Upcoming changes to Transformations Act

The bill implements amendments to Directive (EU) 2017/1132, namely Directive (EU) 2019/2121 of the European Parliament and of the Council as regards cross-border conversions, mergers and divisions, and Directive 2019/1151 as regards the use of digital tools and procedures in company law. Although Czech law already allows for all these types of cross-border transformations (mergers, demergers (divisions) and cross-border conversions), the existing regulation must in several aspects be adapted to the directive’s requirements. The amendment also considers some changes required by practice.

The main changes include:

• A new form of demergers (divisions) is introduced: a demerger by separation into a new or existing subsidiary, or a combination of these. Unlike in demergers by spin-off (partial divisions), the company being demerged becomes the sole shareholder (member) of the newly formed company, or, in a separation with acquisition, acquires a share in an already existing company. 
• Unlike the existing regulation, the bill explicitly provides for the possibility to relocate the registered office (conversion) to or from a non-EU or non-EEA state. This responds to such conversions having already been successfully completed several times, following the regulation contained in the Civil Code.
• Under the current regulation, the decisive date must not precede the date of filing for the registration in the Commercial Register by more than 12 months; under the new regulation, the 12 months will be counted from the date of the registration in the Commercial Register.
• It is explicitly stated that the decisive date of a merger or demerger (division) cannot be set on a date preceding the date of the formation of a participating company or cooperative. On the other hand, combined transformations in which a company or a cooperative participates in several transformations with the same decisive date are explicitly allowed.
• While still required by the Transformations Act, the expert appraiser carrying out the valuation of the assets will no longer need to be appointed by the court but will be selected by the participating company from a list of experts.
• Together with the draft terms of the transformation, companies should deposit in the Collection of Deeds a notice informing their creditors, employees, and partners about their rights. These persons’ rights have been extended, allowing them to submit comments on the draft terms of the transformation. The bill also stipulates detailed requirements for the content of the transformation report.
• Under certain conditions, it is possible to waive the right to a report on the cross-border transformation, which is not allowed under the current rules. This change will make it possible to significantly reduce legal cost when carrying out cross-border transformations.
• For cross-border transformations, a notary will be obliged to examine whether the purpose of the cross-border transformation is not abusive or fraudulent, or aimed at the evasion or circumvention of national or EU law or at committing a criminal offence. In serious doubt, they may turn to state administration authorities for cooperation. The notary may refuse to issue a certificate for the cross-border transformation should they detect any of the above illicit purposes of the cross-border transformation.

The bill is still in the early stages of the legislative process (going through an external comment procedure). It thus seems unlikely that the transposition will be completed within the deadline of 31 January 2023; however, we welcome many of the changes proposed and believe that the harmonised regulation will greatly facilitate the implementation of cross-border transformations.