florián, Pavlína Petráčková, Eliška Dittrichová
An amendment to Act no. 159/2020 Sb. on The Compensation Bonus in Connection with Crisis Measures Associated with the Occurrence of Coronavirus SARS CoV-2 (the “Act”) entered into effect today. The amendment has added a new category of persons who may ask the state for compensation, to wit, certain members (shareholders) of limited liability companies.
The Act has hitherto only allowed self-employed persons (“SEPs”) to ask the state for assistance; however, it has not applied to small entrepreneurs harmed by the coronavirus who chose to pursue their business activity in the form of a limited liability company (“Company“), even though in practice their activities do not significantly differ from the activities of SEPs, and at the same time such activities are typically the sole source of their income (as is the case with SEPs).
Therefore, the amendment to the Act has added a new category of recipients of the compensation bonus – shareholders of Companies who have lost their economic activity, or whose economic activity has been significantly impaired (above the usual level), as a result of the crisis measures adopted, whether due to complete shutdown of the Company’s business establishment or restriction of its operations, or due to placing the shareholder or an employee in quarantine, the shareholder’s or employee’s need to take care of a child, limited demand for the Company’s products, services or other deliverables, or reduction or termination of supplies or services necessary for the performance of the Company’s business.
It is necessary to point out in this context, however, that for the purposes of eligibility for the compensation bonus, the Act requires fulfilment of a number of cumulative conditions (as described in detail below in this article), applying both to the shareholder and to the Company as a whole.
The bonus applies solely to a shareholder of a Company incorporated for profit who is a natural person. This limitation is intended to prevent abuses in the form of unjustified receipt of the compensation bonus by a shareholder – legal entity that is merely an empty shell and/or which could be subsequently wound up.
Another mandatory condition is the status of shareholder of the Company, whereas the compensation bonus can only be granted to a shareholder in a Company that has a sole shareholder or two shareholders at most. The purpose of this limiting criterion is to target only those shareholders of Companies who are in a similar position to SEPs. Therefore, the Act stipulates the maximum number of shareholders of the Company, while the number of the Company’s employees is irrelevant.
Family businesses, however, constitute an exception to this rule. Where all shareholders are members of the same family, the statutory limitation of the number of shareholders does not apply to that Company. For the sake of completeness, members of the same family for the purposes of the Act mean all direct relatives, siblings, spouse, or partner under the relevant registered partnership act. This list is to a certain extent inspired by the definition of “close person” in Section 22 of the Civil Code, but is somewhat narrower and it does not apply to persons who permanently live together.
All of the cases mentioned above are further subject to the condition that the shareholder’s share in the Company is not substituted by a common certificate.
As far as the fulfilment of the conditions of eligibility for the compensation bonus is concerned, this is always assessed in relation to a particular day of the bonus period (i.e. from 12 March to 30 April 2020 for the first bonus period; and from 1 May to 8 June 2020 for the second bonus period) in respect of which the bonus is claimed. While the shareholder of the Company is required to comply with some of the conditions for the entire period (e.g., being a shareholder as of the relevant date of 12 March 2020), other conditions are defined so that in practice they may only be fulfilled on some days of the bonus period, while they need not be fulfilled on other days.
Additional conditions for granting the bonus include the time test and the income test, ensuring that the Company has been in continued existence for a certain period of time, generating relevant income. Apart from that, the shareholder and the Company must prove their tax residence as of the date of declaration of the state of emergency (12 March 2020) as well as in the course of receiving the bonus.
Hence, a shareholder will only be eligible for the bonus subject to the following statutory conditions:
Status of shareholder (natural person) while:
Time test:
Income test:
Tax residence of the shareholder and of the Company (as of 12 March 2020):
Eligibility for the bonus does not apply to shareholders of Companies:
If a natural person is a shareholder in multiple Companies, such person may only become eligible for the compensation bonus once for a particular calendar day. Hence, the shareholder may only claim the compensation bonus in respect of one Company, while the conditions of eligibility for the compensation bonus will be assessed exclusively in relation to that particular company. Any failure, as the case may be, of those conditions by another company of which the same natural person is a shareholder would thus be irrelevant, and the tax authority should not take it into account in the context of granting the compensation bonus.
