Category: Czech Republic

Kocian Solc Balastik has advised Webglobe on the acquisition of domain registration and hosting service provider Savana.cz from founder Pavel Hofner.

According to KSB, “Webglobe was established in 2021 by the merger of the Czech companies Ignum, Stable.cz, and Hosting90 and belongs to the WY Group, which specializes in domain registration, web hosting, and management of demanding online infrastructures. Behind the WY Group is the investment fund Sandberg Capital.”

KSB’s team included Partner Drahomir Tomasuk and Lawyer Jana Guricova.

On the 10th of June 2020, the Grand Chamber of the Supreme Court of the Czech Republic passed a judgment in case Ref. No. 31 ICdo 36/2020, which dealt with the validity of a contract concluded between the sole proprietor of a company and the same company represented by its sole proprietor. In this case, the Supreme Court deviated from its past decisions on the issue of interpretation of the notion of manifest disruption of public order. Whereas the Supreme Court had previously interpreted the word “manifest” as expressing the degree of intensity of public disturbance, the current decision accepted that a manifest disruption of public order could be interpreted as an undoubted or unambiguous disruption of public order, without regard to the intensity of the disruption.

Thus, the Supreme Court concluded that a contract concluded between the sole proprietor of a company and the same company represented by its sole proprietor is as a rule absolutely invalid, unless it has been concluded in the form required by law, i.e. in written form and with officially certified signatures, or as the case may be, in another form that especially evidences the date and content of the concluded legal act.

The Supreme Court was resolving a dispute over the question whether an implied contract concluded between a company represented by its sole proprietor and the same proprietor is valid. According to Section 13 of Act. No. 90/2012., regulating Commercial Companies and Cooperatives (Business Corporations Act), as amended (hereinafter the “BCA”), a contract of this type is required to be concluded in written form with officially certified signatures, unless such contract is concluded in the ordinary course of business and under terms and conditions common for that business. Understandably, a contract that does not meet these requirements is sanctioned with invalidity, but the crucial question in that dispute was whether this meant absolute or relative invalidity. No one called the invalidity of the above-mentioned implied contract into question, however if a contract that is not concluded in the prescribed form pursuant to Section 13 of the BCA were sanctioned with relative invalidity, it would then be a validly concluded contract.

In order for a legal act to be absolutely invalid, it must either manifestly go against good morals, or contradict the law and at the same time manifestly disrupt the public order. In the discussed case, there had been no manifest breach of good morals. On the other hand, the failure to comply with the prescribed form of a legal act pursuant to Section 13 of the BCA definitely contradicts the law. Furthermore, the Supreme Court concluded that the violation of Section 13 of the BCA is also a disruption of public order. According to the Supreme Court, the reason for this was that the rules of law that protect legal certainty are part of the rules of law that protect public order, and Section 13 of the BCA protects the legal certainty of third parties, which sounds reasonable. The key issue of the dispute thus remained whether non-compliance with Section 13 of the BCA could be considered a manifest disruption of public order.

Manifest disruption of public order

The Supreme Court had previously held several times that manifest disruption of public order as per Section 588 Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter the “CC“) required a certain degree of intensity of disruption of the public order. So it could have been expected that in this case again the intensity of disruption of public order would be assessed in the case of non-compliance with the prescribed form of the legal act pursuant to Section 13 of the BCA. However, the Supreme Court assessed the case differently and held that manifest disruption of public order pursuant to Section 588 of the BCA meant an undoubtable or unambiguous disruption of public order.

This part of the decision is absolutely crucial and has a major impact on all private law. Essentially, the Supreme Court concluded that any legal act that (even slightly) disrupts the public order is absolutely invalid if this disruption is evident. The above-mentioned decision of the Supreme Court requires the addressees of the legal rule to respond by acting strictly in compliance with the sense and purpose of individual provisions of legal regulations.

Section 13 of the BCA impaсts even unilateral legal acts by the sole proprietor and the company represented by him/her

The Supreme Court also concluded in its decision that the requirement of written form and officially certified signatures pursuant to Section 13 of the BCA must also be applied to unilateral legal acts concluded by the sole proprietor and addressed to the company represented by its sole proprietor, namely by using argumenta a simili (per analogiam). The Supreme Court primarily used the sense and purpose of the given Section as an argument here, or more precisely, it referred to protection from retroactive “amendments” of legal acts (regarding both the content and dates of such acts), or to ensuring legal certainty and the protection of rights of third parties (creditors, etc.) against incorrect acts of the sole proprietor who is at the same time the representative of the company. The Supreme Court reached that conclusion despite the fact that in Section 13, the BCA refers expressly only to contracts (bilateral legal acts).

