Czech Republic: Lex Covid changes rules on general meetings and appointment of corporate officers

On 19 April 2020, the Czech Parliament approved “Lex Covid”, a law that aims to mitigate the negative impact that the outbreak of COVID-19 has had on many companies. The measures introduced by Lex Covid cover various areas relevant for business operation and include suspension of a debtor's obligation to file an insolvency petition, the pardoning of deadlines for court filings, introduction of an extraordinary moratorium and prolongation of deadlines for companies to comply with their statutory obligations. In this article we will address changes which Lex Covid introduced to the corporate governance matters.

The effectiveness of Lex Covid will depend upon its publication of the Collection of Law, which is anticipated this week. For more details on corporate governance matters addressed by Lex Covid, follow this link to the main article.

Impossible or difficult participation at company meetings

Based on the passage of the 'extraordinary governmental measures' aimed at stopping the spread of COVID-19, freedom of movement and gatherings have been restricted, which has created difficulties for companies in organising the meetings of their corporate bodies. Therefore, Lex Covid states that when such extraordinary governmental measures make participation at the company's meeting "impossible" or "significantly difficult", all members or relevant participants are allowed to participate in a meeting via technical means or per rollam voting (for more information, click here). Despite these allowances for participation, the remaining rules in the current law and the company´s articles should be followed including the distribution of invitations for meetings, the quorum required for adoption of resolutions, preparation of minutes from meetings, etc.

The rules regarding participation at company's meetings will be valid until the extraordinary governmental measures have ended or until 31 December 2020 at the latest.

Deadline for approving financial statements 2019

According to the current law, companies are obliged to convene the AGM to discuss financial statements within six months after the end of their accounting year. Therefore, many companies in the Czech Republic are obliged to call for an AGM no later than in June 2020. In light of the current difficulties participating in company meetings, Lex Covid automatically extends the deadline for discussing the 2019 financial statements to three months after the extraordinary government measures end, but only until 31 December 2020.

Note that once financial statements are approved, the company should file them without undue delay to the collection of deeds at the court running the commercial registry and that breaching this obligation may result in a financial penalty.

Approved financial statements are the basis for distribution of dividends. For more information regarding the distribution of dividends, click here.

Prolongation of terms in elected bodies

Lex Covid provides that if the term of an elected member of a corporate body expires when the extraordinary governmental measures are in place or within one month thereafter, the position should be automatically prolonged by three months after the end of such measures. If a member disapproves of having his / her term prolonged, such member must report this one day before the automatic prolongation at the latest. Arguably a notice delivered after the automatic prolongation can be considered as a resignation from the position. In this case, the current law still requires that a member of a corporate body should not resign from the position at a time, which is inconvenient for the company.

Furthermore, in some cases if the position of a member of a corporate body (typically Board of Directors or Supervisory Board) ceases to exist and the number of remaining members does not decrease to less than half, such corporate body (instead of the general meeting) may temporarily appoint a new additional member.

It should be noted that all these rules apply only if the participation at a company's meeting of its corporate body is impossible or significantly difficult due to the extraordinary governmental measures. For more information on Lex Covid and what the Czech Republic is doing to offset the effects of the current crisis on Czech business, contact your regular CMS advisor or local CMS experts.