If the shareholder claims the compensation bonus for multiple companies (for each of them for different calendar days within the bonus period), he/she is obliged to identify all those companies in relation to the relevant extent of the claim.
Eligible applicants may receive a bonus of CZK 500 per day retroactively for the first bonus period from 12 March to 30 April 2020 and for the second bonus period from 1 May to 8 June 2020. The maximum bonus a shareholder can apply for is CZK 44,500. If emergency measures are further extended, the Act envisages a third bonus period from 9 June to 31 August 2020, with shareholders being entitled to the bonus for days in which their Company’s operations have been restricted in full or in part.
The shareholder’s bonus entitlement arises only if the aforementioned statutory conditions have been met. The shareholder may apply for the bonus using a form on the website of the tax administration, along with a signed affidavit confirming that the bonus entitlement conditions have been fulfilled. A separate application is to be submitted for each bonus period no later than 60 days from the last day of the given bonus period.
The shareholder may not simultaneously receive the bonus andunemployment benefits, aid provided within the Antivirus scheme due to the shareholder’s employment with the Company or the compensation bonus for SEPs.
On the other hand, it is irrelevant whether the shareholder has an employment (e.g. accountant) or different relationship (e.g. executive director) to their own Company. The shareholder may not, however, claim the bonus and, at the same time, the Antivirus benefit as the Company’s employee for the same days. Nonetheless, a shareholder having claimed the Antivirus benefit only for a part of the bonus period may apply for the bonus for the remaining days.
Shareholders are not entitled to the bonus if they fall within the sickness insurance scheme as employees at a company other than theirs, or if their income based on an agreement for work or an agreement to complete a job exceeds CZK 3,000 or CZK 10,000, respectively.
If the tax authority discovers in a procedure to remove doubts or during a tax inspection that the conditions for the bonus have not been met and the bonus has not been calculated in the correct amount, the authority will assess an additional tax amounting to the difference between the calculated bonus and the new amount.
If the shareholder finds out ex post to have claimed the bonus without being entitled to it or that the amount the shareholder applied for was not right, the shareholder should notify such fact to the tax authority where the application was submitted.
In both cases mentioned above, the shareholder must further return the bonus that he/she was ineligible to apply for, and, at the same time, pay late payment interest (15% p.a.) for the period starting on the day of the unlawful bonus payment until the date of its return.
In this respect, we recommend that the shareholder keep all documents proving that he/she has been affected by the emergency measures and the Company’s operations have been indeed restricted, in particular if the shareholder applies for the bonus due to a decreased input or a decreased demand for the Company’s products or services, etc. We also recommend that the shareholder should archive all relevant written communication with suppliers or customers, minutes from any possible meetings, and keep accurate records of the reduced revenues.
“We keep track of new trends and get inspired by the best international law firms, global consulting firms and private banks. This also applies to digitisation, which has gained pace in connection with the crisis,” says Jaroslav Havel, the firm’s founder and managing partner. “But even before the crisis, we agreed with Sandra and Miroslav to cooperate in the implementation and further development of our group’s digital strategy. I see marketing and other related activities as an important and integral part of the success of any company. Since the beginning, my partners and I have built this firm as a strong and dynamic company, where we were not afraid to invest much more effort and resources in marketing than was then usual in the Czech Republic and Slovakia. Our extraordinary growth has confirmed that we have made good investments. An enormous advantage now is our size that allows us to do marketing at the top international level with our own internal team. This now also applies to the implementation of our digital strategy, the first results of which we are already seeing in the transformation of the economy since March 2020,” adds Jaroslav Havel.
Sandra Matušková graduated in media communication from Jan Amos Komenský University in Prague. In more than ten years of her practice in online marketing, she worked, for example, at H1.cz and as a Programmatic Consultant at Adexpres. As a member of the marketing team, Sandra will be responsible for all matters relating to online marketing, including the development of social networks and the blog, website optimisation and other activities strengthening the HAVEL & PARTNERS brand.
