Category: Czech Republic

Governance is primarily covered in the ESRS G1 Business Conduct section of the European Sustainability Reporting Standards framework (ESRS, November 2022 draft). Requirement G1-1 represents one of its six main areas. In this article, we cover the information required for reports under the G1-1 Corporate Culture and Business Conduct requirement.

Obviously, the Governance standards (including Requirement G1-1) need to be considered within the remaining ESRS standards, in particular ESRS 1 (General Principles) and ESRS 2 (General Requirements), and other regulations including those outside ESG legislation.

What will businesses be required to report under Requirement G1-1?
Businesses will have to disclose its initiatives to establish, develop, and promote a corporate culture, as well as its business conduct policies. According to ESRS G1, corporate culture means the goals of a business are defined through its values and convictions or, for example, by codes of ethics that governs how the company operates.

The objective of Requirement G1-1 is to report on how the business’s executive, management, and supervisory bodies participate in forming, monitoring, promoting, and assessing corporate culture. It should also reflect the business’s ability to mitigate any negative impacts while maximizing its positive impacts related to its business activities, and to monitor and manage the associated risks.

The information should also include a strategy to foster corporate culture, as well as how this strategy is implemented and evaluated.

What exactly will a business have to report?

Under Requirement G1-1, businesses will have to report the following information:

• A description of the mechanisms for identifying, reporting, and investigating concerns about unlawful behaviour or behaviour in contradiction to its code of ethics or similar documents. The information must include information on whether the business allows reporting from internal and/or external stakeholders
• Anti-corruption and anti-bribery policies consistent with the UN Convention Against Corruption. If the business has no such policies, it must state this condition and whether it has plans to implement them (including a timetable for implementation)
• Safeguards for reporting irregularities, including whistle-blower protections that:
• Protect its workers who refuse to act unethically, even if this refusal may result in a loss of business
• Prevent retaliation against workers who have been granted whistle-blower status in accordance with applicable law, and against workers who report any unethical conduct.
• If the business has no whistle-blower protection policies, it must state this fact and indicate whether it has plans to implement them (including a timetable for implementation)
• A statement whether the company is committed to investigating incidents such as corruption or bribery promptly, independently, and objectively
• Whether the business has policies in place with respect to animal welfare, where applicable
• The business’s strategy for its ethical training, including the target audience, frequency, and depth.
• This includes identification or definition of the departments/positions that are the most at risk in terms of corruption/bribery.

What aspects must be considered when reporting?

The following aspects should be considered when reporting under Requirement G1-1:

• The topics related to corporate culture considered and discussed by executive, management, and supervisory bodies and how often these discussions are held
• The topics related to corporate culture promoted in terms of the policies, and what how these topics and values are communicated
• How corporate culture is promoted by management
• Specific incentives or tools for employees to promote and develop corporate culture.
• Why is it important to pay attention to reporting now?
• Although the rules defined in the CSRD will not be phased in until 2024, financial institutions, investors, and other entities are already assessing legal, financial, and reputational risks arising from ESG. Any ESG-related deficiencies or misconduct may hinder a firm%u2019s access to financing, its participation in public procurement, or its ability to meet the requirements of its clients or customers who are already starting to address ESG factors with their suppliers and subcontractors.

At the same time, ESG requirements are a global phenomenon and part of today%u2019s reality. The sooner a business begins to implement its ESG policies, the more of an edge it can gain over its competitors.

In conclusion, we would like to note this article is based on the draft ESRS that the EFRAG Board submitted to the European Commission in November 2022. The final form and wording of these standards may therefore be subject to changes and modifications. The adoption of the final ESRS standards by the European Commission is expected in the first half of 2023. We will closely follow further developments and you will learn more in the upcoming parts of our series.

By Marek Prochazka, Partner and Milan Sivy, Attorney, PRK Parnters

JSK has advised Sudop CIT on its acquisition of hardware and software infrastructure and services supplier Impromat-Computer. Impromat was reportedly advised by sole practitioner Jiri Nemec.

