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Commercial Register after the civil law recodification process in the Czech Republic – what cannot be missed!

Commercial Register after the civil law recodification process in the Czech Republic – what cannot be missed!

As of 1st January, 2014 the Commercial Register is regulated by a new single Act No. 304/2013 Coll., on public register of legal entities and individuals  (the “Public Registers’ Act”).

New legal regulation of the Czech Commercial Register in many aspects follows the previous regulation, however, it also introduces a number of different aspects and the aim of this article is to bring these up to your notice.

One of the most significant changes brought by the new legal regulation is tightening up the possible sanctions, which may be applied in case of breach of obligation to file certain documentation in the Collection of Deeds (sbírka listin), which is a part of the Czech Commercial Register.

The obligation to deposit certain documentation in the Collection of Deeds is not new and had been implemented also in the old legislation, including the possibility of the court administering the Commercial Register to impose sanctions for breaches of the obligation. However, the effect of the original legislation had not been so good as it shows that vast majority of entrepreneurs simply ignores this obligation and does not file any documentation (for example in 2010 81% of all registered entities did not file their financial statements and annual reports) .

The aim of the new legislation is therefore to make the registered entities to comply with the statutory obligations for filing documentation in Collection of Deeds and to achieve this is by tightening up the possible sanctions, which may be applied.

The Public Registers’ Act sets expressly which documents must be mandatorily deposited in the Collection of Deeds and imposes statutory obligations for the registered entities to deposit such documentation without any delay after the decisive day.

Documents which must be deposited in the Collection of Deeds include namely: constitutional and foundation documentation and any amendments thereof, articles of associations, corporate decisions on the recall/appointment of statutory bodies, annual reports, closing of accounts statements, decisions regarding profit distribution, etc.

Possible sanctions according the new legislation are as follows:

  • Financial fine up to the amount of CZK 100,000, (prior legislation had a limit up to CZK 20,000). The court may impose the fine if the registered entity will not file the mandatory documents even if it had been invited to do so by the court. The financial fine can be imposed repeatedly. On the other hand, the court also has an authority to remit the sanction at a later date.
  • Commencement of liquidation process of the registered entity, by means of court decision, in case the registered entity does not comply with obligations (notification for remedy) prescribed by Section 104 of the Public Registers’ Act repeatedly or if breach of such obligations can result in serious consequences to third parties and such party proves its legal interest in the liquidation. The court must notify the entity concerned prior to the decision on liquidation and must provide it with remedy period. As breach of notification with serious consequences to third parties is considered failure to deposit documentation listed in the Public Registers’ Act which include, inter alias, constitutional documentation, closing of accounts and annual reports of the registered entity.
  • The Public Registers’ Act sets also a legal premise by which a member of statutory body of an entity, which does not comply with the obligations prescribed by the Public Registers’ Act is in breach with his statutory duty to act with care of diligent manager. This can result in the obligation of the member of the statutory body to compensation of damages, or his recall form the office. This premise can be refuted by the member of the statutory body who will bear the burden of proof in this case.
  • The breach of the filing obligation is also considered to be administrative offence pursuant to Act No. 200/1990 Coll., Administrative Offence Act, for which the responsible individual may be awarded a financial sanction up to CZK 50,000 or may be granted a restrictive order by which he will be forbidden to carry out activities for a period up to one year.
  • Failure to publish the financial statements and closing of accounts report is also considered to be administrative tort pursuant to Act No. 563/1991 Coll., Accounting Act. For such tort the authorities may grant a financial fine up to the amount of 3% of the value of active part of the assets, which may have significant effect.
  • The most painful (although probably the least common) sanction can be imposed for the commitment of actual criminal offence – falsification of data concerning the economical standings pursuant to the Act No. 40/2009 Coll., Criminal Code, for which the liable party may face imprisonment up to 2 years or ban on activities. For criminal liability the law requires a willful conduct, which shows to be very difficult in practice to actually be able to prove. Also the breach must result in some limitation or threat to third party rights. The criminal liability lies with the members of the statutory body of the corporation.
  • Last, but not least, the entrepreneurs may also face criminal liability of the legal entity pursuant to the Act No. 418/2011 Coll., on the criminal liability of legal entities, as it refers to Section 254 of the Criminal Code and classifies the above action (falsification of data concerning the economical standings) as criminal conduct of persons acting on behalf of the relevant legal entity (members of statutory and controlling bodies, employees, etc.). This may result in liquidation of the legal entity, monetary sanctions with daily rate between CZK 1,000 and CZK 2,000,000 or ban of activities for a period between 1 to 20 years or other sanctions such as ban from public tenders, ban from receiving subventions or subsidies, etc.

The new legislation undoubtedly reflects the demands for bigger transparency of entities registered in the Czech Commercial Register, which the aim for the Commercial Register (together with its Collection of Deeds) is to serve as information system of public administration, source of information of creditors, shareholders and also general public. Therefore it is desirable that up-to-date information and data can be found there.

On the other hand, the statutory obligation to file documentation in the Collection of Deeds is legally uncomplicated and with respect to possible sanctions, which may be applied for its breach, it is highly recommended that entrepreneurs take this obligation into consideration and start to act in compliance with the new legal regulation, especially with the Public Registers’ Act.

By Michaela Fuchsová & Magda Stárková

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