Summary of the recent legislative news for the Czech Republic

Legislative changes in the field of joint stock companies with a monistic structure

In less than six months, an extensive amendment to the Act No. 90/2012 Coll., on Commercial Companies and Cooperatives (Business Corporation Act) will come into effect that will significantly change the current concept of a monistic system of the internal structure of a joint-stock company. Currently the board of directors is established in such a system together with the statutory director, from 1 January 2021 the body of the statutory director will be abolished. Only the board of directors, which has three members, will be obligatorily established, unless the articles of association set otherwise. In this context, it is necessary to mention that the articles of association cannot introduce a total number of members of the board of directors of less than three. The only exception will be joint- stock companies with a single shareholder.

The board of directors will be responsible for both the company’s business management and the supervision of the company’s activities. A proper bookkeeping, submission of financial statements at the general meeting for their approval or proposals for profit distribution will be added to the function of the supervisory body. In exercising its powers, the board of directors will be bound by approved directions of the general meeting.

A chairman of the board of directors is also not envisaged. According to the legislator, the current legal regulation creates the false impression that the chairman of the board of directors is another obligatory body of the monistic system. Instead, the intention is to present the board of directors as a collective body, which will have all the management and control powers, following the European model, and at the same time to amend several current confusing aspects that currently concern monistic structures. Finally, for example, the provisions relating to the explicitly monistic structure of a public limited company will state that its members are elected and removed by the general meeting by default¹. The term of office of each member of the board of directors shall be three years, unless the articles of association or contract for performance of the function set otherwise.

The changes will take effect on 1 January 2021. According to the transitional provisions of the act, all provisions of the articles of association of joint-stock companies that will contradict the obligatory provisions of the amended law will lose its effect up to this day. The joint-stock companies are obliged to reflect these changes by adapting their articles of association and subsequently to file them in the collection of documents of the commercial register within 1 year, i.e. by 1 January 2022. However, we would recommend you do not wait unnecessarily and begin preparations for the inevitable changes of the articles of association and the staffing itself, in particular the emphasis on the new rights of the board of directors and the removal of the person of the statutory director, so as not to cast doubt on the real powers of the body during the transitional period.

Contemplated legislation changes – The Act on accelerating the construction of transport, water, energy and electronic communication infrastructure (The Line Act)

In order to accelerate the construction of transport, water, energy and electronic communication infrastructure, the Chambers of Deputies approved amendments to the Line Act. The purpose of the amendment is to reduce the timeframe necessary for the preparation of strategic infrastructure constructions. One of the instruments is to speed up gaining property rights which could not be secured by an agreement with the owner before commencement of a construction proceedings or consolidated proceedings. An eligible investor will be able, together with an application for a decision pursuant to the Building Act authorizing or permitting the construction of a highway, a class I road or the construction of a national railway or construction related thereto. Then apply to the building office responsible for conducting proceedings under the Building Act to issue an interim decision inhering in the withdrawal or restriction of the right of ownership or the right corresponding to an easement to the land or building. Experts opinion must be attached to the application. Suggested compensation must be in accordance with the expert opinion.

The amendment intends to push expropriation proceedings, sets specific terms and deadlines or simplifies current complex procedure. Further changes include:

• Location and permitting of a transport construction in one procedure with only one possible review has been reduced by up to three years;
• Implementation of a single binding opinion for construction projects for which an environmental impact assessment has been carried out has been reduced by up to one year;
• Implementation of fixed terms for issuing binding opinions of the authorities concerned issued during the zoning or construction procedure - maximum 30 days but in special cases 60 days;
• One expert opinion for several plots to assess the value of the plots, usable for a period of three years from its completion;
• Specific deadlines for expropriation offices - 60 days from the commencement of the proceedings of an oral hearing must be set, followed by a decision by the office within 30 days of the oral hearing.

The last development of this matter was on 23 July 2020 rejected by Senate with certain amendments and returned back to the Chamber of Deputies where it should undergo further negotiations in the second week in August. We will further monitor the results of the while process.

Cap on consumer loan sanctions

The amendment of the Act No. 257/2016 Coll. on consumer loans has been in effect since 24 April 2020, aiming for a limitation of the sanctions connected with loan default as one of the measures introduced to ease the adverse economic effects of the COVID-19 pandemic.

In case of a default longer than 90 days, the creditor is entitled only to an interest corresponding to the repo rate as announced by the Czech national bank (currently in the amount of 0.25%) increased by 8% per year, unless the interest rate set in the loan contract is below the latter interest rate.

This instrument preventing the endless increase of the interest and sanctions arising out of loans shall also be similarly applicable for self-employed persons. In addition to the above, the sum of all contractual penalties payable by self-employed persons and consumers may not exceed the product of 0.5)% and the total amount of the loan and the amount of 0.1% a day from the amount lent. However, the creditors are in relation to consumers, unlike the self-employed persons, also capped by a maximum of CZK 200,000 payable for contractual penalties.

The reasoning behind this amendment aims to restrict the room for actions of so called “predatory loan providers” as well as to eliminate the systemic risk of mass over-indebtedness in the economy resulting in the increased costs on insolvency and enforcement proceedings and subsequent social expenses.

¹There is an alternative option, where the company's articles of association stipulate that the right to appoint and remove a member (s) of the board of directors is associated with the share.