According to JSK, “originally a purely project and engineering group, Sudop is gradually building an ecosystem of differentiated IT companies in the Czech Republic and Central Europe. The merger with Impromat-Computer will give Sudop CIT access to a broad portfolio of infrastructure services and solutions that will complement the group’s existing offerings in the areas of software development, cloud services, cybersecurity, and IT consulting.”

“By joining forces with Impromat-Computer, we have gained the ability to offer our clients a full range of IT services from infrastructure delivery and ICT management through software development, and data analytics to complex cybersecurity and consulting,” Sudop CIT CEO Jiri Zivnustka commented. “We are excited to be closer to our clients thanks to a network of service centers across the country.”

In 2022, JSK advised Sudop on its acquisition of Profiq (as reported by CEE Legal Matters on May 24, 2022) as well as on its acquisition of BizzTreat (as reported by CEE Legal Matters on December 6, 2022).

The JSK team was led by Partner Tomas Dolezil and included Senior Associates Jana Pospisilova and Vladena Svobodova.

A rather busy M&A market in the Czech Republic – with the IT, industrial, and energy sectors spearheading economic bustle – will soon face important legislative updates regarding the tax system and labor regulations, according to Kinstellar Partner Karla Rundtova.

“I would say that, perhaps surprisingly, we have seen that the M&A market has been quite busy lately,” Rundtova begins. “There were a few huge deals completed at the start of 2023, and, just recently, a new major deal was announced – a bidding process for the Packeta sale.” With such strong levels of transactional activity, it stands to reason to assume that the market is in good shape: “I am rather optimistic, we do see a lot of investor interest out there,” she adds.

Of course, there are some instances where there are slowdowns. “Real estate has not been as successful as it could be, overall,” Rundtova continues. “But we do see strong activity on the logistics and retail parks front. Perhaps there will not be as much M&A work, but with the new construction law incoming and ESG considerations permeating every discussion – there will for sure be work for lawyers,” she says. 

And, talking about work, there seems to be a lot of it coming from outside of the European Union. “We see a lot of interest in the region, mostly coming from outside of the EU, which raises FDI screening mechanism considerations,” Rundtova says. “So much are we engaged with this line of work that we have set up a dedicated service line for it.”

Focusing on specific sectors that have demonstrated high levels of activity, Rundtova says that “tech, industrial (including defense), and automotive are leading the pack.” Specifically, she reports that “the COVID-19 crisis and the subsequent supply shortages, coupled with the energy prices shift have all influenced the companies in the automotive industry to adapt their portfolios. We are seeing a number of divestments and restructurings ongoing,” she explains. “Also, the automotive industry continues to be hugely impacted by the EU green deal – there is a lot of movement spurred on by it, for example, when it comes to battery production.”

Furthermore, Rundtova reports there has been a lot of talk about financial technologies. “With fintech being a part of a lot of ongoing debates – and the subject of a lot of client inquiries – it would seem that it is here to stay when we talk about the financial markets,” she says. According to her, investors are particularly interested in the regulatory conditions surrounding fintech, as well as in the direction those may evolve. 

Finally, providing insights on recent legislative movements of note, Rundtova mentions the tax and labor frameworks. “Given the economic situation and the situation with the state budget, significant tax changes and other budget-saving measures have been announced just recently, such as an increase of the corporate income and real estate taxes, changes regarding VAT, pensions, social and health insurance contributions, the cancellation of certain state subsidy programs, etc.,” she says. Additionally, the labor code stands to be overhauled in a significant way, making way for stricter regulations of “widely used agreements for part-time work, temp work, or work outside the employment relationship. This will likely have a significant impact on the labor market,” Rundtova notes.

Former Eversheds Sutherland Counsel Petra Konecna has been promoted to a Partner position in the firm’s Prague office.