The above-mentioned conclusions are crucial primarily for sole proprietor companies represented by the sole proprietor to consider, for instance, when negotiating a contribution above the registered capital with a set-off agreement, in case of any type of unilateral set-offs, recognition of debts, etc. At the same time, such broad interpretation by the Supreme Court could also obviously impact the situation when an executive of a company leaves his office (if the function of executive is performed by the sole proprietor of the company). Even unilateral acts like this one would have to be concluded with officially certified signatures.

Application of the above conclusions to Section 13 of the BCA

In light of the decision of the Supreme Court discussed above, it is recommended that all legal acts (both unilateral and bilateral) between a sole proprietor company represented by such sole proprietor and the same sole proprietor be concluded in compliance with the requirements of Section 13 of the BCA, or in compliance with the sense and purpose of this Section, meaning that the date (when it was concluded) and content of the act at issue must be manifestly stated in such a way that they could not have been and cannot be additionally or subsequently amended in any possible way.

However, the Supreme Court conceded that as long as some related or subsequent legal acts demonstrate that the sense and purpose of Section 13 of the BCA have been maintained despite the fact that the act was not concluded in written form and with officially certified signatures, this act need not necessarily be absolutely invalid. Therefore, if with regard to the circumstances no doubt can be cast on the content and date of conclusion of the legal act, then such act does not disrupt the public order and is not sanctioned with absolute invalidity. Clearly, the sense and purpose of Section 13 of the BCA can be fulfilled even when a notarial deed on some other legal act is executed as a follow-up to the legal action outlined above. This notarial deed should refer in a way that is specific enough to the specific legal act concluded earlier. If a notary, for instance, among other things states in a notarial deed that the notary was presented a certain contract concluded on a specific date (even though without officially certified signatures) with certain content, it can be assumed that this would also be sufficient proof of the date of conclusion of the legal act, and most probably of its content.

Conclusion

We consider the above-mentioned decision of the Grand Chamber of the Supreme Court to be a fundamental one, because it quite significantly changes the concept of absolute invalidity in Czech private law. The Supreme Court deviated from its past legal decisions: previously, it had interpreted manifest disruption of public order as disruption of public order of a certain intensity, whereas now it interpreted it as undoubtable or unambiguous disruption, regardless of the intensity of such disruption. Legal acts that contradict the law and evidently disrupt the public order (regardless of the intensity of this disruption) are absolutely invalid, unless they fulfill the sense and purpose of the legal rules applicable to this legal act.

This decision is also groundbreaking in respect of broadening the interpretation, whereby unilateral legal acts of a proprietor of a sole proprietor company towards the company that is represented by the same proprietor, or vice versa (regardless of the grounds for the authorization to act), are also subject to the requirements stated in Section 13 of the BCA. Therefore, it is recommended that in such cases all legal acts that are concluded between such parties be in written form and with officially certified signatures, or, if necessary, in any other form that evidences the date and content of the legal act.

By Martin Subrt, Partner, Irena Kolarova, Senior Associate, and Pavel Visek, Junior Lawyer, Rowan Legal

Act Legal Czech Republic has advised Sokolov on the construction of a CZK 140 million facility that will help the company transition from coal to natural gas as its energy source.

Sokolov is a subsidiary of international chemicals producer Synthomer. According to the firm, “the original coal source was built in the Sokolov chemical plant in 1917 when the plant itself was established. The new source of steam production in Synthomer will include three high-pressure steam boilers that will burn natural gas.” It further informed that “thanks to the new source, CO2 emissions will be reduced by a third, emissions of other pollutants and water abstraction from the Ohre River will significantly fall.” 

Kocian Solc Balastik has advised Sandberg Capital on the acquisition of a 40% stake in Daktela.

Sandberg Capital is an investment management company that invests in small and medium-sized companies in the IT, telecommunications, agriculture, education, and retail sectors of Central and Eastern Europe. It carried out the acquisition through its Sandberg Investment Fund II.

Daktela is a Prague-based provider of contact center solutions. 

KSB’s team consisted of Partner Drahomir Tomasuk and Advocate Jan Beres.

The firm did not reply to our inquiry about the deal.

On 31 January 2022, the “new” Regulation (EU) No. 536/2014 of the European Parliament and of the Council of 16 April 2014 on clinical trials on medicinal products for human use and repealing Directive 2001/20/EC (the “Regulation“) will enter into force. After several delays (the launch was originally planned for 2015), the European Medicines Agency (the “EMA”) has confirmed to the Commission that the EU portal and the EU database, which were a prerequisite for the launch, are now fully functioning. At the same time, the EMA confirmed that the EU portal and database will be put into operation on 31 January 2022. As of this date, the Regulation will become fully applicable in all EU Member States.