Miroslav Hyrman graduated in political science and international relations from the CERVO Institute. Before joining HAVEL & PARTNERS, he worked at Allan S. Lolly & Associates APC in the United States and mentored several startups, including for Microsoft. As a member of the the marketing team, he will be primarily in charge of data analytics, including market analyses, business reporting and will also be responsible for the further development of the CRM system.
HAVEL & PARTNERS, as a subcontractor to Binder Grösswang, advised BEXITY GmbH and its holding company, Mutares SE & Co., on the Czech legal and transactional aspects of the sale of 100% shares in a Czech subsidiary, European Contract Logistics (“EC Logistics”). EC Logistics was sold to its managing director and CEO, Mr Roman Goeroj, in a management buy-out deal. The M&A legal team, led by Pavel Němeček (Partner), was comprised of Tomáš Navrátil (Senior Associate) and Josef Bouchal (Junior Associate); tax-related matters were handled during the entire process by Josef Žaloudek (Counsel).
EC Logistics is a global provider of international road, aviation and maritime transportation. Established in 1991 and based in Prague, Czech Republic, the company offers comprehensive services for the automotive, high-tech, pharmaceutical, chemical and food industries. Mutares acquired the company in November 2019 as part of acquisition of the BEXITY group, an Austrian leader in cross-border transportation and logistics services. EC Logistic, with 51 employees, generated a turnover of EUR 10 million in 2019. The parties have decided not to disclose the value of the transaction.
Advice on the Austrian legal aspects of the transaction was rendered to BEXITY GmbH by Binder Grösswang, whose team, led by Thomas Schirmer (Partner) and Wolfgang Guggenberger (Senior Associate), was responsible in respect of the sale of EC Logistics for matters under Austrian corporate and M&A law; Clemens Wilfonseder (Senior Associate) handled transactional aspects under Austrian tax law.
Authors: Ondřej Florián, Soňa Karbanová, Kamil Kovaříček
In the previous two parts of the series dedicated to the duties of governing bodies we addressed (i) the general duties imposed on governing bodies in any circumstances and (ii) the specific limitations and duties arising mainly from the loyalty standard that a governing body must comply with.
In this third part we will focus on some aspects of profit distribution and the consequent invalidity of resolutions of a general meeting. There is no doubt that even the extraordinary circumstances resulting from the current COVID-19 pandemic can prevent the upcoming season of general meetings and approvals for financial statements and profit distribution. With the very uncertain economic future, various efforts towards maximum monetisation of shareholdings in companies can be more than ever expected this year from different undertakings (whether minority or majority shareholders or creditors); a governing body will have to keep these conflicts of interest under control and ultimately resolve them. It is certainly not possible to make the direct conclusion that a governing body must automatically obey the supreme body and pay a profit share (or even an advance about which the body alone decides). On the other hand, the opposite extreme cannot be automatically accepted either.Below is a concise summary of the basic duties imposed in this respect on governing bodies by legislation and case-law.
It is certainly nothing new that several basic steps need to be taken to achieve the objective of profit distribution:
1. The first step – compiling financial statements – is more of a technical nature and will generally depend on the general duties mentioned in the previous parts – i.e. the duty to identify situations in which a governing body should require professional assistance, and the related duties in delegating powers to other persons (choice of the person, necessary governance and assistance and adequate checking of the execution).
2. Creating a profit distribution proposal (typically as a part of an invitation to the general meeting) is, however, a duty that will probably be fully the responsibility of a governing body. The case-law of courts of all instances often reminds us that compiling a profit distribution proposal may not be an easy thing to do at all. In fact, already since 2014, the Supreme Court has been maintaining that the right for a share in profit is one of the basic shareholder rights and a decision not to distribute any profit is possible only on exceptional material grounds (27 Cdo 3885/2017).
