Company Director Checklist Czech Republic. Contact:

Transcription

1 Company Director Checklist Czech Republic Contact:

2 Item Section Check Item Section Check Understand Your Role and What is Expected of You 1 Ongoing Duties Key Duties 5 9, 11, 19 Corporate Governance of the Company and its Position Within the Holding Group 1 Potential Conflicts of Interest 10 Remuneration 1 Reporting, Disclosure and Other Duties Corporate Governance Procedures 1, 20 Directors Relationship with the Company Obligations Within a Holding Meet Structure CEO and CFO 2 Acquisition of Property 18 HR director 2 Insolvency 19 Other directors 2 Good Corporate Governance 20 Senior managers 2 Potential Criminal Liability 21 Auditor 2 Insurance 22 Company lawyer 2 Resignation 23 Review Historical Accounts 3 Founding and other Basic Corporate Documents 3 Board Papers and Minutes 3 Minimising Loss 24 Lists of Salaries and Bonuses 3 Announcements to the Czech National Bank 3

3 INTRODUCTION This Company Director Checklist has been designed as a practical guide to the main obligations of Executive Directors of a limited liability company (in Czech: jednatel společnosti s ručením omezeným) and the members of the Board of Directors of a joint-stock company (in Czech: člen představenstva akciové společnosti) under Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter the Civil Code or the CC ) and Act No. 90/2012 Coll., the Business Corporations Act, as amended (hereinafter the Business Corporations Act or the BCA ). It is intended solely as a general overview of the main issues in the context of company operations, and should not be taken as a substitute for professional advice. Rather this checklist seeks to highlight areas where such professional advice may be required. This checklist was updated on 31 March Disclaimer: This Company Director Checklist contains only general information about the issues discussed herein and does not provide a complete and total analysis of each and every issue related to its subject matter or an exhaustive discussion of all potentially associated situations. The information presented in this checklist is given solely about and according to the laws of the Czech Republic and the regulations and interpretations of those laws as they exist on the date hereof, unless expressly stated otherwise. No advice is expressed or implied about the laws of any other jurisdiction. This Company Director Checklist is not intended to be quoted from or relied on by any person. The views of Achour & Hájek represent our counsel s best legal assessments, which are subject to challenge by, and not binding on, any government agency or court. This Company Director Checklist is based on existing laws, judicial decisions and administrative regulations, rulings and practice, all of which are subject to change at any time, with prospective or retrospective effect. New developments in the form of the rulings of any agency, administrative regulations, court decisions, legislative changes or changes in the facts or other information on which this checklist is based, may have an adverse effect on the legal conclusions or consequences described herein. Any such change could be retroactive and therefore apply to the issues discussed in this checklist. Achour & Hájek disclaims liability for any act performed or any decisions adopted in reliance on this publication.

4 Action/Issue Comments/Notes Before Appointment 1. Understand Why you have been approached and what you are expected to contribute to the company; The remuneration package on offer; Prerequisites to accepting an appointment: You have something worthwhile to contribute to the company; The existing corporate governance procedures; You can meet the expectations for your The position of the company within a potential holding group; and Your responsibilities and liabilities. contribution; You are not expected to be a passive director but will have a meaningful vote; The remuneration package meets your expectations; Adequate corporate governance procedures are in place in the company to ensure that you can perform your tasks effectively and be protected; The position of the company within the holding group enables you to fulfil your duties, The company you are about to manage is not expected to be a service company ; and You fully understand your responsibilities as well as the potential consequences in the event of their breach. 2. Meet Chief Executive Officer and Chief Financial Officer; Obtain a brief account of the history and strategy of Human Resources Director; the company; Other directors (including information technology, Understand the major performance drivers and key internal auditing, marketing and other key directors); performance indicators; Senior management team;