EU PORTAL AND PUBLICLY ACCESSIBLE EU DATABASE

The EU portal will serve as a single “entry” (communication) point for the submission of data relating to clinical trials. Henceforth, applications for clinical trials will be submitted through this portal only (and not to all local administrative bodies) and will be assessed through this portal. All data will be stored in a publicly accessible EU database (that is to avoid unnecessary duplication with the EudraCT and Eudravigilance databases, as expressly stated in the Regulation).

Besides applications for the authorisation of a clinical trial, sponsors will also submit through the EU portal, for example, notifications of the start, temporary halt or termination of a clinical trial in each Member State, as well as a summary of the results and a clinical study report.

Although it will be a public database, some data will be excluded from publication. For example, the personal data of data subjects or confidential information of a commercial nature, in particular with regard to the status of marketing authorisation of a medicinal product, “unless there is an overriding public interest in disclosure”.

It will be interesting to see how the concept of public interest evolves, as, particularly in the current pandemic era, COVID 19 medicinal products and vaccines are very often discussed in the media even before they are authorised. Other exemptions from disclosure will include, for example, confidential communications between Member States in connection with the preparation of an assessment report and data needed for effective supervision over clinical trials across the EU.

UNIFORM RULES FOR CLINICAL TRIALS

The Regulation aims to ensure uniform rules for conducting clinical trials across the EU. To this end, it introduces in particular an authorisation procedure based on a single submission via the EU portal and an evaluation procedure leading to a single decision. The submitted application will be assessed by all Member States concerned for their own territory in the light of specified aspects, providing that the decisive conclusion on the acceptability of the clinical trial will be made by the reporting Member State. The Member States concerned may disagree with this conclusion only on the grounds listed in the Regulation.

The Regulation is also intended to harmonise rules for the protection of subjects, including requirements for informed consent. In this context, the Member States are free to decide regarding the signatures of an incapacitated person and a minor who is capable of forming an opinion and assessing the information obtained.

The Czech legislature took advantage of the possibility for minors and, by an amendment to Act No. 378/2007 Sb., on Pharmaceuticals and on Amendments to Certain Related Acts (the “Act on Pharmaceuticals”), it included a requirement for the consent of a minor where it is appropriate to his or her intellectual and volitional maturity. In the Czech Republic, persons with limited legal capacity as well as other groups of persons in a “subordinate or dependent position” may only be subjects of trials under stricter and exceptional conditions (set out beyond the scope of the Regulation).

The harmonisation will also affect safety reporting. The Eudravigilance database operated by the EMA is now expected to allow for joint reporting when more than one investigational medicinal product is involved in a clinical trial. Only in the case of serious unexpected adverse reactions will the Czech Act on Pharmaceuticals allow the Czech State Institute for Drug Control (the “SIDC”) and the sponsor to enter into an agreement, subject to the requirements set out in the Regulation, under which the sponsor will report suspected serious unexpected adverse reactions directly to the SIDC (that will further report them to the EMA). It is open to consideration whether or not the conclusion of the agreement (leading to dual reporting) will be a practical benefit for sponsors that they will use after the Regulation comes into force.

Jointly with the Regulation, the Commission Regulation on good manufacturing practice for investigational medicinal products for human use, including detailed Commission guidance on the same, will also enter into force.

ARCHIVING PERIOD FINALLY UNIFIED?

As for archiving periods, a clinical trial master file should, under the Regulation, be retained for 25 years after the end of the clinical trial, on media ensuring the completeness and legibility of the content throughout that period, so that it can be made available to the competent authorities upon request. This is expected to harmonise the fragmented implementation of the periods in the Member States.

For the Czech Republic, it should also remove the uncertain situation where, in 2017, in anticipation of the Regulation coming into force, the Czech legislature deleted certain provisions from the Act on Pharmaceuticals to avoid conflicts with the Regulation (which, however, is only now coming into force).

As a result, for the Czech Republic, the current Czech regulations used only the minimum 15-year period for the retention of identification codes, and the sponsors have already now resolved the often difficult issue of archiving periods for those 25 years applicable to all Member States in which the clinical trial took place. It should be added that the retention periods for pharmacovigilance and medical records are not subject to this harmonisation.

APPLICABILITY OF THE REGULATION AND TRANSITIONAL PERIOD

The Regulation will only apply within the EU. However, its principles regarding the rights and protection of subjects and the robustness of the data generated in the trial should also be complied with for those clinical trials conducted outside of the EU and are to be the basis on which an EU marketing authorisation application is to be filed.