A governing body should also proceed in line with this conclusion in drafting a proposal for the distribution of profit or settlement of loss. For this purpose the Supreme Court defined in its case-law a “proportionality test” that every such ground for non-distribution of profit must pass in order to avoid deficiencies of the subsequent resolution. But the courts may not accept even a general reference to the need for a capital reserve due to estimated higher future costs (such as investments) or lower income as a material ground. We believe that not even a general reference to the situation connected with the COVID-19 pandemic may be necessarily sufficient and serve alone as an exceptional material ground for the non-distribution of profit. In contrast, if a governing body reaches the conclusion that profit should not be distributed, the argumentation stated in the proposed resolution forming part of an invitation to a general meeting should include further important and significant facts justifying such a conclusion.
Not only may the violation of these rules entail a breach of due managerial care, but it may also create a shareholder’s right for damages and for adequate compensation. In the case of some companies, the duty to have such a proposal approved in the internal approval system by other bodies also comes into play (depending on the legal form of the company and the founding legal act).
We would like to remind you of the frequently omitted duty pursuant to Section 66(c) of the Act on Public Registers and the Trust Register to file a proposal for the distribution of profit in the Collection of Deeds unless the proposal forms part of the financial statements.
3. In connection with another step – approval of financial statements – we have informed you previously that Lex Covid extended the time-limit for discussing the financial statements. While the standard time-limit for discussing financial statements at the general meeting is 6 months from the end of the relevant accounting period, moving forward the time-limit will be extended by 3 months from the date when the pandemic emergency measure is lifted. However, the latest date for discussing the financial statements is 31 December 2020. That said, this does not change at all the fact that the approved financial statements are a necessary prerequisite for the possibility to adopt a decision on the distribution of profit.
4. On the basis of the approved financial statements it is possible to subsequently decide on the distribution of profit. A majority of all present votes at a quorate general meeting suffices to adopt a resolution.
5.–6. But the work of a governing body does not end at this point. A governing body is authorised to decide on the payment of profit to shareholders, which may be done only upon the completion of an insolvency test. Naturally, for the insolvency test the standard of managerial care will be used again and the previously mentioned duty to recognise a need for professional assistance again becomes important. To make the payment of profit possible, it must follow from the insolvency test that the company will not cause bankruptcy to itself by the profit payment.
7. In connection with the profit payment it is necessary to keep in mind that for a joint stock company and a limited liability company profit is payable within 3 months from the adoption of a decision on its distribution unless otherwise provided for by the founding legal act. Companies distribute profit at their own expense and risk.
In the case of payment of profit advances, please note that profit advance payments are made on the basis of interim financial statements and that it only requires a favourable decision of the governing body. But it will still be very important to consider this decision, taking into account all aspects of due managerial care, as the payment of advances is to be made completely without the involvement of the general meeting (in many cases concern instructions discussed in the previous part will probably play an important role).
After the wave of general meetings fades away, another wave usually comes immediately – proposals for declaring the invalidity of resolutions adopted at these general meetings. In our opinion, this year will not be different. In contrast, as already mentioned above, it can be expected that all undertakings will try to cash out their shareholdings in companies, irrespective of their interests. Thus, it is not certain whether a particular person will attempt to take as conservative approach to the distribution of profit as possible, or whether they will aim to achieve the highest possible cash-out in the form of profit payment. It cannot be excluded that some persons will try to get rid of their shareholdings in companies, while manifesting such intent by various vexatious exercises of rights. However, it is for certain that if a general meeting decides contrary to their interests, the easiest way of reversing the situation is challenging the given resolution for its defects.
It seems that in its most recent case-law the Supreme Court has moderated these opposing tendencies to a certain extent. In its recent ruling (27 Cdo 787/2018), the Supreme Court states that a company’s interest in the stability of its internal relations is an interest that is worth legal protection. In many cases, breaches of legal regulations, the Memorandum of Association or principles of ethical behaviour may not have legal consequences that are serious enough to justify as substantial an intervention in the company’s relations as declaring a decision of its body invalid. A sanction in the form of declaring a general meeting resolution invalid must be commensurate with the gravity of the consequences caused by the breach of legal regulations, the Memorandum of Association or principles of ethical behaviour as well as the purpose of the legal regulation addressing the invalidity of the general meeting resolutions. This means that if there are no special circumstances justifying the declaration of the invalidity of a general meeting resolution, despite that the breach of legal regulations, the Memorandum of Association or principles of ethical behaviour did not have any serious legal consequences, there will always be a company’s interest in the court’s declaring a decision invalid. In the proceedings concerned, it is thus necessary to prove the serious legal consequences caused by adopting a given decision or special circumstances that overweigh the company’s interest in preserving its internal relations.
