Category: Czech Republic

Baker McKenzie has advised Energeticky a Prumyslovy Holding on its acquisition of all shares in the Dutch PZEM Energy Company and PZEM Pipe and 50% of shares in Sloe Centrale Holding from PZEM. NautaDutilh advised PZEM.

According to Baker McKenzie, “in addition, EPH has signed an agreement to acquire the remaining 50% of the shares in Sloe Centrale Holding from EDF International.” 

Sloe Centrale Holding owns and operates the Sloe gas-fired combined-cycle power plant, located in Zeeland, the Netherlands, with an installed capacity of 870 megawatts, according to EPH.

EPH is a European energy and infrastructure company with operations in the Czech Republic, Slovakia, Germany, Italy, Ireland, the UK, France, and Switzerland.

PZEM is a Dutch regional state-owned energy company that generates electricity, trades energy on wholesale markets, provides balancing services in power and gas markets, and offers customer solutions for producers and business end-users.

The Baker McKenzie team included Amsterdam-based Partner Mo Almarini and Associates Laila Kouchi and Max Nederlof, as well as a team from the firm’s Prague office.

Baker McKenzie did not reply to our inquiry on the matter.

PwC Legal has advised Orlen Unipetrol on the acquisition of Remaq. Havel & Partners advised Libor Vecera, Renata Vecerova, and Dieffe SRL on the sale.

Unipetrol, part of the PKN Orlen group, is a refining and petrochemical group. Remaq is a producer of high-quality plastic granulates.

PwC Legal’s team included Managing Associate Daniel Pikal and Associates Barbora Satrova and Martina Sedlackova.

Havel & Partners’ team included Partner Jan Koval, Counsel Robert Porubsky, and Senior Associate Ivo Skolil.

The Czech Act on Ultimate Beneficial Owners (the “UBO Act“) has been effective since 1 June 2021. Not even a year and a half later, Czech lawmakers introduced an amendment to the UBO Act (the “Amendment“) after significant pressure from the European Commission to comply with the Fifth Anti-Money Laundering Directive (“AMLD5“).

Now, Czech companies and their shareholders should pay attention, as they may become subject to the UBO Act’s sanctions from 1 October 2022.

New rules for identification of UBOs

The European Commission has always struggled with the core of the Czech UBO Act – the definition of the UBO itself. The problem stemmed from general misunderstanding of Czech lawmakers, who understood UBOs as those who exercise ultimate control over the company, as well as those being ultimate beneficiaries of profit. In fact, such differentiation has no basis in AMLD5.

Therefore, the Amendment introduces only one sole category of UBOs in the Czech Republic – persons who ultimately own or control an entity. The category of ultimate beneficiaries is no longer considered in the UBO determination.

Who should be registered under the new definition?

While the general definition of beneficial owner is based on the factor of ultimate control, more persons now fall into this category, including those who directly or indirectly:

• have a share in the corporation or a share in the voting rights of more than 25%;
• are entitled to a share in profit, other equity funds, or the liquidation balance of more than 25%;
• exercise decisive influence in the corporation, or in corporations which individually or collectively hold a share of more than 25% in the erstwhile corporation; or
• otherwise exercise decisive influence in the corporation through other means.

Under the original rules, only persons with the greatest share (usually persons holding more than a 40% share in the company) were taken into consideration when determining the UBO based on the ultimate control factor. As of 1 October, all 25%+ shareholders (and their structures) should be considered and registered as UBOs.

Other changes

The current version of the UBO Act contained an exception under which a number of categories of entities did not have a beneficial owner. Typically, these were the state and local self-government units (municipalities, regions) and entities owned or established by them, such as state-owned enterprises, schools or public research institutions. Other entities such as unit owners’ associations or political parties were also included.

The Amendment limits the above exemption to only two categories of entities – (i) the state and local self-government units and entities financed or decisively controlled by them, and (ii) state-owned enterprises, which have no UBO.

Potential sanctions

Companies should be aware that if they are not compliant with the new UBO regime, they face potential sanctions of up to approx. EUR 20,000 (CZK 500,000). But what is more important, companies with an unregistered UBO (or wrongly registered UBO) are not allowed to distribute profits either to this UBO or to a legal entity with the same UBO. Also, unregistered UBOs or legal entities with the same UBO are not allowed to exercise their voting rights at a general meeting.

What should every company do now?

We recommend that every Czech company inspects its UBO records and, if necessary under the Amendment, updates its UBO registration accordingly. Particular caution should be exercised by those companies with multiple shareholders or those who have previously registered as their UBO a person as being the ultimate beneficiary.