Konecna, who is the Head of the firm’s Banking & Finance team, also focuses on corporate and M&A work. She joined her current team almost nine years ago, back when it was Dvorak Hager & Partners, as a Principal Associate, stayed on through the 2019 rebranding, and was appointed a Counsel in 2021. Before that, she spent seven and a half years with Schoenherr.

In a recent decision, the Supreme Court ruled on the validity of a provision in an agreement on a future agreement and which provided for an “automatic” transfer of the ownership title to the object of the sale if the future agreement was not concluded within a certain period of time. Essentially, both an agreement on a future agreement, which anticipated the subsequent conclusion of the transfer agreement, and a conditional transfer agreement itself were included in one document. The Supreme Court found that such an arrangement did not invalidate the agreement.

‍In case of an agreement on a future agreement, if the obliged party fails to enter the future (transfer) agreement when called upon to do so under the agreed terms, the entitled party may seek the determination of the contents and conclusion of the transfer agreement in court. Such judicial intervention can be avoided by the arrangement described above, which may serve as a practical safeguard, for example, in the case of option contracts, which are commonly negotiated in the form of an agreement on a future agreement.

‍In practice, it will be necessary to ensure that such a dual agreement meets all the substantive and formal requirements for the specific type of transfer agreement, as these requirements are often stricter than those for a typical agreement on a future agreement.

‍The Supreme Court’s decision of 16 February 2023, ref. no. 27 Cdo 1858/2022.

By Jan Koprnicky, Associate, JSK, PONTES

Kinstellar has advised S IMMO on its acquisition of three office buildings and a hotel in the Czech Republic – valued at EUR 167.7 million – from the CPI Property Group.

“The assets include the Mayhouse and Luxembourg Plaza offices in Prague, ZET.office in Brno, and the Courtyard by Marriott Prague City Hotel,” Kinstellar informed. “The four assets have a total value of EUR 167.7 million and generate an annual income of close to EUR 8.4 million.”

S Immo is a Vienna-listed real estate investor and developer focusing on Austria, Germany, and CEE.

The CPI Property Group is a real estate company focusing on long-term investments and real estate leases in Central Europe and Germany.

The Kinstellar team was led by Partner Klara Stepankova and included Managing Associates Martin Holub and Adam Nemec, Senior Associate Jakub Stastny, Associates Anna Veselska and Artom Gnedin, and Junior Associates Dominik Sevcu and Dominik Ctvrtnicek.

Briza & Trubac lawyers Marta Zavadilova and Barbora Klimesova have been promoted to Partner positions within the firm.

Zavadilova, who specializes in private international law, litigation, and family law, has been with the firm since 2019.

Klimesova, a transactions and employment law expert, has been with the firm since 2017.

“The move to the position of partners reflects not only the fact that Marta and Barbora are excellent lawyers, but also their human and managerial qualities,” Founding Partner Ondrej Trubac commented. “We wish them every success in their new role.”

“I have been working with Briza & Trubac for six years now and during that time the DNA of the office has become an inseparable part of me,” Klimesova stated. “The new position is therefore not just another step in the hierarchy, but an opportunity for me to contribute even more to the development of the firm and the fulfillment of its vision and values.”

“My relationship with Briza & Trubac has been based from the very beginning on the trust I received from the founding partners years ago and I appreciate it immensely,” Zavadilova added. “The partnership is both a continuation and a new challenge for me. I am looking forward to working with the partnership team and I am very happy that it is Bara Klimesova who will, together with me, bring a female perspective to the hitherto exclusively men’s club.”

Kinstellar has advised Cura Vermoegensverwaltung on its exit from the Arkady Pankrac-ownership joint venture with G City Europe. Clifford Chance reportedly advised G City Europe.

“The joint venture pertained to the ownership of Arkady Pankrac, a premium shopping center with a focus on fashion, located in one of Prague’s most prominent business and residential districts,” Kinstellar informed.

Cura Vermoegensverwaltung is a German asset manager.