5 Action/Issue Comments/Notes Auditor; and Get a Strengths, Weaknesses, Opportunities, Company lawyer. Threats (SWOT) analysis of the company; Get background and resumes for other directors and key members of the management team; Understand relationships and roles within the management team; Get information about any expected changes in your team; Understand who are the key suppliers and customers; Understand the status of relationships with employees and trade unions (if applicable); Get the auditor s input and perceptions of historical accounts and disclosure issues; and Understand key legal relationships, past and current litigation, and issues with compliance and regulators. 3. Review The company s five past statements of accounts; Have any abnormal losses explained; The company s founding documents, in particular its Review accounts for trends; Memorandum of Association and Statutes (if Review the valuation of assets; applicable); Review the company s founding documents for any Board papers (ie, documents related to the decisions possible restrictions on your powers and specific of both the Board of Directors and the Supervisory duties; Board) and minutes of relevant meetings for the Review Board papers and minutes to get an previous year; overview of current or upcoming issues;

6 Action/Issue Comments/Notes Lists of salary and bonuses awarded to employees Review the salary and bonus structure to see and key management over the past three years; Announcements made with respect to the Czech whether the remuneration system is proper and effective; National Bank if the company is listed; and Review the company s announcements to ensure it Press clippings for the previous year. has made full and timely disclosures to the market; and Review the press clippings to get an idea of the general image of the company. Ongoing Duties 4. Think About The information that has been provided to you by the In particular, watch out for: company and the quality of that information; Shadow directors do any of the directors (or other The information you have obtained from talks with managers) exercise undue control over the individual employees and members of management; company s assets or affairs? The information you have obtained from independent Inactive non-executive directors do the nonexecutive sources and how it compares with information provided by the company and concerned individuals; directors act as a check on the actions of other directors and the management team? The information you have obtained from the press; Lack of independence does the company have an Whether there are any gaps in the information you have been provided with or obtained; and independent auditor or another body that provides non-biased information regarding the company? Your impressions of the company s team of Inadequate internal controls does the Board of managers, employees and advisors. Directors act effectively? Are reporting duties adequate? Is each of the company s directors and senior managers informed about the company s operations and financial status? Are concerns dealt with in a timely and effective manner?

7 Action/Issue Comments/Notes 5. Key Duties As a director, you are obliged, in particular, to: You may authorise another member of the Board of Personally manage the company; Manage the company with due care and diligence (in Czech: péče řádného hospodáře); Act in accordance with the interests of the company; Directors (or the Supervisory Board if you are a member of the Supervisory Board) to replace you at the relevant Board meeting, and to vote on your Ensure that the company s records and accounting behalf at that meeting, provided that this are properly maintained; authorisation is only for a single occasion; Maintain the list of company shareholders; Your obligations relating to due management are Maintain confidentiality regarding the company s discussed in Section 8 hereof; affairs; The obligation to act according to the company s Comply with the non-competitive conduct clause; Inform shareholders about the company s affairs; Convene the company s General Meeting; and File an insolvency petition in the event the company interests is not prescribed by law. However, it is the basic feature of the statutory body of a company and is why directors are chosen to manage the company; becomes insolvent or is overburdened with debts. Key company records include, in particular, the company s annual report and statement of accounts, which must both be filed in the Collection of Documents of the relevant Commercial Register. You do not need to file these records in person, but you must prove that you have authorised a competent person to file them on your behalf; In the event of any change affecting the shareholding structure, the appropriate list must be amended;

8 Action/Issue Comments/Notes Each company tries to protect certain information that is vital for its business activities. Such information constitutes so-called trade secrets, which include any data connected with the company that is competitively significant, verifiable, valuable, not commonly available in the relevant business field, and whose reasonable security is ensured by the data owner. Such information must be protected by the company as well as by its directors; By law, you are prohibited from performing certain other activities (See Section 10 hereof); At the company s General Meeting, you should always inform the shareholders present about any and all of the company s affairs and allow shareholders to check all required documents; Unless the company s Articles of Association provide otherwise, you should convene the company s General Meeting at least once a year (the General Meeting approving the company s statement of accounts must be convened within six months of the end of the accounting period); and Your obligations relating to the company s insolvency are discussed in Section 20 hereof.

