THE AUTHOR
Radka Jerie
New Czech Civil Code (Part II)
The partial relaxation of some existing provisions of the Commercial Code is reflected in the strict and comprehensive regulation of corporate governance of companies and cooperatives. The authors of the new law claim to have followed the general European trend of freeing commercial enterprises from regulation as far as possible, without jeopardising sound governance. BY RADKA JERIE
The government of the Czech Republic has recently presented a new draft Civil Code, which forms the main component of the upcoming recodification of private law. The Chamber of Deputies is expected to complete its consideration of the draft before the end of the year. State institutions and the general and professional public will then have a period of one year to prepare for the changes before the new Civil Code takes effect. If all goes to plan, the new Civil Code should become effective as of 1 January 2013.
Another important element of the recodification is the proposed new
Law of Commercial Companies and Cooperatives (law on business
corporations). This is intended to replace the Second Part of the
current Commercial Code, which currently regulates commercial
companies and cooperatives.
The present Commercial Code was adopted in 1991, at the beginning of
the transition from a planned economy to a market economy. After
forty years of communist rule there was no recent practical
experience of the market economy, and the 1991 Commercial Code was a
hybrid of rules copied from pre-war Czechoslovakia, international
commerce and some neighbouring countries. Many of its provisions
soon proved to be outdated, inadequate and inappropriate. In
response to this situation and in the context of the rapid
development of the economy a number of piecemeal amendments were
made, rendering the Code complex, casuistic and difficult to read.
The proposed new Law of Commercial Companies and Cooperatives deals
only with the regulation of corporate bodies. It does not cover
issues such as regulation of unfair competition or of business
contracts. Legislation on these issues will be consolidated and
moved to the Civil Code, which will contain a uniform contract law
(the current Commercial Code includes specific regulation of
contract law, and different conditions apply to the same types of
contracts under the Civil Code and the Commercial Code
respectively).
The authors of the new law claim to have followed the general
European trend of freeing commercial enterprises from regulation as
far as possible, without jeopardising sound governance. The goal is
a system which does not inhibit entrepreneurship, but still
safeguards the interests of those who do not have equivalent
influence or information, such as minority shareholders and
creditors.
The partial relaxation of some existing provisions of the Commercial
Code is reflected in the strict and comprehensive regulation of
corporate governance of companies and cooperatives. Compared with
the current law, there is much more emphasis on the appointment of
board members, the conditions of their employment and the
performance of their duties.
The new draft law focuses in particular on issues of remuneration
and liability and imposes an obligation on board members managing
the company to act with due diligence (loyally, carefully and with
due information) in the company's interests. This obligation will be
discharged if they can demonstrate that they acted in good faith on
the basis of relevant information, in what they perceived to be the
company's long term interests.
The court may disqualify managers who failed in their duties or who
brought the company to bankruptcy from acting as directors, and
directors may be required to provide guarantees against losses in
the event of their company becoming insolvent.
About the Author
Dr. Radka Jerie is the senior lawyer at Andreas Neocleous & Co., Prague, Czech Republic.
