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Simplifying regulation of limited companies in the amendment to the Commercial Code

The amendment, which was published under Act No. 215/2009 Coll., and took force and effect on 20 July 2009, is primarily harmonizing in character. The majority of changes arise from implementation of the Amendment to the so-called Second Company Law Directive and simplify certain aspects of provisions applicable to limited liability companies. The main changes include the reduction of requirements to valuate asset contributions, requirements for so-called financial assistance and acquisition of own shares.

Exemption from the duty to have contributions of consideration other than cash valuated by an expert upon increase of registered capital

The new provisions of Sections 59a – 59c make it possible to avoid the fair value opinion by an expert should other methods of fair valuation of contributions of consideration besides cash exist and these methods be deemed sufficiently trustworthy and transparent.

Market valuation, i.e. valuation at the weighted average price at which investment securities or money-market instruments have been traded on one or more regulated market(s) during 6 months prior to the payment of the contribution may be applied to such investment securities or money-market instruments.

If assets other than investment transferable securities and money-market instruments constitute the consideration and real prices therefor are included in the accounts, the value thereof as shown in the most recent final accounts, if audited without any reservations, can be considered as the fair value thereof.

Furthermore, the Commercial Code attributes a reference value of these types of assets to the price determined by a recognized independent expert if the valuation has been performed in accordance with generally accepted valuation standards and principles and the fair value is determined for a date not more than six months prior to the effective date of the asset contribution.

The said exemptions may be applied subject to, and upon, decision of the statutory body of the Company. It is further subject to the absence of any new qualifying circumstances that might significantly change the fair value of the asset at the effective date of its contribution, and also subject to the absence of any extraordinary circumstances that would significantly influence the determined fair value of the investment transferable securities and money-market instruments. If there are any relevant changes in the circumstances, the statutory body shall have the assets to be contributed valuated subject to a standard procedure pursuant to the current legislation. The new provisions of Section 59b of the Commercial Code impose conditions under which a qualified group of members or shareholders may demand the appointment of an expert, if the statutory body is inactive.

Section 59c of the Commercial Code imposes extended reporting duties associated with determining the value of asset considerations by means of a substitute method.

Approved financial assistance with a view to the acquisition of its shares or ownership interests

Both types of limited corporations (public limited companies and private limited companies) may newly grant financial assistance, i.e. advance funds or make loans or provide security, with a view toward acquisition of its shares by the party receiving assistance. The Commercial Code imposes on a cumulative basis the minimum conditions that may be extended in the Association Agreement or the Articles of Association. Both private limited companies (see Section 120a) and public limited companies (see Section 161f) are required to follow the rules below, without limitation:

- the financial assistance may only be provided at arm’s length terms and conditions;

- the financial assistance may not result in the Company’s immediate bankruptcy;

- the statutory body shall draft a report setting forth the following:

  • a matter-of-fact justification for the assistance, including the benefits and risks resulting therefrom for the Company;
  • terms and conditions under which the financial assistance is to be granted;
  • justification why the financial assistance serves to the benefit of the Company.

Public limited companies are subject to stricter rules that include, but are not limited to, further conditions applicable in circumstances where the financial assistance is granted to a member of the board of directors, a party controlling the Company or a member of the controlling Company’s statutory body, parties acting in concert with the Company or any other listed party.

The possibility of providing financial assistance must be anchored in the Articles of Association. For the decision of the General Meeting on particular financial assistance the consent of at least two-thirds of all shareholders is needed.

Acquisition of the Company’s own shares

The acquisition of the Company’s own shares also enjoys a certain amount of liberalization. The new provisions of Section 161a(1) of the Commercial Code primarily extend the time-period during which companies may acquire their own shares up to 5 years. At the same time, the limit of 10% of the nominal value of all shares and interim certificates that the Company could own has been cancelled.

From the new rules, we would like to mention the following:

  • the subscription price for the shares to be acquired must be paid up in full;
  • the acquisition of shares, including shares previously acquired by the Company and held by it, and shares acquired by a person acting in his own name but on behalf of the Company, may not reduce the net assets below the prescribed limit;
  • the Company’s acquisition of its own shares must not result in the Company going bankrupt;
  • the Company must have enough resources to create a special reserve fund should such a special reserve fund be mandatory (see the unchanged provisions of Section 161d (2).

The rules applicable to the subscription for, and acquisition of, shares and interim certificates in a public limited company by a party controlled by such public limited company, including the financial assistance to be granted therefor, have been moved to the newly added provisions of Section 161g without any substantial changes.

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