Despite the ongoing political events, the Czech Republic is keeping up with the global trend of a record-breaking number of yearly M&A transactions, according to Taylor Wessing Partner Janka Brezaniova.
“Right after the general parliamentary elections, the Czech Republic is experiencing an unprecedented situation regarding President Milos Zeman’s possible physical incapacity to run the office due to his recent hospitalization,” Brezaniova reports. “The constitutional clause that mandates temporary delegation of presidential powers to other constitutional bodies has never been invoked, in the modern history of the Czech Republic,” according to her. In addition, Brezaniova highlights that the newly elected Chamber of Deputies will only start exercising its power after November 8, 2021 (when the new Chamber of Deputies will hold the first opening session) and, considering the potential introduction of constitutional mechanisms regarding the president’s incapacity, a lot of uncertainty and instability is present in the political sphere.
As for the legal updates, Brezaniova reports that one of the heated topics is related to a new law on the registration of Beneficial Owners (UBOs). “The rationale behind this law was to implement the EU AML Directive, however, I believe that the Czech law imposes considerably stricter obligations on companies, compared to other jurisdictions,” she continues. “The law requires all legal entities, including foreign companies, to register new UBOs, however, applying Czech law to foreign structures has created a lot of bureaucratic hurdles. Meanwhile, the inability to comply with the rules can lead to not only public law sanctions, but private law liabilities, which is quite extraordinary,” Brezaniova notes. She concludes that, while the law primarily aims to prevent money laundering, in practice it may have significant implications on transactions and day-to-day operations. “The negative effects related to UBOs not being registered will be more evident next year, when the companies finalize their financial statements. The shareholders would be expecting their dividends which, however, might not come because directors would be reluctant to pay them out – so that they do not breach their duty of care and do not expose themselves to liabilities and damages claims,” she says.
Brezaniova reports that, while compared to the previous year the business sector is significantly more active, the country faces certain challenges in the economic sphere. “First of all, as many other EU markets, the Czech Republic is experiencing an energy crisis and growing energy prices. Some companies have already stopped supplying energy, and while there are regulatory mechanisms in place to protect customers, there could be a rise in class action lawsuits,” she notes.
“Secondly, we have experienced a crisis in the automotive industry. The COVID-19-related shortage of semiconductors, which are used to produce chips to install in cars, had a severe impact on the Czech Republic, which is an automobile industry country,” Brezaniova says. “It limits automobile production, as well as employment, which has an overall impact on the whole production chain in the Czech Republic.” Consequently, she notes that automobile associations are now seeking support as the most impacted business supply chains, for instance, by adopting temporary employment and COVID-19-related programs. The representatives of trade unions, government, and employers have also met to address possible tools leading to solving the current labor market situation.
Another development impacting law firms’ day-to-day activities, Brezaniova says, was the election of new members of the Czech Bar Association’s bodies, such as the board of directors, supervisory council, and disciplinary commission, that occurred at the Assembly of the Czech Bar Association, which is convened every four years. According to her, the results of the elections are promising, as “colleagues want to bring more flexibility and modernity to the legal profession, adapt to the changes in the market, as well as promote digitalization in the legal field.”