The Amendment contains a provision requiring every company to harmonise their registration with the new rules within six months. In this period, any inconsistency should not be considered an offense of the company, and the public sanction of up to CZK 500,000 (approx. EUR 20,000) should not be a threat in the meantime. Our experienced team will be happy to assist you with both checking and, if necessary, updating an existing registration in the Czech register of UBOs.

By Rudolf Bicek, Attorney at Law, Monika Voldanova, Attorney at Law and Sebastian Speta, Associate, Schoenherr

Havel & Partners has advised Skoda Auto in resolving disputes over the use of the Skoda sign with engineering companies from the Skoda Group.

“The long-standing disputes with the Skoda Group’s engineering companies, which are part of the PPF Group, ended with an agreement among all parties on the transfer of rights in the Skoda trademarks,” Havel & Partners informed.

According to the firm, “the agreement removes the conflicts regarding the use of the Skoda sign by several companies that have lasted for many years. Under the agreement, Skoda Auto becomes the owner of the Skoda trademarks worldwide, which is a significant step that builds on the brand’s rich history and is also important for the company’s future development in both domestic and global markets.”

Volkswagen Group company Skoda Auto is a Czech vehicle manufacturer that employs 45,000 people.

The PPF Group owns engineering companies belonging to the Skoda Group. The group manufactures low-floor trams, electric locomotives, suburban train units, metro sets, electric buses, and trolleybuses, as well as control and drive systems for transportation systems.

The Havel & Partners team included Partners Jan Sturm, Ivan Rames, and Jan Koval, Senior Associates Juraj Dubovsky, Radek Riedl, and Tereza Hrabakova, and Associate Josef Bouchal.

With instability and uncertainty both in the political and economic spheres, the Czech Republic is preparing for a new wave of restructuring and insolvency procedures, according to Dentons Partner Jiri Tomola.

“The war near the Eastern border of Europe has created a huge amount of turmoil and has a great impact on energy markets, supplies, and prices,” Tomola says. “Unlike the COVID-19 period, when the government initiated a lot of support plans and subsidies for businesses, now we are dealing with the scarcity of these funds. The government will have to prioritize its spending, for instance, by increasing support for energy subsidies, military, and social policies. Not all market players will be happy about it.”

“At the moment, our team has been working to clear the backlog until the new wave starts,” he points out, noting that, “recently, the Czech supreme court announced its decision on a more than half-a-decade-long restructuring case for Oleo Chemical, which will likely shape future reorganization processes, setting out rules for good faith and honest intent of a debtor seeking reorganization, as well as guidance and limits for a challenge of the reorganization by creditors.”

“We have also seen an increase in financing work for energy companies in an effort to obtain liquidity to trade on energy markets. Such transactions tend to be in the hundreds of millions or even billions of euros,” he notes.

“The war is yet another event coming very shortly after the pandemic when the inflation rate was already quite high and as a result, and some market players are unable to cope with it anymore,” Tomola adds, noting that there are strong signals of new waves of insolvency and restructuring coming. “As for the legislation, the Czech Republic is among the few member states that have not yet implemented the EU directive on preventive restructuring. The lack of a legal framework has made restructurings in the Czech market more complex to execute,” he notes. “There is an urgent need to get the legal framework in place and ready to use before the next wave of insolvencies hits.”

Tomola adds that there is still an abundance of funds when it comes to the banking sector. “However, financial institutions are more careful about placing them – the funds are not available for everyone, and the interest rates have been increasing,” he explains. “Nowadays, an interest rate of 7-8% is normal, imposing an increased financial cost for loans and credits, which in return puts extra pressure on the companies to cover their financial liabilities.”

“We have been very busy in the banking sector. The difference is that some transactions have been reshaped, as the bond markets are virtually closed, forcing companies to return to more traditional credit or find new ways of financing,” Tomola highlights.

Former KPMG Lawyer Romana Szutanyi has joined Rowan Legal as Head of Employment.

According to the firm, Szutanyi has been practicing employment law for more than 15 years. Before joining Rowan Legal, Szutanyi spent almost three years with KPMG. Prior to that, she spent a year with Belina & Partners and, earlier still, spent 15 years with Vyskocil, Kroslak & Partners, between 2003 and 2018.

“Passing on knowledge and experience to students is as important to me as providing legal advice to clients,” commented Szutanyi. “I believe that my work at Rowan Legal will help both the development of business in the field of labor law and cooperation with students of domestic universities.”