9 Action/Issue Comments/Notes 6. To Whom Duties Are Keep in mind that: You do not have a legal duty to act in the interest of Owed Under Czech law, directors are entrusted with the socalled business management of the company; Your duty is always to act and perform business management with due managerial care and diligence, and in the best interests of the company; and If you fail to fulfil your duties, the company may sue you for damages. employees. 7. Duty of Skill You must apply all your skills in order to fulfil the Neither the Civil Code, the BCA nor any other law statutory obligation to perform your duties with due managerial care and diligence. requires that you have a specific educational background or skills. You are expected, however, to have a certain level of knowledge and the required experience for a person in your position; This will usually include basic knowledge in the fields of economics and law, as well as certain soft skills and the ability to analyse information, make decisions and be a leader; You should also be able to delegate tasks and decide when professional help is needed; You should understand the skills of your managers and others you rely on to provide information about areas outside your expertise, and be able to build a management team. In the event that these people are not trustworthy, consider replacing them. You may also enhance their motivation by suggesting

10 8. Duty of Care and Diligence Action/Issue Comments/Notes their promotion or election to the Board of Directors or the Supervisory Board; and Different approaches will apply to a person with advanced knowledge and experience in a particular business-oriented field and those educated in a field unrelated to company management. The former will, to a certain extent, be expected to evaluate documents provided by experts and to make decisions based on them. The Civil Code requires that you always act with Acting with due managerial care means acting in a due managerial care. way that is (i) loyal, (ii) based on enough information and (iii) thorough; When assessing whether or not a director has acted with due managerial care, account is taken of the care that would be exercised in a similar situation by another reasonably thorough person in the director s position; Due managerial care includes the ability to decide which issues should be handled by an expert in a certain field; A breach of due managerial care may result in a claim for damages and it is important to stress that directors are liable for all damage which the company incurs in connection with a breach of this duty on their part;

11 9. Delegation and Reliance on Others Action/Issue Comments/Notes Should any dispute arise as to whether a director has been acting with due managerial care, the burden of proof will always rest with the director to prove his or her proper conduct, unless the court decides this would be unjust, in which case the company must bear the burden of proof; and Any agreement excluding this directorial liability will be deemed null and void. You are supposed to carry out your tasks in person, You cannot grant a general power of attorney to a but you may be represented by another person in third party for the purpose of delegating the powers individual cases when performing directorial duties; entrusted to a director by law; You may (and should) delegate certain individual You can, however, delegate parts of your tasks; tasks (such as the administration of accountancy or The basic requirement mentioned in Section 8 that legal issues) to other persons if you do not possess you act with due managerial care also relates to the required expertise; decisions about delegating company issues, as The activities of the Board of Directors or Supervisory well as to selecting proper persons for the Board may be divided among the members of the delegated tasks; relevant Board, but every member remains personally You should always make sure that the person responsible for supervising how the company is responsible for a particular area has adequate governed; and expertise; You will always be held liable for damage caused to It is not possible to limit liability by contract (any the company if you breach a legal duty in performing contract excluding or limiting your liability will be your role. null and void); and You will not be held liable if you make a decision in reliance on an expert opinion (such as the opinion

12 Action/Issue Comments/Notes of a lawyer or tax advisor), provided that the opinion does not appear incoherent. 10. Conflicts of Interest When serving as the director of a company, you must: Inform other members of the Board of Directors and the Supervisory Board (or if none exists, the General Meeting) if you have any interest that might conflict with the interests of the company; Inform other members of the Board of Directors and the Supervisory Board (or if none exists, the General Meeting) of any interest held by your relatives or persons controlled by you that might conflict with the interests of the company; Inform other members of the Board of Directors and the Supervisory Board (or if none exists, the General Meeting) of any agreement to be concluded between the company and you or your relative or any person that is controlled by you; Inform other members of the Board of Directors and the Supervisory Board (or if none exists, the General Meeting) of any case where the company secures or is otherwise liable for your debts or the debts of the people related to you; and Report any conflict of interest without undue delay. When serving as a director of a company, you must not: Operate a business in the same line of business as In case of a conflict of interest, you may be called on by the Supervisory Board (or if none exists, the General Meeting) to suspend your directorial activities for a certain period; You should be informed of the terms and conditions of any agreement that you or a person related to you conclude(s) with the company. The Supervisory Board (or the General Meeting if there is no Supervisory Board) may prohibit the conclusion of such an agreement, unless it was executed in the normal scope of business. These general rules also apply in cases where the company agrees to provide security or be otherwise liable for your debts or the debts of people related to you; It is always important to check the company s founding documents to determine the precise extent of the ban on competitive conduct; and Keep in mind that there may be a competition clause in any agreement concluded by you with the company.