The Supreme Court also continues to require justification of protests that are a necessary prerequisite for commencing proceedings to declare the invalidity of general meeting resolutions, for which a general reference to a breach of legal regulations is not sufficient. Thus, even in this case, seeking professional legal assistance should be considered.
Last but not least we would like to remind you that Lex Covid made it possible to adopt decisions without calling a general meeting (per rollam) also in cases in which the Memorandum of Association does not allow adopting decisions in this manner. Thus, the shareholders need not necessarily meet physically and distance voting suffices.
Our corporate team remains at your disposal to analyse specific cases. As the situation of each individual company needs to be considered on an individual basis, a more detailed legal analysis may help a governing body and provide it with a means of protection against shareholders or creditors.
HAVEL & PARTNERS, the largest Czech and Slovak law firm, scooped the award for Best Client Service for 2020 at the 8th year of the Law Firm of the Year awards in Slovakia. The law firm also won in the Mergers & Acquisitions category as well as in the Energy and Energy Projects category. In all other categories, HAVEL & PARTNERS ranked among the best and highly recommended offices, thus confirming its exceptional position in the Slovak and Czech legal market that is unique within Europe. HAVEL & PARTNERS remains the most successful and all-encompassing legal practice in both the Czech Republic and Slovakia
“The award for Best Client Service, which reflects the satisfaction of our clients, is the most important award for us and a message that our clients are particularly satisfied with our legal and tax services. It is also recognition of our lawyers’ excellent expertise, strong commitment and willingness to help under any circumstances. I trust that we are still a support to our clients in these times of the pandemic crisis and that our flexibility, professionalism and loyalty enable us to deal with it including all of its consequences”, said Jaroslav Havel, the firm’s founder and managing partner. HAVEL & PARTNERS is also regularly awarded for client satisfaction in the Law Firm of the Year competition in the Czech Republic. And this year, the firm has notched up another success on the international stage. The UK’s prestigious rating agency Chambers & Partners recognised HAVEL & PARTNERS as the best law firm in the Czech Republic in the Chambers Europe Awards.
For more than 10 years, HAVEL & PARTNERS has been the leader in the market for legal services in mergers, acquisitions, divestitures and restructuring in Slovakia, the Czech Republic and the whole of central Europe. The victory in the Mergers & Acquisitions category is a result of the firm’s systematically developed know-how in transactional advice, which has been its focus since 2001. With a unique network of contacts, the largest M&A team in central Europe, which is comprised of 80 lawyers and 16 partners, and cross-border transactions in dozens of countries all over the world, the firm conducted more than 700 transactions with a value exceeding CZK 700 bln. in the last 15 years. “We won the M&A category in last year’s Czech Law Firm of the Year Competition as well. The triumph achieved in M&A in both countries at the same time is a unique success and recognition of our firm’s increasingly stronger position in the Slovak market. This is also evidenced by a more than 20% year-or-year increase in sales in Slovakia reported for a second consecutive year. Since the establishment of our firm, mergers and acquisitions have been a key area of our focus that has brought us major clients and helped us become the largest independent law firm in central Europe,” said Jaroslav Havel, the firm’s managing partner. “I would like to express my thanks to the increasing number of our clients for their trust with which they contact us,” said Václav Audes, M&A Partner.
The award in the Energy and Energy Projects category was won by HAVEL & PARTNERS for the first time. “Last year, the power industry was one of the fastest growing specialisations of our firm in Slovakia. This was also due to our participation in several exceptional projects for clients operating in this industry. The extensive know-how and experience of the large team comprising Czech and Slovak colleagues specialising in M&A, public sector, including public procurement, competition, project financing and contract drafting and negotiating are an enormous advantage for energy, water management and environmental issues as well,” added Ondřej Majer.