“Romana’s focus and experience is a very important addition to our team,” added Partner Michal Nulicek. “She is a recognized expert in employment law with a number of key competencies and remarkable experience. Employment law has been a rapidly changing legal discipline in recent years, especially in the context of international mobility. I firmly believe that Romana will help us to further develop our activities in this area.”

Europe is awaiting the evolution of cybersecurity. On 3 May 2022, the Council and the European Parliament agreed on the so-called NIS 2 Directive (Directive on measures for a high common level of cybersecurity across the Union). NIS 2 repeals the currently effective NIS Directive.

What is going to change? NIS 2 expands the range of entities that will have to comply with cybersecurity rules. NIS 2 will apply on numerous if not most TNT companies. NIS 2 recognizes two types of sectors: essential and important. Most of the TNT companies will belong to the essential sector as the digital infrastructure sector entities. Those entities are internet exchange point providers, DNS service providers, cloud computing and data center services, content delivery network providers, trust service providers according to eIDAS and providers of public electronic communications networks and servicers. Besides digital infrastructure, other essential sectors are health, energy, transport, banking, public administration and space. In addition to the essential sector entities, there will be also TNT companies classified as important sector entities, i.e., postal services, or digital providers. Digital providers are providers of online marketplaces, search engines and social networking platforms. The difference between the sectors is, according to the Recital of the directive, the level of criticality or the type of service as well as the level of dependency of other sectors or services. 

Micro and small entities are excluded from the application of the directive unless they are explicitly mentioned by the directive. These SME companies usually play a key role for the economy and society, e.g., providers of public electronic communications networks and services. 

It is obvious that NIS 2 will significantly affect extended range of subjects. This extension was the crucial point in a discussion led in the process of adaption of the directive. The new obligations will bring an additional, first and foremost, financial burden to many subjects. However, the new entities should already be accustomed to some measures from GDPR, which makes no distinction between sectors and the size of entities.

The obligations of essential and important entities differ explicitly only in supervision. NIS 2 makes a distinction between ex ante and ex post supervision. The supervision of essential entities may take place in advance, while the supervision of important entities is carried out after a supervisory authority is provided with an evidence or indication that the entity does not comply with the rules. The essential entities will be subject to more stringent supervision and enforcement such as on-site inspections and off-site supervision, incl. random checks and regular audits.

Both essential and important entities have to take appropriate and proportionate technical and organizational measures to manage cybersecurity risks. The implemented measures have to take into account the risks to systems of the individual entity. NIS 2 is based on the assumption that every company is familiar with its own systems and their level of risk. NIS 2 requires an outcome consisting in ensuring of security level appropriate to the risks but leaves up, with a few exceptions, to the entities to assess which measures they implement to achieve the outcome. On the other hand, the measure should not impose disproportionate financial and administrative burden. NIS 2 emphasizes a risk-based approach. The entities have to adjust their cybersecurity risks management accordingly.

Contrary to the currently effective NIS Directive, NIS 2 determines which measures have to be at least taken by both types of entities. These measures are, i.e., risk analysis, information system security policies, incident handling, business continuity and crisis management, supply chain security, development and maintenance, including vulnerability handling and disclosure, policies and procedures to assess the effectiveness of cybersecurity risk management measures, and the use of cryptography and encryption.

The directive makes no difference between the essential and important entities in their obligation to implement appropriate measures: Nevertheless, the measures taken by the essential entity should, by their nature, take into account the importance that NIS 2 ascribes to this sector. The essential entities should certainly go beyond the obligatory measures set by NIS 2. In the future, the Commission may expand the list of obligatory measures taking into consideration new cyber threats, technological development or sector specialties.

By Eva Fialova, Attorney at Law, PRK Partners

PwC Legal has advised AMiT Holding co-founders and co-owners Michal Prerovsky, Martin Vosahlo, and Karel Ludvik on their sale of a 70% stake in AMiT Holding to Central Europe Industry Partners. Rowan Legal advised CEIP on the acquisition.

The Czech Republic’s AMiT Holding manufactures control systems and electronics for industrial and building automation. 

Central Europe Industry Partners is a private equity firm based in Prague, aiming to develop industrial companies together with their founders on a long-term basis.

PwC Legal’s team included Attorney At Law Vendelin Balog and Junior Associate Barbora Satrova.

Rowan Legal’s team included Partners Jan Frey and Vladimir Hejduk, Senior Associate Michaela Jirikova, Associate Gabriela Lunakova, and Paralegal Vaclava Vojtkova.

Kocian Solc Balastik has advised the Passerinvest Group on its acquisition of Prague’s Gamma office project from Immofinanz. Wilsons advised the seller.

