In brief
Since 19 July 2024, companies operating in the Czech Republic have faced significant changes in their legal obligations when undergoing mergers, spin-offs and other transformations. The new legislation1 follows the EU Directive on cross-border conversions, mergers, and demergers. It aims to streamline the transformation process, reduce administrative costs and bureaucratic burdens.
Contents
- New transformation form
- Third country relocations
- Modification of creditor protection
- Simplification of appointing an expert
- Other changes
New transformation form
The newly implemented “division by separation” introduces the demerger of a portion of the assets and liabilities of a demerging company into one or more companies, which are or will become (as a result of the demerger) its direct subsidiaries.
The division by separation allows for the demerger into either (a) one or more newly established companies, which will be wholly owned by the demerging company, or (b) one or more existing companies, in exchange for the acquisition of a share in those companies by the demerging company.
The new form may serve as an effective tool for planning restructuring projects in the Czech Republic. It offers an alternative to in-kind contributions both within and outside the registered capital, and in some cases may even eliminate the need for a valuation otherwise necessitated by such contributions.
Third country relocations
It is now explicitly affirmed that corporations from third countries (i.e., non-EU and non-EEA countries) can relocate to the Czech Republic and vice versa.
The new legislation only includes general requirements for such relocations. For detailed rules, it mostly refers to the laws applicable to relocations within EU and EEA countries, which may cause certain issues that will have to be addressed in the transformation process.
Modification of creditor protection
There are significant changes in the disclosure requirements. Among others, the notice to creditors regarding the transformation does not need to be published in the Commercial Gazette under certain conditions (this obligation may be replaced by a simplified procedure).
Rights of creditors to request adequate safeguards only apply to receivables arising from relationships established prior to the disclosure of the draft transformation project, whether such receivables are actual, contingent or prospective.
The period within which a creditor may request adequate safeguards has been significantly reduced (from six to three months).
For a court to grant adequate safeguards, it is now sufficient for a creditor to credibly demonstrate that the satisfaction of the relevant receivable is at risk, without a need to prove it.
Additionally, the new legislation explicitly confirms that a creditor’s request will not prevent the registration or completion of the transformation.
Simplification of appointing an expert
Under the new legislation, if a valuation or review by an expert is required, it is no longer necessary to request a court to appoint the expert. Instead, the involved company may select an expert from the official list maintained by the Czech Ministry of Justice, streamlining the valuation or review process.
In certain situations, it is permissible to replace an expert valuation with a simplified procedure.
Other changes
The recent amendment introduces a comprehensive array of other major as well as minor changes. These include other significant modifications to disclosure requirements and greater involvement of notaries in the transformation process. Given these substantial changes, we strongly advise against relying on pre-amendment procedures. If you are considering a transformation, we recommend consulting a legal professional to navigate these new regulations effectively.
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Please contact us if you have any questions.
1.162/2024 Coll., Law of 29 May 2024, amending Act No. 125/2008 Coll., on transformations of commercial companies and cooperatives, as amended, and other related acts