G City Europe, formerly Atrium European Real Estate, is a community shopping center and residential estate owner, operator, and redeveloper in Central Europe.

The Kinstellar team included Partner Karla Rundtova, Managing Associate Adam Nemec, and Junior Associate Paul Valka.

Editor’s Note: After this article was published, Clifford Chance confirmed it had advised G City Europe on its acquisition of the remaining 25% stake in the Arkady Pankrac shopping center and the subsequent EUR 112 million financing of the project from UniCredit Bank Czech Republic and Slovakia. The firm’s team was led by Partners Emil Holub and Milos Felgr and Counsel Milan Rakosnik and included Senior Associate Tereza Rehorova, Associate Josef Lysonek, and Junior Associate Simon Dusek.

Kocian Solc Balastik has advised Sandberg Capital on its investment in Czech kindergarten management application Twigsee. Peyton Legal advised Twigsee early seed investors – the Jinej fund and Jiri Hlavenka – in the divestment of Jinej’s stake.

“The aim of the newly formed group, which includes both Bakalari and Twigsee, is to provide digital support to Czech kindergartens and schools,” KSB informed. “Sandberg Capital, together with the minority owners of Bakalari Software – of which Sandberg Capital is the majority owner – will continue to work with Twigsee founder Vanda Seidelova on developments in this area.”

Sandberg Capital is an investment management company that invests in small and medium-sized companies in the Slovak Republic and CEE.

KSB previously advised Sandberg Capital on its acquisition of Phase (as reported by CEE Legal Matters on February 15, 2023).

The KSB team was led by Partner Drahomir Tomasuk and Lawyer Jan Beres and included Junior Lawyer Josef Novotny.

The Peyton team included Managing Partner Jakub Malek and Senior Attorney-at-Law Martin Heinzel.

On 5 April 2023, the Government approved a long-awaited amendment to the Labour Code that incorporates several European directives and brings a number of fundamental changes that will affect most employers.The draft amendment will now be discussed in the Chamber of Deputies. If it passes swiftly, which is expected, the amendment could already be mostly effective during the summer holidays.

The amendment’s flagship change is the new regulation of working from home, i.e. home office. This should now be possible only on the basis of a written agreement with the employee.

In exceptional cases, where a public authority so provides (e.g. in the context of an epidemic), the employer will be able to order people to work from home. Based on an internal regulation or agreement with the employee, the employer will be able to reimburse the employee for utilities and certain other costs associated with working from home in a lump sum, which will not be treated as the employee’s income for tax purposes. Employers will cover other costs based on the actual demonstrated expenses or will not cover any costs if so agreed with the employee. Employers will have special obligations in relation to pregnant employees and employees caring for children and dependants.

These employees will now have the option to request home office in writing and the employers will have to provide written reasons if they refuse such request.

The amendment also tightens the rules for agreements on work performed outside employment. Employees working under such agreements will now be entitled to statutory obstacles to work, including holidays, and their employer will have to schedule their working hours at least three days in advance. After a certain period of time working under such agreements, the employee will be able to apply in writing for employment. The employer will then have to give the employee a reasoned written reply within one month.

There will also be changes to electronic signatures and delivery of labourlaw documents, which will become significantly simpler and should enable the digitisation of the majority of HR agenda. In order to increase transparency, the amendment extends the information obligation towards employees and shortens the time for its fulfilment. Therefore, employers will have to revise the relevant labourlaw documents as well as their internal procedures.

The amendment is still awaiting further legislative process. However, employers should start preparing for the extensive changes right away by, for example, setting up internal rules for working from home, rethinking their use of employees working under the above-mentioned agreements, consider digitising their HR agenda and aligning all their labour-law documents with the amendment. We are intensively involved in the area of labour law and we will closely monitor further legislative developments of the amendment.

By Lenka Droscova, Partner, Vaclav Belohoubek, Senior Associate, Act Legal