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Limitation of Liability of Elected Corporate Body Members

Limitation of Liability of Elected Corporate Body Members

Czech Republic

Each member of an elected body pursuant to Section 159 (1) of Act No. 89/2012 Coll., Civil Code ("CC") is obliged to act with due managerial care. These are typically executive directors or members of the board of directors or supervisory board. In practice, questions often arise about what happens when they breach this duty of care and whether their liability can be limited.

For example, in relation to transactions in which ownership interests or shares in a company are transferred, agreements or unilateral statements are drawn up in which the former members of the elected body waive their claims against the company and confirm that they do not have any claims or receivables against it.

But can a company also waive its claims against these former members of the elected body?

According to Section 2898 CC: "A stipulation which excludes or limits in advance the duty to provide compensation for harm caused to the natural rights of an individual or caused intentionally or due to gross negligence is disregarded; a stipulation which precludes or limits in advance the right of the weaker party to compensation for any harm is also disregarded. In these cases, the right to compensation may also not be lawfully waived."

Under Section 53 (2) of the Business Corporations Act ("BCA"), the legal acts of a company restricting the liability of a member of its bodies shall be disregarded. Section 53 (3) stipulates that any damage suffered by the company due to the breach of the duty of due care may be settled by agreement with the obliged person. The approval of the company's supreme body adopted by an at least two-thirds majority of all votes of all members shall be required for such an agreement to be effective.

Compared to the old regulation, the new Civil Code and the Business Corporations Act allow for greater flexibility in terms of the liability of members of elected bodies.

It follows from the substance of the case that an agreement on settling damages cannot be concluded before the damage to the company itself incurs, i.e. before the company learns about the damage and who caused it. In the context of a particular transaction and in connection with the statements of members of elected bodies against a company, it is therefore possible to agree that if a company incurs damage caused by a former member of the elected body, the company undertakes to conclude an agreement on the settlement of damage pursuant to Section 53 (3) of the BCA with this member of the elected body in the future.

By Eva Purgerova, Attorney at Law, Schoenherr

Czech Republic Knowledge Partner

For more than 25 years PRK Partners has been providing top tier, comprehensive legal services in all areas of law – always at the highest professional level. The company’s offices in Prague, Ostrava and Bratislava, as well as its specialised teams of legal practitioners and tax advisors, allow PRK Partners to offer solutions to any kind of legal issues, providing an international point of view and in-depth knowledge of the respective local legal system.

The full-service law firm has worked on many of the region’s largest and most complex transactions. The firm puts emphasis on the highest standards of quality, efficiency and flexibility in its advisory services, which are tailored to the specific requirements of each client. 

Our team is composed of professionals with international education and experience. The firm frequently works on a non-exclusive basis with leading international law firms on large cross-border transactions.

PRK Partners is consistently recognised among the top law firms by leading international and domestic directories and ratings agencies and has been honoured with numerous awards: 

• National Law Firm of the Year 2016 by the Chambers Europe Awards, the most prestigious international law firm competition. This is the fifth award PRK Partners has received since the awards were first given; National Law Firm of the Year 2014, 2013 and 2010 and Law Firm of the Year 2012 for Best Client Service.

• 2018 Best Law Firm of the Year in the category of Banking &Finance and the absolute winner in the main category of the Domestic Law Firm of the Year awards organised by epravo.cz under the auspices of the Czech Bar Association three times since the award's inception (in 2016, 2013 and 2011).

• a finalist of the Central European Law Firm of the Year category in The Lawyer European Awards 2018. 

The firm has a strong commitment to corporate social responsibility and pro bono work.

PRK Partners is the exclusive member firm in the Czech Republic for Lex Mundi, the world’s leading network of independent law firms, with in-depth experience in 100+ countries worldwide. In addition, the firm is a member of Celia Alliance, AFI (Association for Foreign Investment) and CVCA (the Czech Private Equity and Venture Capital Association).

Firm's website: www.prkpartners.com

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