13 11. Disclosure Obligations of a Director of a Listed Company Action/Issue Comments/Notes the company, or work in such a business for other people, or secure the company s opportunities for other people; Serve as a member of the Board of Directors (or a person with similar responsibilities to a director) for another company whose business activities are similar to those of the company, unless the companies form a holding; or Participate in the business activities of another company as its shareholder with unlimited liability, or be its controlling person, if its business activities are the same or similar to those of the company. Relevant disclosure obligations are listed in Act No. Once your company has listed shares, you have 256/2004 Coll., on Business Activities on the Capital disclosure obligations, which are either periodic or Market, as amended (the CMA ); and ongoing; If your company has listed shares, which are shares Ongoing obligations include, for instance, the duty publicly traded on the securities market, you should to provide both the regulated market where the always consult a lawyer. securities are listed and the Czech National Bank (CNB) with any proposal to change the statutes and any decisions to increase or decrease capital. You must also inform the market where the securities are listed of any fact related to investor protection or the proper functioning of the market; You must provide such notifications not only to the CNB, but to the company itself.

14 12. Compliance with the Company s Statutory Obligations Action/Issue Comments/Notes You are required to maintain the confidentiality of information that is not public and that may be important for the development of the capital market or could significantly harm a user of services provided on the capital market; You should publish the company s documents such as its annual report and consolidated annual report no later than four (4) months following the end of the relevant accounting period and send one (1) hard copy and one (1) electronic copy of the same to the CNB; You are required to publish a director s report once per year; and A special procedure must be followed if any person in a listed company acquires shares in a number sufficient to allow that shareholder to control the company (ie, to launch a takeover bid). The company must submit its final statement of You should ensure that this obligation is fulfilled accounts to the Collection of Documents maintained within 30 days of the date when the General by the Commercial Court. Meeting, or the auditor, approved the statement of accounts; and A fine may apply in the event of a breach of this obligation.

15 13. The Relationship Between the Company and the Director Action/Issue Comments/Notes Your relationship with the company is based on an Check whether your agreement contains any and agreement on the performance of your position. all benefits promised to you. If there is no remuneration included in your agreement on the 14. The Manner of Acting on Behalf of the Company Your action (including the signing of any documents) on behalf of the company should always comply with the requirements stipulated in the Articles of Association or any other founding document of the company. performance of your position with the company, then you are not entitled to remuneration. The same is valid for any other benefits (contributions to the pension scheme, a compensation of costs related to exercising your position, use of an automobile, cell phone or laptop, etc.) granted to you by the company; and Check whether your contract contains a competition clause which prohibits you from undertaking activities in the same or a similar field of business for a certain time. Be aware of potential sanctions. The company s founding documents always state the manner of acting on behalf of the company. These requirements must be respected, or else the act concerned will be deemed null and void; For example, if the Articles of Association stipulate that action on behalf of the company can only be taken by two directors jointly, an agreement signed by only one of them will be invalid; and