According to the total number of nominations and awards received in all years of the Law Firm of the Year awards, HAVEL & PARTNERS continues to be the most successful and comprehensive legal practice in the Czech Republic and Slovakia. ”These excellent results are proof of our versatility and the top quality of all of our specialised teams. We advise our clients on all areas of their business and private life. And during the current pandemic, we try to assist them using a wide range of above-standard services. We have also formed a specialised practice group that is in charge of advice and services focused on the measures and legislative amendments adopted in connection with the pandemic. At the same time, we have increased the volume of pro bono work, with priority given to pandemic-related legal services provided free of charge,” said Jaroslav Havel, summarising the overall results and the firm’s further development.The Law Firm of the Year is a prestigious professional competition assessing the quality of legal services offered by law firms operating in the Czech Republic and Slovakia. Organised by the publishing house EPRAVO Group, s.r.o., the awards were launched in the Czech Republic in 2008. Since 2013, the competition has been organised in Slovakia in cooperation with the TREND weekly. More details about the awards are available here.
Authors: David Krch, Josef Žaloudek
Dear Clients and Business Friends,
We follow up on our previous article on the compensation bonus for self-employed persons (“SEPs”), in which we informed you about its rules in the form of questions and answers. We are now bringing you several updates, which are based on the already approved amendment to Act No. 159/2020 Sb., on the Compensation Bonus in Connection with Crisis Measures Associated with the Occurrence of Coronavirus SARS CoV-2:
The explanatory memorandum to the above amendment has then specified the intention of the legislators regarding some ambiguities of interpretation:
In view of the above, we therefore recommend that you file all documentation proving entitlement to the compensation bonus, as this aid is administered as a tax under the Tax Procedure Code and may therefore be subject to a tax audit in the next three years. In tax proceedings, the taxpayer must then bear not only the burden of allegation, but mainly the burden of proof.
The largest Czech-Slovak law firm HAVEL & PARTNERS won the prestigious Czech Business Superbrands award for 2020, following up on its success in 2014–2016 and 2019. It was the only Czech law firm in the Czech Republic to have been recognised as a brand with excellent reputation linked with what the customers claim to be significant values they personally relate to. The title is awarded in nearly 90 states on five continents on the basis of uniform criteria and methods set by the Superbrands organisation.
“We are glad that in 2020, apart from winning the Chambers Europe Awards, the most prestigious international award for law firms, we managed to succeed in a purely business rating in which a jury assesses individual brands on the basis of criteria such as brand awareness, branding, innovation and prestige. Building the excellent reputation of a brand is a continuous, long-term and never-ending process. Therefore, we would like to thank the whole HAVEL & PARTNERS team for contributing their share to the good reputation of our brand thanks to their commitment, loyalty and team spirit. We would also like to thank our clients who are also often respected leaders and winners of this award in their respective fields. Our cooperation with them is inspiring and keeps us moving forward along the line of our motto ‘connected through success’”, Jaroslav Havel, the founder and the managing partner of the law firm, commented on the awarded title for the best Czech brand.
The rating of the best brands in the Czech Republic carried out by the most prominent independent global authority in business brand rating and evaluation has been in place since 2013. For nominations of relevant brands, the organisers first go to the database of all registered business trademark brands released by the Czech Industrial Property Office. Nominees are then selected based on business results generated by Superbrands along with Bisnode, a business data specialist. The final selection of the Superbrands winner for the year is then made by a committee of experts comprised of renowned business, communication, marketing, media and marketing research professionals.
The winner of the 11th Act of the Year survey is the Right to Digital Services Act (“Act”), which will, in many respects, simplify the communication between companies and citizens on the one side and authorities on the other side. The legislation, which is also called the “Digital Constitution”, has been prepared with the legislative participation of the HAVEL & PARTNERS team headed by František Korbel, the firm’s partner, a member of the Legislative Council of the Government and a former legislative Deputy Minister of Justice of the Czech Republic.
