6th May 2020

Czech Republic & LEX COVID

2020 AGM Season and Corporate Governance

Annual Financial Statements of a limited liability company and a joint-stock company must be considered by the General Meeting within six months from the last day of the previous accounting period. A company's accounting period is usually the same as the calendar year, and therefore Financial Statements should be considered by 30 June of the following year.

The COVID-19 pandemic and related restrictions have severely affected the whole Czech Republic in recent weeks. Impacts related to restrictions on freedom of movement, travel, and gatherings have also affected companies, which are currently dealing with the issue of how to convene General Meetings in accordance with the restrictive measures and how to take key decisions. The Czech government has responded to this situation and prepared the draft Act on Certain Measures to Mitigate the Impact of the Coronavirus Epidemic (the so-called Lex Covid), also in the field of corporate law. Below we discuss some of the key changes introduced by Lex Covid, which has already been enacted and entered into force on 24 April 2020. 

These amendments are only temporary, in response to the emergency measures taken by the public authorities in the COVID-19 pandemic. The changes described below only apply during the emergency measures in the epidemic, due to which it is impossible or excessively difficult for corporate bodies to meet, but only up to 31 December 2020 (unless expressly stated otherwise). 

What specific changes does Lex Covid bring in terms of convening and decision-making of General Meetings and other corporate bodies?

Decision-making of Corporate Bodies

Even prior to the lockdown, it was possible for General Meetings and statutory or supervisory bodies of companies to adopt decisions remotely. These options include decision-making outside of the meeting in writing (so-called per rollam) or via appropriate technical means, such as video conferences and other means of distance communication. The rules of such corporate bodies' decision-making are generally stipulated in the Memorandum of Association, and to a certain extent in the Business Corporations Act ("BCA"). The BCA also provides general rules for per rollam decision-making for the limited liability companies and joint-stock companies. In practice, usually the person authorised to convene the General Meeting sends the proposal of the decision (the draft resolution) to the shareholders, the shareholders respond to the proposal within a specified period, and the convenor subsequently informs the shareholders of the outcome. 

While for a limited liability company, per rollam decision-making outside of the General Meeting is permitted by the BCA (provided it is not excluded by the Memorandum of Association), voting at the General Meeting or decision-making outside the General Meeting using the appropriate technical means must be expressly stipulated in the Memorandum of Association.

In case of joint-stock companies, both options, i.e. per rollam decision-making and voting, or decisionmaking using the appropriate technical means, must be permitted by the Memorandum of Association. 

As some companies do not currently have the possibility of remote decision-making for their corporate bodies stipulated in their Memorandum of Association, and therefore, they could be paralysed, Lex Covid allows corporate bodies to use per rollam decision-making or decision-making by the appropriate technical means even if it is not permitted by the Memorandum of Association. 

If the conditions of per rollam decision-making or use of the appropriate technical means are not provided either by the BCA or by the Memorandum of Association, they will be determined by the statutory body for the General Meeting, and by the corporate body itself in case of other corporate bodies (e.g. statutory or supervisory bodies). These conditions must be notified to the body members sufficiently in advance before the decision-making process (e.g. by e-mail), so that all members can properly prepare for the decisionmaking under the specified conditions.

If decision-making of the corporate body using the appropriate technical means is convened, or per rollam decision-making is initiated before the termination of the emergency measures in the epidemic, they will be completed under the conditions stipulated in Lex Covid.

Approval of the Annual Financial Statements 

As the statutory deadline for the consideration of the annual Financial Statements of most limited liability companies and joint-stock companies expires on 30 June 2020, and complying with this deadline might be problematic in the current situation, Lex Covid provides for an extension of this deadline. If the deadline should expire earlier than three months after the termination of the emergency measures in the epidemic, the period will be extended for three months from the date of termination of the emergency measures in the epidemic, but no longer than by 31 December 2020. However, such extension itself will not affect obligations arising from public law, such as the obligation to file a tax return.

Term of Office of the Appointed Bodies' Members

Lex Covid also provides a temporary extension of the term of office of appointed members of corporate bodies, i.e. typically statutory or supervisory bodies, whose term of office would otherwise expire during the emergency measures in the epidemic or within one month after their termination. The term of office of such members will be extended by three months from the date of the termination of emergency measures in the epidemic, provided that the respective member so agrees. The corporate body member should deliver his/her disapproval before the expiry of his/her term of office. It will also be possible to solve problems with the expiration of the term of office through a co-optation, even if the appointment of substitute members is not permitted by the Memorandum of Association. Cooptation means that the appointed body can appoint its substitute members until the next session of the body which is otherwise entitled to appoint such members (typically General Meeting), provided that the number of members has not decreased by more than one half. 

If the term of office of the member of the appointed body expires in the period between the day of adopting the emergency measures and the day of Lex Covid's entry into force, the membership will be restored, provided that such member agrees and no other member has been appointed to his/her position in the meantime. The term of the member of the appointed corporate body will be restored on the day of the receipt of the member's consent and will expire three months after the day following the termination of emergency measures.

Contact Us

Ivan Sagál Partner Tel: +420226030509 ivan.sagal@twobirds.com

Gabriela Škvareková Associate Tel: +420226030523 gabriela.skvarekova@twobirds.com

Kristýna Opolzerová Junior Associate Tel: +420226030502 kristyna.opolzerova@twobirds.com

Useful links:

Bird & Bird COVID-19 site

Bird & Bird Czech Republic COVID-19 site

Members of the American Chamber of Commerce in the Czech Republic