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On 11 April 2012 the Supreme Court of the Czech Republic (the
"Supreme Court") issued a decision which
has shed some light on section 193 subsection 2 of the Czech
Commercial Code (Act no. 513/1991 Coll., as amended) (the
"Commercial Code").
Until 11 April 2012, there had not been a consensus on the
consequences for a company of having not obtained the approval of
the supervisory board or the general meeting prior to entering into
an agreement under which the company acquired or disposed of
property whose value exceeded one third of the company's equity
capital. It was unclear as to whether the lack of such approvals
meant that the agreement was invalid or ineffective, or whether in
fact the agreement remained valid, effective and binding upon the
parties to the agreement.
In several decisions prior to 11 April 2012, the Supreme Court
had applied a specific rule under which a legal act (typically the
conclusion of an agreement) would be held invalid where there was
the absence of an approval which should have been granted prior to
performance of the legal act. Furthermore, legal acts were also
deemed ineffective where there was an absence of an approval which
should have been granted after performance of the legal act.
In its ruling of 11 April 2012, the Supreme Court expressly
stated that company decisions that relate to the transfer of
company property are to be made by the company's board of
directors (being the statutory body of the company) and, therefore,
it is only the company's board of directors who may handle such
decisions.
Therefore, the lack of an approval from the general
meeting or from the supervisory board to conclusion of an agreement
under which the company acquires or disposes of property (under the
conditions described above) does not cause such agreement to be
held invalid or ineffective. The agreement is valid, effective and
binding upon the parties to the agreement.
The decisions regarding transfer of company property fall under
the category of business management, and, therefore shall be made
only by the company's board of directors. Neither the
supervisory board nor the general meeting of the company may give
the board of directors instructions regarding management of the
company's business.
Pursuant to the Supreme Court's decision, the supervisory
board or the general meeting may only forbid the board of directors
from entering into such an agreement. However, this would be an
internal instruction, which would not have repercussions towards
third parties (such as counterparties to the agreement). In the
event that the company enters into the agreement despite the
supervisory board or the general meeting having forbidden entry
into the agreement, the agreement would still be held valid and
effective. Those members of the board of directors who acted
contrary to the general meeting's or supervisory board's
instructions would be found liable.
Although the Supreme Court's decision has helped to unify
opinion on the consequences of lack of approvals, court decisions
(and even the decisions of the Supreme Court) are not a source of
law in the Czech Republic. Therefore, it is possible (and indeed it
happens from time to time) that the Supreme Court may decide
differently from the in a similar case.
This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register for
Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance
only. The information and opinions expressed in all Law-Now
articles are not necessarily comprehensive and do not purport to
give professional or legal advice. All Law-Now information relates
to circumstances prevailing at the date of its original publication
and may not have been updated to reflect subsequent
developments.
The original publication date for this article was
26/06/2012.
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