“Thanks to the excellent digitisation expertise and unique know-how that we have at HAVEL & PARTNERS, we have gained the opportunity to participate jointly with the ICT Union in the preparation of the bill. My colleagues and I very much appreciate this opportunity and we are happy that the Act of the Year award has been won by a piece of legislation that is expected to fuel a digitisation boom in public administration from the start of next year and take the Czech Republic from the lower ranks in ratings assessing the level of digital advancement and eGovernment digitisation,” adds František Korbel regarding the work on the bill.
The Act introduces a catalogue of all services for citizens, including a clear deadline and method of digitisation for each service. It also deals with data transfers among authorities – the same information will no longer need to be stated repeatedly at each office and will be pre-entered automatically in online forms. The Act also supports the use of open formats or specifies the use of cloud services that may bring considerable savings in hardware costs.
The Act of the Year is a joint project of businesses, associations and other entities engaged in the quality of business regulation in the Czech Republic. The survey is organised by Deloitte Legal and the patronage of the project is regularly assumed by the Czech Bar Association, the Chamber of Commerce of the Czech Republic and the Czech Chamber of Tax Advisers. More details about the project are available here.
Authors: Jan Koval, Robert Porubský, Ivo Skolil
On 27 April 2020, the government approved a draft amendment to the Act on Promoted Energy Sources (Act No. 165/2012 Sb.) (the “Amendment”). Among other things, the Amendment regulates the limits for proportionate aid for power generated in photovoltaic power plants (“PPPs”) put into operation between 1 January 2006 and 31 December 2015 (i.e. the majority of producers of electricity from PPPs in the Czech Republic). The Amendment is scheduled to come into effect on 1 January 2021.
Originally, the level of proportionality of the internal rate of return (the “IRR”) was set at 8.4% (in the Czech Republic, the actual rate is estimated to oscillate between 4% and 12% in individual PPPs). After a certain time, however, the level was reduced by 25% to the final 6.3%, i.e. the lowest level possible for the proportionality of the operating aid pursuant to the decision of the European Commission. The government has declared its objective to restrict further expenditures on operating aid (i.e. to the detriment of the existing PPPs operators) and to make PPPs compete for the operating aid in scheduled auctions to the maximum degree possible. That means a shift from general operating aid to PPPs to aid won by individual PPPs producers in auctions.
The amendment implies that the proportionality of the operating aid for the PPPs will be reviewed in individual sectors. Where the statutory IRR limits are found to have been exceeded, it could imply excessive aid. That could lead to a general decrease of the purchase prices (as set by the Price Decision set by the Energy Regulatory Office). Such decrease could, however, be insufficient, and therefore the Amendment provides for the possibility to withdraw the entitlement for operating aid for PPPs in individual cases in the future or to make PPPs return excessively drawn operating aid funds.
The draft amendment is now heading to debate in the Parliament. If it is passed and comes into effect in the current wording, some producers of power from PPPs could face a significant decline in their revenues, putting at risk the fulfilment of their obligations, e.g. from credit financing, and a drop in the value of the collateral provided. We will keep monitoring future developments.
Authors: Ondřej Florián, Soňa Karbanová, Kamil Kovaříček
In the previous part we covered the main principles of the functioning of a governing body that should provide the basis for all its steps. This time we will present you with specific duties in the context of the current extraordinary situation and focus on specific questions that may be currently important. We will primarily expand on the loyalty duty, which we covered in the previous part. Below you can find information about the possibility of resigning from an office, the duty to call a general meeting and the question of concern instructions.
For very busy managers we have prepared a short summary in bold, nevertheless, we strongly recommend reading the whole article:
The exceptionality of the coronavirus pandemic as a challenge never faced before by governing bodies in the Czech Republic may give rise to further duties that should not be overlooked by members of a governing body. In imposing different duties the lawmaker often uses concepts such as “inappropriate time” or “important / serious” reasons. But the global pandemic may often match these concepts.
