The main objective of the amendment is to transpose into Czech law the requirements of Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions. At the same time, however, the amendment also introduces a number of less noticeable changes that may significantly affect and simplify the implementation of conversions in practice.

Current situation

The amendment was scheduled to take effect on 1 January 2023, but due to delays in the legislative process, this deadline was not met, and therefore the deadline for the transposition of the directive set for 31 January 2023 was not met either. The amendment has already been signed by the President and is currently heading for publication in the Collection of Laws.

According to the transitional provisions, it should come into effect 30 days after its publication in the Collection of Laws, i.e. during the summer. This transitional provision is not without practical implications, since, in general, the new regulation will already govern all conversions whose terms were drafted after the amendment became effective.

Companies should therefore monitor this situation and plan appropriately when to launch their contemplated projects according to their needs. For example, if they continue to operate under the old law after the Act comes into effect and do not make proper use of the exemptions in the Act, it is possible that the disclosure obligations under the new law will not be properly met. In such a case, the court or notary may refuse to register the conversion in the Commercial Register within the required timeframe.

The commencement of some conversions may be deferred for a few weeks, with companies already using the new simpler procedure.

Lex ČEZ failed to pass

During the legislative process, the intended introduction of a special type of the division of a joint stock company with shares traded on the European regulated market (listed companies) resonated among the professional and lay public. This disputed arrangement was also referred to in the media as Lex ČEZ, as it proposed to introduce simplified conditions for the division of a joint stock company with the termination of minority shareholders’ participation in specific listed companies.

However, even in view of the related controversies and rather lively discussions, this new regulation has been completely omitted from the amendment and all types of the divisions of companies will continue to take place according to the same rules for all.

New types of conversions

Division by separation

The amendment introduces a new form of division by separation, where the company being divided is not dissolved and the separated part of its assets is transferred to the recipient subsidiary in exchange for the share(s) of either

• the newly formed recipient company in which the company being divided becomes its sole shareholder, or
• an existing recipient company (separation with a simultaneous merger) in which the company being divided acquires a share.

Thus, compared to a typical demerger, the divided company (not its shareholders) directly becomes a shareholder of the recipient company, thus being allowed to create a new subsidiary (in the case of a separation with the creation of a new company). A division by separation can also be carried out by a combination of these procedures.

Cross-border conversion (transfer of registered office to or from third countries)

The amendment explicitly provides for the possibility of cross-border transfer of the registered office to or from other than a non-EU or non-EEA Member State, i.e. to or from a third country. This means that it will now be possible to relocate the registered office of a company or cooperative from the Czech Republic to, for example, Switzerland, Norway or the USA without any further doubts. This change responds to the fact that such transfer of the registered office has already been successfully completed several times in practice, according to the general regulation contained in the Civil Code.

Other technical changes

Other “technical” changes will undoubtedly be important for the Czech business environment, offering interesting evolution but also minor risks in the whole area of conversions.

Perhaps the biggest question mark for practice is the new rule in the context of the issuance of a pre-conversion certificate by a notary. The notary will now be obliged to examine the purpose of the cross-border conversion, to assess whether it is abusive or fraudulent, aimed at avoiding or circumventing national or EU law or at committing criminal activities. If the notary discovers anything from the above-mentioned, they will be entitled to refuse to issue a pre-conversion certificate.

For cross-border operations, a cross-border operation report is also no longer required to simplify a cross-border merger.

According to the amendment, the effective date of the conversion may not precede the date of entry in the Commercial Register by more than 12 months. Under the current regulation, the effective date may not precede the date of filing the application for registration in the Commercial Register by more than 12 months. Therefore, the date on which the limit for determining the effective date is calculated changes, i.e. the period between the effective date and the date of registration of the conversion in the Commercial Register may be shortened.

The amendment expressly provides that the day preceding the date of formation of the involved company or cooperative cannot be determined as the effective date of the merger or de-merger, thereby removing the doubts that have prevailed so far.

The amendment also explicitly allows for combined conversions where a company or cooperative is involved in several conversions with the same effective date.

The obligation for the involved company or cooperative to engage a court-appointed expert for the valuation of the assets or for the review of the conversion will be cancelled, but the expert will now be selected by the involved company or cooperative from the list of experts.

The publication and information obligation of the involved company or cooperative is amended by introducing a combination of publication of the conversion terms and a notice to creditors, employee representatives and, where applicable, employees and members of their rights (“notice”) in the Commercial Register and on their website. The existing obligation to publish the notice of filing the conversion terms in the Collection of Deeds and the notice in the Commercial Bulletin is thereby cancelled.

The time limit for creditors to exercise their right to adequate guarantee before the court is reduced to 3 months from the date of publication of the conversion terms, thus bringing the time limit into line with the requirements of the Directive. Until now, Czech domestic conversions have been subject to a time limit of 6 months from the date of registration of the conversion in the Commercial Register, but this represents a significant exception compared to other European countries.