Private placement rules and law in the Czech Republic

1. Summary of private placement provisions for fund interests (if applicable)

Czech law distinguishes between private and public placements. In general, private placement provisions apply to funds of qualified investors or similar foreign funds. Other types of funds, including local special (non-UCITS) funds, are used for collective investment – i.e. for public placements.

A public placement is regulated by the Investment Companies and Investment Funds Act while any other means of public investment offering is not permitted. Both Czech and foreign investment funds must be registered in the list maintained by the Czech National Bank (the “CNB”) in order to be offered publicly (unless the fund is an UCITS fund, which can be offered publicly upon notification of the home state authority).

On the other hand, a private placement is generally an investment offering:

  1. to qualified investors (as specified below); or
  2. to other persons under conditions that such offering:
    • satisfies the conditions of the public offering, or
    • the investment instruments are offered to no more than 20 persons in a single offering.

Specific conditions apply in respect of a public placement of investments into foreign AIFs managed by foreign AIFM. Private placement is permitted to professional clients only upon a notification of a home member state authority. Private placement to investors other than qualified investors is permitted if the investment is offered to fewer than 20 persons that are non qualified investors or the investment satisfies conditions for a public offering. 

Private placement exemptions apply to qualified investors, and/ or professional clients (as the case may be). Qualified investors are defined as any of the following:

  1. institutional investors and other licensed financial services entities (e.g. banks, brokers, insurance companies, investment companies, investment funds, pension funds, securitisation entities);
  2. large entities holding certain amounts of assets or having certain levels of turnover;
  3. a manager of an investment fund;
  4. an entity directly subordinated to a governmental authority;
  5. a person or entity which submits a declaration on awareness of the risks connected with investment into the fund of qualified investors with a minimum investment in the fund of:
    • EUR 125,000; or
    • CZK 1 million (approx. EUR 40,000) while obtaining confirmation of administrator or manager of the fund of qualified investors issued based on the information from the investor that the investment meets the financial background, financial goals and experience of the investor. 
  6. a person or entity which is the founder or shareholder of a different fund of qualified investors which is managed by the same manager and administered by the same administrator having submitted a declaration on awareness of the risks connected with an investment into the fund of qualified investors with a minimum investment contribution in such funds in total of: 
  • EUR 125,000; or
  • CZK 1 million (approx. EUR 40,000) while obtaining confirmation of manager or administrator of the fund of qualified investors issued based on the information from the investor that the investment meets the financial background, financial goals and experience of the investor. 

Professional clients are institutional investors, other large entities holding certain amounts of assets or having certain levels of turnover, or clients that required to be considered professional and meet certain additional criteria.

2. Other forms of possible placement options for fund interests outside fund regulations

Reverse solicitation is allowed. The Investment Companies and Investment Funds Act expressly sets out that reverse solicitation is not considered to constitute a form of placement (offering of investment), i.e. it is not subject to provisions of the Act regulating the placement. 

Above-threshold EEA AIFMs may commence pre marketing AIFs which are not yet established or established but not yet compliant with the applicable marketing procedures, to potential professional investors in the Czech Republic, provided that the CNB receives a pre marketing notification letter within two weeks of starting such pre marketing activity. EEA AIFMs need to send this pre marketing notification letter to their home State competent authority within two weeks of starting such pre marketing activity, which in turn is directly transmitted to the CNB. The information provided to potential professional investors within the context of the pre marketing activity should not enable such investors to commit to acquiring units or shares of the pre marketed AIF or amount to a subscription form or similar document, whether in draft or final form. For a period of 18 months after the start of the pre-marketing of the AIF, the AIFM may not rely on reverse solicitation in the jurisdiction where the pre-marketing has been notified. Any subscription by professional investors, within 18 months of the AIFM having begun pre-marketing, to units or shares of an AIF referred to in the information provided in the context of pre-marketing, or of a AIF established as a result of the pre-marketing, shall be considered to be the result of marketing and shall be subject to the applicable notification procedures with respect to marketing activities. 

3. Consequences of non-compliance with placement regimes for fund interests

The Czech courts have not yet ruled on the matter of non-compliance with placement regimes. But it is likely that non-compliance with mandatory provisions on placement regimes will lead to the invalidity of a placement agreement and subsequent civil liability (i.e. return of unjust enrichment and damage compensation). A fund’s management may also be held liable for a breach of managerial duties.

Moreover, an administrative fine may be imposed by the Czech National Bank.

4. Private placement rules for non-fund investments available

There is no distinction between private placement of fund and non-fund interests. All tradeable non-fund interests (such as shares, bonds, options, swaps, futures, other financial derivatives etc.) may be subject to private placement rules.