The Legal 500

Instrument for Discrimination of Suppliers?

The common practice of contracting entities in the Czech Republic is to reduce, usually through a draw procedure, the number of candidates (tenderers) which are allowed to compete with their offers for public contracts in restricted public procurement procedures, which in reality reduces the competition among tenderers instead of providing any real benefit to the contracting entity.  

After years of uncertainty, in 2011 the Czech Republic finally passed an amendment to the Commercial Code explicitly allowing for the limitation of damages in agreements under Commercial Code between entrepreneurs and companies.

Alternative dispute resolution is an important consideration in the Czech Republic, particularly on account of the fact that judicial proceedings in the state courts can take up to several years. Arbitration is currently in common use in the resolution of both national and international disputes.

A merger of Slovak limited liability companies and an up-stream merger (of a mother and a daughter companies) of Slovak joint stock companies can be much easier than one might first think, and the benefits can significantly outweigh the costs. Mergers are perceived as an instrument that is most commonly used during economic growth. But in specific situations it can also be a useful instrument during an economic downturn.

The term “Due Diligence” is commonly used when referring to a process through which a potential buyer evaluates a target company, an enterprise or its assets. Typical due diligence usually focuses in particular on the area of law, taxes and finance with the aim on emphasizing strengths and weaknesses of the target and detecting risks connected with its acquisition. For the sake of simplification, we will use the term “enterprise” or “target” when talking about subject matter of the due diligence.

Against the backdrop of the worsening economic conditions, company management are often faced with the decision whether certain business activities should be terminated or if different measures should be taken with respect to cost reduction. In this article, we will examine various measures that can be taken within a given context. At the same time focus will be placed upon the circumstances in respect of individual cases. Concurrently, it is nevertheless always advisable to carry out a detailed and extensive analysis of the economic, tax and legal aspects in regard to the circumstances surrounding the given case.

Public procurement is a significant part of the Czech economy and constitutes more than 17% of its GDP. Public procurement is regulated by Act No. 137/2006 Coll., on Public Contracts and Act No. 139/2006 Coll., on Concession Contracts and Concession Procedure (Concession Act).

The main corporate entity to be discussed is a joint-stock company (a company limited by shares, the “Company”). The Company issues shares and such shares that are recognised must be in documentary or book-entered (registered in Security Centre) forms are. Subject to the approval and fulfilment of the statutory conditions, the shares may be submitted for trade on the publicly (regulated) markets. The minimum amount of registered capital is equal to CZK 2,000,000.

Anybody engaged in any entrepreneurial activity may, sooner or later, ask how they could or should terminate their business and handle the assets used for the entrepreneurial activity and the related liabilities. Upon the sale of an ownership interest or shares or the entire enterprise, one must prepare for time, finance and physically consuming process of negotiating with the buyer. This applies mainly if the buyer is a member of a large holding which may be expected to be well experienced in similar transactions. 

Under Czech law, public bids are considered public proposals to purchase shares, interim certificates or other transferable securities in public joint-stock companies incorporated in the Czech Republic when a bidder intends to acquire stock in such company to allow it to establish control or increase its existing control over a target.

The amendment to the Act on Trading in the Capital Market, which was published in March 2006 in the Collection of Laws, significantly amended the Commercial Code and other legal regulations. The change to the Commercial Code considerably simplifies the processes related to transfer of a business or a company’s assets and liabilities and affects the provisions on de-merger of a company. The amendment also contains new, more extensive regulation of the obligations of securities issuers whose securities are to be offered to a broader public range of persons within a public offer of investments securities. The amendment extends the provisions of the Civil Code on consumer contracts to include the new legal regulation of distance contracts for financial services.

Within the operations of business companies, various transfers of assets take place between the companies and other persons that are in a close legally defined relationship with them.

ambruzdark_law_firm_legal500_article_1

It has been 15 years now since bankruptcy law was reinstated in the Czech Republic. In the course of that period, it has been changed and adapted several times. Now, both businessmen and non-businessmen resident in the Czech Republic may look forward to seeing a brand-new bankruptcy law coming into practice. The modern concept of bankruptcy for both natural and legal persons in the form of the new Insolvency Act has recently passed through the legislative process and will become effective as of 1 July 2007.