Current clinical trials will be subject to a transitional regime. The Regulation provides that if an application for authorisation of a clinical trial was submitted before the effective date of the Regulation under Directive 2001/20/EC (the “Directive”), such clinical trial will continue to be governed by the Directive until three years after the effective date of the Regulation, i.e. until 31 January 2025.

If the application is submitted between the sixth and eighteenth month after the publication of the notice on the functionality of the EU portal in the Official Journal of the European Union, the clinical trial (of the sponsor’s voluntary choice) may be started in accordance with the Directive and will be governed by the Directive for 42 months from the date of the notice. Thereafter, clinical trials are to be fully subject to the regime of the Regulation.

By Vaclav Audes, Partner, and Katerina Slavikova, Associate, Havel & Partners

Do your employees ask for the possibility of working regularly from home? What happens if home is abroad? Remote work from abroad brings risks for any company, and each company should evaluate these risks and consider them when setting up a remote work policy for its employees.

Due to the COVID-19 pandemic, many employees had to work from home. In our globalised world, a lot of them had their homes abroad, i.e. in a different country than the country where they had been originally working. Now, it is clear that remote work, including remote work from abroad, is and will be in demand from many employees. Thus, employers must start considering how to satisfy these requests without exposing their companies to any risks.

Remote work is a term, which covers various forms of work from a different place than the office, chosen by the employee. Typical kinds of remote work are: (i) Work from home, local or abroad; (ii) Telework – work from anywhere; (iii) Workation – work from a holiday destination; or (iv) Virtual assignments – where an employee of one group company works in the team of another group company, which is itself a separate entity and located in another country. Each of these situations can trigger specific risks for the employer and could result in significant additional costs.

The risks are related to the following:

• Labour law, health and safety rules, and financial reimbursement for work from home
• Personal Income Tax and the related obligations on both the employer and the employee
• Social security and health insurance
• Immigration
• Corporate Income Tax – permanent establishment
• VAT
• Transfer Pricing
• Regulatory issues

When setting up remote work rules and policies, employers should always analyse the risks and factors that affect them. This includes analysing the actual situation in the company. The employers should consider whether they already have a system in place for managing remote work, and whether it covers all of the above factors and potential risks. To be able to evaluate these risks, they can further consider inter alia: What is the most frequent type of remote work used or required? What country is the most frequent in the case of remote work from abroad? How many employees are actually involved?

The employer should also consider practical issues such as the availability and working hours of the employee (different time zones), and the channels of communication.

For further information on remote work and how to set it up in your company, feel free to contact us.

By Iva Bilinska, Senior Managing Associate, Deloitte Legal 

The amendment to the Business Corporations Act effective from 1 January of this year (the “Amendment”) brings, among other things, a significant change in the liability of members of a statutory body, which will affect the current topic of insolvency.

Members of a statutory body may now be liable in the event of insolvency for a much wider range of misconduct than was the case until the end of 2020. And not only them. The Amendment explicitly widens the range of persons to whom the new liability rules will apply.

In this article, I look at the most important ways in which the liability of members of a statutory body has become harsher, namely by introducing the institute of the so-called action to supplement liabilities (žaloba na doplnění pasiv). Given the limited scope of this article, I leave aside the issue of the possible obligation to surrender a benefit from an executive service agreement in the event of the company’s insolvency.

Action to supplement liabilities

The Amendment introduces direct liability of members of the statutory body, i.e. in addition to the usual liability towards the company, liability is introduced directly towards creditors through an action to supplement liabilities. If the company’s insolvency is resolved by a declaration of bankruptcy, the insolvency court may impose an obligation on the members of the statutory body to provide monetary fulfilment up to the amount of the difference between the sum of debts and the value of the insolvent company’s assets.

Wider range of misconduct

In contrast to the previous regulation, which related to the breach of the duty to act with due managerial care and was based on the principle of guarantee, the Amendment concerns the breach of any duty by a member of a statutory body and is based on the principle of liability for damage.

The condition for liability to arise is that the member of the statutory body “contributed” to the insolvency by violating his or her duties. The concept of contributing to insolvency is not further specified and is so broad that it includes both active conduct and failure to act, intentional action and negligence. Among the examples cited in the explanatory memorandum are distorted bookkeeping, disproportionate or inappropriate investments, continuation of loss-making activities without taking appropriate measures or embezzlement of company assets.

At the same time, the Amendment does not in any way limit the period in which a member of the statutory body should have committed such misconduct. On the contrary, the original legal regulation assumed that the misconduct occurred at the stage of imminent or actual insolvency.

