Czech Republic & LEX COVID & 2021 AGM Season and Corporate Governance

By Ivan Sagál, Gabriela Malá, Kristýna Opolzerová

04-2021

Updated as of 04-2021

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 epidemic and related restrictions have severely affected the whole Czech Republic. 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 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 amended several times to reflect the ongoing epidemic.

These amendments are only temporary, in response to the emergency measures taken by the public authorities in the COVID-19 epidemic. Most of the changes described below only applied during the emergency measures in the epidemic, due to which it was impossible or excessively difficult for corporate bodies to meet, but originally only up to 31 December 2020.

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 decision-making 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. The amended LEX COVID enables this option until 30 June 2021, irrespective of the duration of statutory emergency measures in the epidemic.

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 decision-making 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

The statutory deadline for the consideration of the annual Financial Statements of most limited liability companies and joint-stock companies expires on 30 June and complying with this deadline might be problematic in the current situation. Although LEX COVID provided for an extension of this deadline in 2020 to 31 December 2020, the deadline was not extended by the amended LEX COVID in 2021 for the Financial Statements for FY 2020. Companies should thus approve their Financial Statements for FY 2020 within the standard deadline, for instance by per rollam decision-making as described above.

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. Co-optation 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. 

AGM season in 2021 and beyond

In addition to coronavirus-related changes, General Meetings in 2021 and in subsequent years may also be affected by the new Beneficial Owners Register Act, which will come into force on 1 June 2021 and will bring material penalties for non-compliance.

If a company does not register its beneficial owner, the beneficial owner, and shareholders whose beneficial owner he/she is as well, will not be able to exercise their voting rights at the General Meeting. A shareholder that will not have its beneficial owner registered will not be able to exercise its voting rights at the General Meeting either.

Also, if a company does not register its beneficial owner, it will not be able to pay out dividends to its beneficial owner and to shareholders whose beneficial owner he/she is as well. It will not be possible to pay out dividend to a shareholder that will not have its beneficial owner registered either. If the dividend is not paid out by the end of the accounting year in which it was approved, the right thereto will cease to exist.

We therefore recommend registering the beneficial owner under the new regulation without undue delay.