“With the purchase of the Gamma building, Passerinvest continues its strategy of acquiring office buildings in Brumlovka,” KSB informed. “Passerinvest plans to modernize the building in order to maintain office space of the highest quality.”

The Gamma building has a total area of 30,000 square meters of lettable space on ten floors.

The Passerinvest Group is a Czech development company constructing residential, administrative, and commercial buildings and complexes.

Immofinanz is a commercial real estate group whose activities are focused on the office and retail segments in Austria, Germany, Poland, the Czech Republic, Slovakia, Hungary, Romania, and the Adriatic region.

“I’m very pleased that we managed to get the Gamma building back in our portfolio,” Passerinvest Group CEO Radim Passer commented. “Gamma is a very timeless building, architecturally and technically speaking. This acquisition is part of our long-term strategy because we are developing the Brumlovka complex and we want to offer our customers, as well as the inhabitants of Prague, a beautiful and sustainable urban environment in a functioning city district with all the pertaining attributes.”

The KSB team included Partner Jiri Hornik, Counsel Ivo Prusa, Lawyer Jakub Porod, and Junior Lawyers Zuzana Slaba and Marek Hais.

The Wilsons team included Partners Martina Krakorova and Martin Bendik and Senior Lawyer Matej Kucera.

A major amendment to consumer law is on the horizon in the Czech Republic, and although it has so far undergone only a first reading in the Chamber of Deputies, it is not premature to look at its content. As for the most part it consists of the implementation of European directives, which leave almost no room for deviation, no major changes to the proposed draft are expected to be made during the legislative process. Another focus of this legislative amendment is digital content, particularly the rights and obligations connected to its supply.

What is digital content?

Digital content supplied by a digital content trader for the user’s own use could be, for example, films, games, e-books or programs. The contract for the supply of digital content will be a contract for consideration, although the consideration does not always have to be money. It will also be possible to provide consideration in the form of, among others, the user’s personal data (this can be already seen on social networks). Digital content can of course be supplied even without the existence of this legislation. Its added value will therefore be primarily in clarifying mutual rights and obligations.

Right to digital content updates

One of the most significant clarifications in this respect is the arrangement of the right to update. The amendment provides that the user will be legally entitled to the updates that are necessary for the digital content to be used without defect for the duration of the contract. However, the trader will be able to avoid this legal requirement for updates by notifying the user during the contractual process that updates will not be supplied, which the user must explicitly agree to. In addition, the user of course will be entitled to contractually agreed updates. Regardless of whether the trader is obliged to provide updates by law or by contract, the user will have rights arising from defective performance if such updates are not provided.

Rights arising from defective performance

The issue of the burden of proof regarding the existence of a defect is generally related to rights arising from defective performance. Due to the specificity and complexity of digital products, the burden of proof lies on the digital content trader. If a defect manifests itself during the term of the contract, the trader must prove that the digital content is supplied without defects or that the defect was caused by the user, for example by having inadequate hardware, despite the user having been duly informed of the hardware requirements. Otherwise, the trader will be liable for the defect.

Single act of supply

If the digital content is supplied only once, applying the above rules would be very difficult. The amendment therefore proposes a special regime for these situations. In the case of a single act of supply of digital content, the trader is only liable for defects that were in the digital content at the time it was made available. In addition, the law will contain a traditional rebuttable presumption that if the defect manifests itself within one year of the digital content being made available, it already existed at the time of takeover.

The right to lawful updates is rather vague and may lead to interpretive ambiguity. This is because the user is entitled to such updates for as long as they can reasonably expect them. But what is a “reasonable expectation”? According to the explanatory memorandum to the amendment, the answer requires knowledge not only of the purpose of the digital content, but also of the circumstances surrounding the formation of the contract or the nature of the obligation. In this respect, the regulation has therefore left the door wide open for subsequent interpretation by the courts and others.

Consumer contracts

The aforesaid applies to the supply of digital content to any subjects. The amendment, however, will also introduce specific rights and obligations that will only apply if the user is a consumer. The requirements that the digital content must fulfil are themselves essential in relation to consumers. The digital content must not only be adequate for the agreed purpose, but also for the usual purpose, contain instructions with user support, have the appropriate quality, functionality, compatibility and interoperability, and must correspond to the preview or trial version, if provided in advance by the trader.

Conclusion

The proposed legislation is broad and would certainly deserve a longer and far more detailed examination. This article does not seek to answer questions that will ultimately be answered by judicial practice and to argue over the interpretative lack of clarity. It aims to provide the reader with at least a basic overview of the proposed regulation and to help them understand its importance.

By Michaela Švejnohová, Junior Lawyer and Tomas Klima, Paralegal, PONTES