Wider circle of liable persons

The Amendment further expands the circle of persons with direct liability for the company’s insolvency to former members of the statutory body, persons in a similar position and so-called factual and shadow directors.

From when?

The new legislation will apply to insolvency proceedings opened from 1 January 2021 onwards.

Motivation of the insolvency administrator

Where actions once could have been brought by individual creditors or the insolvency administrator, now it is only the insolvency administrator that can do so. The original legislation was in any case rarely used in practice. Creditors usually did not have enough information to bear the burden of proof, and insolvency administrators lacked the motivation to enforce because it was a civil dispute and the proceeds did not go to the insolvency estate (the insolvency administrator’s remuneration was also tied to the amount of its monetisation).

This will probably change with the new regulation. Now it constitutes an incidental dispute under the Insolvency Act and the proceeds will become part of the insolvency estate, which will then be distributed among the creditors, meaning the insolvency administrator has an economic interest in its amount.

Discretion of the court

The amount paid by a member of a statutory body into the insolvency estate will be at the discretion of the court, which should consider, in particular, the extent to which the breach of duty has contributed to the insufficient amount of the insolvency estate. This discretion is limited by the difference between the amount of the debts and the size of the insolvency estate, as mentioned above.

Reorganisation

Remember that one of the conditions for the direct liability of members of statutory bodies is a declaration of bankruptcy on the company’s assets. If reorganisation is allowed, the obligation to supplement liabilities cannot be imposed on the members of the statutory body, which could motivate the company’s management to resolve financial difficulties in time and try to find a rehabilitation solution to the insolvency while maintaining the company’s operations.

Conclusion

Under the new legislation, it will now be even more important for members of statutory bodies and persons in a similar position to properly monitor the company’s financial health and, in particular, to address any economic difficulties in a timely manner. They are well-advised to familiarise themselves with this legislation in good time and, if necessary, to take appropriate measures.

By Natalie Rosova, Attorney at Law, Schoenherr

According to its recently published annual report, the Office for the Protection of Competition of the Czech Republic (the “Office“) plans a thorough investigation of the pharmaceutical sector, in terms of compliance with both competition and public procurement rules.

In this context, the Office will carry out an extensive sectoral investigation in the pharmaceutical sector, focusing in particular on the distribution of pharmaceuticals. According to our information, the Office has already initiated the first steps to investigate selected practices in the pharmaceutical sector. It has also established cooperation with other public institutions, such as the Czech Chamber of Pharmacists, the Czech State Institute for Drug Control (SUKL), the General Health Insurance Company of the Czech Republic (VZP) and the Ministry of Health, which will assist in the detection of possible anti-competitive practices within the framework of the sectoral investigation.

It can therefore be expected that the Office will turn to a number of entities from the pharmaceutical sector as part of the planned investigation, in particular pharmaceutical manufacturers, distributors, pharma-cies, health insurance companies, healthcare providers and other relevant entities. The Office has quite extensive powers within the sectoral investigation. It can conduct  unannounced raids at the business premises of companies and require intensive cooperation from the investigated entities, under the threat of high, often multi-million Czech crown fines.

In this context, we recommend that individual companies prepare thoroughly for possible investigations by the Office. This preparation should focus first on the correct set-up of internal processes and compliance manuals. Ideally, it is also advisable to conduct training of management and selected personnel so that they are able to respond adequately in the context of an investigation and do not expose the company and themselves to the risk of sanctions.

By Petr Zakoucky, Managing Partner, and Adam Prerovsky, Senior Associate, Dentons

Kocian Solc Balastik has advised J&T IB Capital Markets on Alpha Quest Funds’ CZK 500 million senior bond issuance due 2026.

According to KSB, Alpha Quest Funds SICAV p.l.c. “issues bonds on behalf of its sub-fund Alpha Quest Balanced Fund, which invests primarily in restitution coupons issued by the Republic of Romania.”

KSB’s team was led by Partner Vlastimil Pihera.

The firm did not reply to our inquiry about the deal.

CMS has advised Bluehouse on the sale of its Ostrava-based shopping center Korso Karvina to Conseq. Eversheds Sutherland advised the buyer.

According to CMS, Bluehouse is a private equity real estate investment and asset management firm focused on Central and Southeastern Europe. Conseq is an investment manager with over 27 years of history in the Czech capital market. In addition to managing institutional portfolios, it has been managing and administering investment funds for 21 years and providing other services to retail and institutional investors.

CMS’s team included Partner Lukas Hejduk, Associates Michal Samek and Lenka Kucerova, and Paralegal Eva Tichavova.

The Eversheds Sutherland team consisted of Partner Dominika Vesela and Senior Associate Rudolf Kristian.