A fundamental change brought about with effect from 1 January 2021 by a major amendment to the Commercial Corporations Act was the long-awaited new setting of the monistic system of the joint stock company’s internal structure. We bring you an overview of the most significant changes and practical complications that arise in current practice.
The Monistic System in Light of the Amendment
The monistic arrangement of joint stock companies has finally become true to its name, when the compulsorily established elected body of the company is only one body, and that is the administrative board. The amendment to the Commercial Corporations Act has thus abolished the position of statutory director.
The position of statutory director has been taken over by the administrative board, which newly accumulates the supervision and management powers; it is therefore not only a supervision body that is in charge of supervising the company’s activities, but also a statutory body that is in charge of the company’s business management.
The members of the administrative board thus have new powers as well as duties in connection with performing the function of the statutory body. Among other things, their powers include the business management and focus of the company, their new duties, in addition to representing the company vis-à-vis third parties, also include drawing up financial statements, convening general meetings, etc.
The Act assumes that the administrative board has three members, but the articles of association may deviate in this respect. Monistic joint stock companies will thus continue to have the opportunity to establish a one-member administrative board.
You can read in more detail in part three of our Guide about what has changed for monistic companies as of the effective date of the amendment to the Commercial Corporations Act.
Practical Implications of the Amendment
As of the effective date of the amendment, the manner of acting and representation vis-à-vis third parties has changed for all monistic joint stock companies - as of 1 January 2021, all statutory directors were automatically deleted from the companies’ commercial registers and their powers were transferred to the companies’ administrative boards in accordance with the Act.
This has the following implications for monistic joint stock companies:
- Implications Related to Deleting the Statutory Director from the Commercial Register
Now it is really no longer possible to find a statutory director in the Commercial Register. As this deletion was not clearly notified by the Commercial Register (no matter how it was foreseen by the Act), we would like to draw your attention to some practical facts that are related to the deletion itself.
In the first place, it should be noted that the expiry of the position of statutory director must be notified to the relevant entities, including the Czech Social Security Administration and health insurance companies. We recommend that you always check with a specific company which notification obligations also result from the contractual obligations that the companies have entered into (for example, this may be a notification to banking institutions).
As the position of statutory director has not existed since 1 January 2021, it is not possible for him/her to continue to bind the company from the position of statutory director. All steps shall be taken by the administrative board from the above date.
The last significant practical implication related to the deletion (or termination of the position) of statutory director is the invalidation of access to the company’s data box. As the position of statutory director does not exist, the Ministry of Interior has invalidated the login details of all statutory directors. We recommend that you verify that the company can log in to its data box.
- Implications for the Administrative Board of the Monistic Joint Stock Company
Although the duties of statutory directors have been automatically transferred to the administrative board by virtue of law, this does not mean that monistic companies do not have to do anything else in this matter. In addition to informing employees, business partners, authorities and banks, monistic companies are facing other formal steps related to this change than just the printing of new business cards.
Like the board of directors of a joint stock company with a dualistic system, the administrative board is a collective body. It is therefore necessary to amend the company’s articles of association accordingly and subsequently enter in the Commercial Register a new manner of acting and representing the company vis-à-vis third parties. Unless otherwise provided for in the articles of association, each member of the administrative board shall act on behalf of the monistic company individually.
We would also like to add that if the chairman of the administrative board was also a statutory director, the position of statutory director shall not pass only to the chairman of the administrative board, but again to all its members - the above applies.
The recommended step is also the conclusion of a new contract for the performance of the function of members of the administrative board, or its revision so that it corresponds to their new position. The contract on performance of function must always be in writing and approved by the general meeting. Without approval, the contract shall not become effective.
Please note that with regard to the transitional provisions to the amendment, monistic companies are obliged to enter the manner of acting of the administrative board members in the Commercial Register no later than 1 July 2021, or at the next election of new members of the administrative board or change in their number. If the company fails to do so within this time limit, the registry court may request a remedy, or if it does not comply even after a repeated request, the registry court shall decide on the dissolution of the company and order its liquidation.
Increased prudence in representing a monistic company should also be exercised by a single member of the administrative board who was also the company’s statutory director before the amendment entered into force. As mentioned above, it is not possible for him/her to bind the company to anything from the no longer existing position of statutory director. When signing on behalf of the company, it is thus necessary to correctly state the person’s authorisation to represent the company, i.e. that he/she signs as a member of the administrative board. The correct signature can prevent possible disputes with business partners (objection to the relative invalidity of a legal act) or unexpected findings of legal due diligence prior to the transfer of the company.
Finally, although access details to the data box for statutory directors have been invalidated, new access details to the data boxes of companies should already have been sent to the administrative board members as new members of the statutory body. Access details are always sent to the addresses of the administrative board members as entered in the Commercial Register. If an administrative board member is not a Czech resident, we recommend checking whether the details can be delivered in a given country to the recipient’s own hands. Countries where it is not delivered in this way include, among others, Germany, Poland, the Netherlands and the United Kingdom.
Alternatively, access details to the data box can also be requested in person at Czech POINTs or at the embassy of the Czech Republic abroad, they will then be sent to the email address.
In view of the above, we recommend all joint stock companies with a monistic arrangement of the internal structure gradually start to familiarise themselves with the wording of the amendment and prepare to take the necessary steps that will need to be taken in this regard.
It will be necessary to revise the articles of association of these companies and make such changes that their new wording corresponds to the amended wording of the Commercial Corporations Act, at least to the extent stipulated by its mandatory provisions. We recommend making this change as soon as possible, but no later than within 1 year from the effective date of the amendment, or within 6 months from the entry of the manner of acting of the administrative board.
By Ondrej Florian, Partner, and Eliska Dittrichova, Junior Associate, Havel & Partners