Have the Commercial court run out of patience with companies that ignore their obligations?

It seems that the Commercial courts are running out of patience with companies that ignore their obligations, as they are increasingly sending summonses and resolutions to a number of business corporations that have not yet correctly stated their business activities (production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act), or have not yet registered their beneficial owners in the Register of Beneficial Owners. Companies that do not remedy the situation face significant fines and even liquidation orders.

“Recently, we have indeed seen increased activity by registry courts, which are sending companies notices to make corrections. Companies that do not respond appropriately are logically not treated too kindly. However, it must be said that, on the contrary, court officials are accommodating to those responsible and, for example, allow extensions of deadlines. This is important, for example, for companies with foreign owners, where obtaining apostilled documents takes longer.” Says Michael Dobrovolný.

In May 2021, the Supreme Court issued a decision (file no. 27 Cdo 3549/2020) that all commercial corporations (i.e. s.r.o. companies, joint-stock companies a.s. and European companies SE) must have their business scope stated in a way that is specific or specific. This changed the previously common practice, which allowed companies to state the so-called free trade or only "production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act". This decision of the Supreme Court at the time affected perhaps 70 to 90% of all companies, i.e. hundreds of thousands of entities, and their articles of association or statutes have since been considered vague. The purpose of the court's decision is simply to make it clear in which field the company operates, but a significant number of companies did not reflect this change at all.

Although it is not necessary for the definition of the subject of business or activity in the articles of association to completely coincide with the fields of trade, it is useful for the relevant text of the articles of association to broadly correspond to the individual fields of activity. This will significantly facilitate the registration of the trade in the Trade Licensing Register. In short, the real subject of business should be described in sufficient detail.

Companies that do not eliminate this legal defect risk being called upon by the registry court to rectify the situation and may be fined up to CZK 100,000 if they fail to comply with the summons. However, the court can also decide after disobeying the call to dissolve the company and order its liquidation, and this is not so exceptional.

“In this situation, companies that have not yet registered their beneficial owners may also have a serious problem, because they must do so before their owners are even authorized to change the content of the articles of association. According to the provisions of Section 54 of the Act on the Registration of Beneficial Owners, their voting rights are suspended and de facto they have a problem approving the financial statements.” adds Dobrovolný.

For companies that still state the general purpose of their business in their articles of association or statutes, we recommend that they urgently convene a general meeting and ensure that the articles of association or statutes are amended so that their content complies with the requirements of the law. The decision must be made in the form of a notarial deed, and it is subsequently necessary to ensure that the changes in the purpose of their business are registered in the Commercial Register.

Registry courts also, usually after an notice, without any hesitation initiate proceedings on irregularities with companies that have not yet registered their beneficial owners in the Register of Beneficial Owners. Here, in addition to the prohibition of payment of profit shares and suspension of voting rights, there is a threat of sanctions of up to CZK 500,000, and not only for the company. However, the risk is also borne by their statutory bodies and the beneficial owner if he does not cooperate.

However, it is undoubtedly desirable to purge the Commercial Register of a significant number of companies that are just abandoned non-contact mailboxes.