Collection of Deeds one gaping void – what does the new bill say?
The Ministry of Justice has started preparing an amendment to the Corporations Act, aiming to reduce the regulatory burden for entrepreneurs while shedding more light on non-transparent corporate structures. It also intends to enforce the duty to file accounting documents in the Collection of Deeds more effectively. What can we expect in this respect?
Corporations have to submit to their registration courts documents to be filed in the Collection of Deeds without unreasonable delays, unless the law stipulates other deadlines. Although the existing regulation contained in the Act on Public Registers of Legal Entities and Individuals permits penalties to be imposed on corporations which fail to meet this duty, the manner of enforcing compliance has proved insufficient and often unavailing.
Presently a corporation may be fined repeatedly up to CZK 100 000 if it fails to comply with the registration court’s request to file the deeds, and the court may even dissolve the corporation with liquidation. However, if the corporation does not have sufficient assets, its dissolution with liquidation may prove rather costly; therefore registration courts do not resort to this option very often.
The proposed regulation offers a new sanction: dissolution without liquidation. It aims to eliminate inactive companies that only exist formally and do not carry out any economic activity. These entities contribute to the non-transparency of ownership structures and may be used for financial fraud.
According to the proposed amendment, both of the following conditions will have to be met for a corporation to be dissolved without liquidation:
- failure to file annual or interim financial statements for at least two consecutive accounting periods in the Collection of Deeds;
- inaccessibility of the corporation.
Hence, to dissolve a corporation without liquidation, a corporation breaching its duty to file the financial statements in the Collection of Deeds every other accounting period will not suffice. Here the court may still only use the existing tools to enforce the duty. A corporation’s inaccessibility means that it is not possible to deliver requests to submit the missing documents according to the rules on delivering notices as provided by the Civil Procedure Code. Although the Chamber of Deputies has not yet even started to debate the bill, corporations should be more conscientious about filing any required documents in the Collection of Deeds. The registration courts’ sanctions are not the only possible implication: the corporation may also be committing an administrative infraction under the Accounting Act.
The amendment also proposes other changes, such as introducing members’ statutory pre-emptive right to other members’ ownership interests, the possibility to pay cash contributions to a limited liability company in other forms (if the amount of all cash contributions in aggregate does not exceed CZK 20 000), or changes in profit distribution.