16 15. Serving as Both a Director and Employee of the Company. 16. The Relationship Between the Company and the Holding 17. The Relationship Between the Company and Related Companies Action/Issue Comments/Notes The manner of acting for the company is always made public in the Commercial Register. Due to a change in the applicable regulation, Czech This is a widespread concern in the Czech legal law is not clear on this matter. There is a risk that an environment. Courts and legislators take a different employment contract with a director will be view on the issue, and opinions vary even among considered voidable. You are therefore advised to individual judges. have only one contract, which should not be an employment contract. Special duties arise in relation to a holding company First of all, ascertain whether the company which while a controlling company has special powers. you are directing is part of a holding company; If your company is the subsidiary in a holding, then you might be given instructions on business management for the benefit of the holding; Even when following these instructions, you are obliged to act with due managerial care, ie, to follow the instructions in a way that is most beneficial (or least harmful) to your company; and You must also prepare a yearly report on relationships between related companies. Strict requirements apply to agreements concluded If within 2 years of its establishment, your company between related companies; acquires any asset from its founder or shareholder These requirements affect only joint-stock companies. and the value of that asset corresponds to at least 10 per cent of your company s registered capital, then (i) the consideration must not exceed the amount determined in an expert opinion, and (ii)

17 Action/Issue Comments/Notes the acquisition must be approved by your company s General Meeting; The above-mentioned requirements do not apply if the transaction occurs (i) in the scope of normal business activities, or (ii) based on the initiative or under the supervision of a state body, or (iii) on the European regulated market; 18. Special Duties Related Transactions between related companies are to the Acquisition of discussed in Section 10 on conflicts of interest and Property Section 17 on the relationship between the company and related companies Company Insolvency For joint-stock companies: You must call a General Meeting without undue delay upon discovering that the extent of the company s losses is such that if they were paid from the company s disposable resources, the unpaid losses would amount to one half of the registered capital. The same requirement applies if this is the expected situation given all the circumstances. In such cases, you must suggest to Should the contemplated transaction be between related companies, or if you have any doubts whether it falls within this scope, you should always seek professional advice. As a rule, consult a lawyer whenever the company is about to execute a significant transaction. You must file a petition to commence insolvency proceedings as soon as you discover the company s insolvency. This obligation also takes effect when you should have discovered this situation if acting with due care and diligence; Failure to fulfil this duty may result in a duty to provide compensation for harm. The amount in this case will be equal to the difference between the

18 Self Defence 20. Good Corporate Governance Processes Action/Issue Comments/Notes the General Meeting that the company be dissolved or other measures be adopted; For limited liability companies: You must call a value of a creditor s registered claim in the insolvency proceedings and the payment finally obtained by that creditor; General Meeting without undue delay on discovering The obligation to pay compensation may be that the company is facing insolvency. In such case, you must suggest to the General Meeting that the company be dissolved or other measures be adopted; In these circumstances, you must: avoided if you can prove that: (i) the breach of the duty to file an insolvency petition had no effect on the overall assets to be used to compensate losses; or (ii) the failure to file an insolvency petition o File a petition to commence insolvency proceedings; and was caused by events beyond your control which could not have been avoided, even if all efforts that o Compile a list of the company s assets and could be reasonably expected had been made; liabilities. The non-fulfilment of this duty may also be viewed as a criminal offence (see Section 5 hereof). For example, infringement of duties during insolvency proceedings; and Once the insolvency administrator has been appointed, you must assist this person with all aspects of the insolvency proceedings, in particular by compiling a list of the company s assets and liabilities. You can reduce the risk of harm as well as the risk of your Consider the size and structure of the Board of own liability by ensuring that effective corporate Directors (for a joint-stock company) or the number governance rules are in place. In particular, these rules and skills of Executive Directors (for a limited must provide for: liability company). Consider the quorum required for

