Czech Republic: LEX COVID and changes to corporate law

GENERAL OVERVIEW OF THE CORONAVIRUS PANDEMIC AND NEW MEASURES ADOPTED

The Czech Republic remains among the countries in which daily life has been considerably disrupted not only by the occurrence of COVID-19, but in particular by the crisis measures adopted by public authorities to prevent the further spread of the disease. Among such measures is a newly adopted bill by the Parliament called LEX COVID, which will come into effect upon being signed by the President and subsequent publication in the Collection of Laws, and which tackles, amongst others, issues connected with the operation of corporate bodies of legal entities during the COVID-19 pandemic (although no later than 31 December 2020).

DECISIONS OF CORPORATE BODIES OR ITS MEETINGS

Although many companies have had to shut-down their business operations, it is still necessary to ensure their proper corporate functioning, which includes adopting decisions via their corporate bodies.

Act No. 90/2012 Coll., on Business Corporations ("BCA") generally stipulates that the options of making decisions outside the general meeting in writing ("per rollam") or by using technical means must be permitted in the company's constitutional document. However, due to the measures taken to avoid the further spread of the novel coronavirus, the gathering of members of corporate bodies may be problematic and not every company had previously incorporated such provisions into its constitutional documents.

Therefore, LEX COVID aims at permitting per rollam decision-making or decision-making by using technical means (such as videoconferences via Skype or Webex, teleconferences, e-mails with verified signatures, etc.) even if not previously permitted in the constitutional document of the respective company. LEX COVID will also apply to cases in which the decision-making by using technical means was convened or per rollam decision-making was initiated on the day prior to the day the extraordinary pandemic measures ended.

If the company's constitutional document does not set out the conditions for per rollam decision-making or decision-making by using technical means and an applicable law does not provide for these conditions either (unlike per rollam decision-making, decision-making by using technical means is mostly unregulated by law), these conditions will be set out by the statutory body (e.g. board of directors or executive director) in relation to supreme corporate bodies (e.g. general meeting) or the corporate body itself in relation to other corporate bodies. These conditions need to be communicated to all the members of the corporate body well in advance.

AUTOMATIC EXTENSION OF THE TERM OF OFFICE OF A MEMBER OF AN ELECTED CORPORATE BODY

As stated above, adopting any decision within the meeting of a corporate body may be a complicated and lengthy process, even more so during these times.

It comes as no surprise then that legislators have devised a way to ease certain procedures that would otherwise be a burden on corporate bodies.

As of the day of effect of LEX COVID, a term of office of a member of an elected corporate body (e.g. board of directors, supervisory board) shall not expire during the effectiveness of extraordinary pandemic measures, but will be automatically extended until the lapse of three months following the end of the extraordinary pandemic measures, unless the officeholder disagrees. This extension will apply even if the term of office expires one month after the end of the extraordinary pandemic measures.

Furthermore, the term of office of a member of an elected corporate body which expired between the adoption of the extraordinary pandemic measures (i.e. 12 March 2020) and the effectiveness of LEX COVID, will be restored and automatically extended until the lapse of three months following the end of the extraordinary pandemic measures if the member delivers their consent to this restoration of office to the company and no new member has been elected instead.

CO-OPTATION OF SUBSTITUTE MEMBERS OF ELECTED CORPORATE BODIES

Decision-making outside the physical meeting of corporate bodies is not the only procedure being affected and loosened by LEX COVID.

The co-optation of substitute members (i.e. election of substitute members by other members of the same corporate body) has also been amended. Although the BCA generally mandates that the company's constitutional document must permit co-optation of substitute members of elected corporate bodies for it to take place, under LEX COVID such co-optation will be allowed if the number of members of the corporate body does not decrease below half, even if not set out in the company's constitutional document.

DEADLINES FOR DECISIONS ON ANNUAL FINANCIAL STATEMENTS

Lastly, LEX COVID extends the deadline for decisions on approval of ordinary (annual) financial statements in certain cases.

Generally, the BCA indicates that the ordinary financial statements are to be discussed (and approved) by the supreme bodies (e.g. general meeting, shareholders' meeting) of a private limited liability company, a joint-stock company or a cooperative no later than six months after the last day of the past accounting period (usually a calendar year).

However, due to the measures taken to combat the pandemic, it might be difficult to comply with such a deadline.

Therefore, LEX COVID stipulates that the deadline for a decision on the annual financial statements of a private limited liability company, a joint-stock company or a cooperative, ending less than three months after the end of the extraordinary pandemic measures will be automatically extended in order to end three months after the end of the extraordinary pandemic measures, but in any case no later than on 31 December 2020.