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Limitation of Liability of Elected Corporate Body Members

Limitation of Liability of Elected Corporate Body Members

Czech Republic
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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

HAVEL & PARTNERS, attorneys-at-law, with offices in Prague, Brno, Bratislava, Pilsen, Olomouc, and Ostrava, has a team of 220 lawyers, tax advisors and 500 employees in total, is the largest independent law firm in Central Europe.

Our clients include large international companies, leading Czech and Slovak firms, including strategic state-owned companies and public sector authorities, as well as medium-size businesses, individual entrepreneurs, and investors. We advise approximately 100 of the Fortune 500 companies, and almost 50 of the Czech Top 100 companies. HAVEL & PARTNERS currently provides its services to a total of 2,000 clients. We have the most comprehensive international support available to both Czech and Slovak law firms. We provide legal and tax advice in 12 world languages in more than 90 countries around the globe. Up to 70 % of the transactions we deal with involve an international aspect.

HAVEL & PARTNERS was named the best law firm operating in the Czech Republic by the prestigious British rating agencies Chambers and Partners (2020) and Who’s Who Legal (2018, 2019). It is also the most successful law firm, providing the most comprehensive legal services in the Czech Republic and Slovakia, based on the total number of all nominations and awards in all years of the Law Firm of the Year awards. The firm became the absolute winner of this competition four times in the last six years, receiving the main award Domestic Law Firm of the Year in the Czech Republic (2015, 2017, 2018, 2020) and ranking as one of the most recommended law firms in all categories of law. Our company is also a three-time winner of the Law Firm of the Year award for Best Client Services (2015, 2016, 2019). In the field of M&A, HAVEL & PARTNERS is the best law firm in the Czech Republic based on the annual International Advisory Experts awards (2018, 2019). In Slovakia, it also won the prestigious global M&A Today Awards (2013–2018) for Mergers & Acquisitions six times in a row, and repeatedly won first place in the ranking by Lawyer International Legal 100 (2017, 2018). Prestigious international rating agencies EMIS DealWatch and Mergermarket have ranked HAVEL & PARTNERS among the leading law firms by the number of transactions completed in the entire CEE region since 2009. Based on annual awards of the Acquisition International magazine, HAVEL & PARTNERS has become the Law Firm of the Year 2019 in the M&A category in the CEE region.

Firm's website: https://www.havelpartners.cz/en/

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