19 21. Potential Criminal Liability Action/Issue Comments/Notes Appropriate structures for the Board of Directors the adoption of various important decisions as well as a whole and the directors individually in their as the manner of the directors representation of the decision-making processes; company (ie, whether directors are entitled to sign Structures for committees and other advisory documents independently or can only represent the bodies; company when at least two of them sign at one Clear roles and responsibilities for the Board of time). Directors and its members; Adequate information systems; A system of regular meetings; A system of effective controls; and A system of appropriate procedures. You may be found personally liable for criminal conduct if Ask the company s lawyer to prepare an internal you breach a statutory obligation or commit another memorandum analysing all situations where there criminal act. Economic crimes and crimes involving is potential criminal liability related to your position property are of particular concern for company directors. in the company; These crimes include: Ask the company s lawyer to prepare an internal memorandum covering offenses for which the Breach of duties related to the administration of company may be held criminally liable; others property (Sec. 220 of the Criminal Code); Be aware of all activities that might come within the Unlawful business activity (Sec. 251 of the Criminal definition of a crime; and Code); In case of any doubt, consult the company lawyer. Causing harm to creditors (Sec. 222 of the Criminal Code); Preferential treatment of a creditor (Sec. 223 of the Criminal Code);

20 Action/Issue Comments/Notes Misuse of Information in a business relationship (Sec. 255 of the Criminal Code); Causing harm to a consumer (Sec. 253 of the Criminal Code); Unfair competition (Sec. 248 of the Criminal Code); Misrepresentation of data about economic results and assets (Sec. 254 of the Criminal Code); Fraudulent manipulation of a public tender or public auction (Sec. 256 of the Criminal Code); Over-indebtedness (Sec. 222 (1)(g) of the Criminal Code); Fraud (Sec. 209 of the Criminal Code); and Infringement of duties in insolvency proceedings (Sec. 225 of the Criminal Code). Companies may also be held criminally liable. Relevant criminal offenses are set out in Act No. 418/2011 Coll., on the Criminal Liability of Legal Entities and Proceedings Against Such Companies. Crimes that may be committed by a company (through its directors or employees) are mainly of an economic nature or involve property. They include: Causing harm to a consumer (Sec. 253 of the Criminal Code); Failure to provide notice of fiscal proceedings (Sec. 243 of the Criminal Code);

21 Action/Issue Comments/Notes Misrepresentation of economic results and asset data (Sec. 254 of the Criminal Code); Fraudulent manipulation of a public tender or public auction (Sec. 256 of the Criminal Code); and Fraud (Sec. 209 of the Criminal Code). 22. Insurance You should take care to understand all facets of the company s insurance: Review the validity and extent of any insurance policy held by the company covering liability for officers and directors; Make sure this policy covers you in all of the positions you hold in the company or holding group and for the whole period that you hold office, as well as for some time after your position terminates; Understand all potential exclusions as well as the requirements that must be met for you to obtain coverage; and Consider taking out a personal insurance contract covering your liability for any potential damage you may cause to the company. 23. Resignation You can resign from your position as company director, but you must announce this fact to the relevant company body which elected or appointed you to the position (in most cases the General Meeting), unless the company s Articles of Directors & Officers ( D&O ) Insurance is the insurance policy that the company acquires from the insurance company. The company is the policy holder and the relevant directors and officers are the persons insured. These policies are often based on a claims made principle. For example, coverage is granted if the policy was effective at the time when a claim was made (ie, when the insurance event was reported to the insurance company) as opposed to when the act giving rise to liability occurred; Review the insurance terms and conditions. D&O insurance policies usually do not cover situations of intentional breach of duty, gross negligence, criminal conduct, etc. Your position will terminate by the end of the month following the month in which you delivered your written resignation. The company may approve a different date based on your request.

22 Action/Issue Comments/Notes Association or Memorandum of Association states that this notice should be given to another corporate body; You are not allowed to resign if the resignation comes at an inconvenient time for the company (eg, if the company is facing difficulties); Always deliver your resignation in writing. 24. Structuring Assets to Minimise Losses Directors commonly structure their assets to minimise the negative impact on their personal property if they are liable to compensate losses; and Always discuss the specific arrangement, and particularly any transfer of assets to your spouse, with a lawyer and tax advisor. A transfer of assets to your spouse may not always ensure effective protection. Any and all agreements limiting the assets belonging to spousal property must be in writing and approved by third persons against whom they should take effect; It is highly recommended that you seek professional advice before executing such a transfer.