In the last part of this series we discussed the so called duty of loyalty of a governing body member. This duty takes various forms, some of which become important at the moment. For example, the law prohibits a member of a company’s governing body from resigning from their office in a time that is inappropriate for the company. We believe that a state of emergency and the overall uncertainty on most markets in all business sectors are situations that can be by rule understood as a time that is inappropriate for leaving the office of a governing body member. However, such a situation also requires an assessment on an individual basis with respect to every business company.
Furthermore, the law imposes a duty on a governing body to call a general meeting in a situation when the company is threatened by bankruptcy or if there are other reasons, in particular if the goal pursued by the company is threatened. Even in this case, we believe that the current crisis will in principle fulfil these conditions. Most likely, for a majority of companies the current situation can be regarded as a serious reason threatening their existence, as it can be presumed that for a company serious reasons of this type include e.g. the inability of an important business partner to pay their liabilities, the inability to pay a major part of its own liabilities due to limitations of production, a considerable drop in demand or in a situation when the whole business sector in which the company operates is badly affected. Even for the sole reason of protecting members of governing bodies, considering convocation of a general meeting can be indeed recommended (with particular regard to the specific situation of each individual company).
But the duty of a member of a governing body is not limited to calling a general meeting only. At the general meeting the governing body must either propose winding up the company (in an extreme case) or other suitable measures. The form of a suitable measure depends on how serious the situation is that caused a crisis to the company. Thus, these measures will range from the submission of a rescue plan explaining to the shareholders how the company will overcome this difficult period, to the fulfilment of duties imposed mainly by the insolvency act (typically filing an insolvency petition, non-disadvantaging creditors, etc.).
As mentioned in the previous part, the loyalty duty is embodied also in the basic principle that in decision-making a member of a governing body must prioritise the interests of the company over their own interests or interests of third parties, including shareholders. This duty should be certainly reflected in the proposed measures (similarly as in all acts of a governing body) and it certainly should not be primarily a recovery plan in relation to shareholders or the member of a governing body him/herself.
In some cases, however, the loyalty duty may modify from loyalty to a company to loyalty to a concern. This typically occurs in the execution of so called concern instructions. As a general rule no one is authorised to give a governing body instructions relating to business management. Business management is the sole responsibility of the governing body. While a governing body may ask the general meeting to grant such an instruction, it is still not released from its duty to act with due managerial care. A request for an instruction is a tool for the selection of the most suitable option from several alternatives. Shareholders may help with the choice, but the governing body must present them with specific alternatives cautiously prepared with due managerial care.
Regarding the giving of instructions, the situation is different in the case of concern groupings. A body of a controlling person may give instructions regarding business management to bodies of a controlled person if such instructions are in the interest of the controlling person or a person that is also a part of the concern. A governing body of a controlled person is not released from the duty to act with due managerial care; however, in certain circumstances it may be released from liability for harm caused by the company. These are situations when the governing body proves that it could not reasonably presume that harm was caused to the company due to influence of the controlling person in the interest of the concern and would be compensated within a reasonable period within the concern by providing consideration or other provable advantages to the controlled person thanks to its membership in the concern. These concern advantages can be used only by members of a declared concern. As a matter of fact, a member of a grouping must publish the existence of a concern on its web pages; otherwise it is not possible to proceed in accordance with the above procedure.
Thus, in this respect a simple procedure can be provided to a corporate body for receiving a concern instruction and for assessing whether such an instruction can be executed or not. The respective steps are sequential; however, for each step a given instruction must be considered with due managerial care (please note that every individual situation may be different).
Please also note that in the case of some instructions other company’s bodies that should play a supervisory role can be involved in the whole procedure (typically the supervisory board). Please note that the controlling person may also be obligated to compensate damage caused, but the controlling person may be released from this obligation subject to compliance with certain criteria.
We hope that members of governing bodies will find this brief summary helpful and that it will provide them with a general idea about the new duties. However, the list of these duties may not be exhaustive. In this part of the series we attempted to outline the influence of the loyalty duty during the coronavirus pandemic. In the next part we will focus primarily on the distribution of equity (in particular profit) from a company that is also very closely related to due managerial care.
Our corporate team remains fully ready to aid you in any situation so that we could jointly handle this crisis.
