Resignation of the Managing Director and other members of Czech legal enities and their deletion from the Czech public register
The function of a member of a Czech statutory body, whether a managing director of a Czech limited liability company, a member of the board of directors of a Czech joint stock company or a member of the Czech committee of an association, carries with it a considerable degree of responsibility. However, situations may arise where a person no longer wishes to or is unable to continue in office. The reasons may be various: personal disagreements with the shareholders or other members of the body, disagreement with their instructions, a situation where a shareholder is uncontactable, or an unfavourable financial situation of the legal entity. This article focuses on the process of resignation and the subsequent steps to achieve removal from the public register, especially if the legal entity is not cooperating. The issue is primarily regulated by Act No. 89/2012 Coll., the Civil Code and Act No. 90/2012 Coll., on Commercial Companies and Cooperatives (Business Corporations Act).
The right to resign under Czech law
The basic principle is that any member of an elected body of a Czech company has the right to resign at any time. It is a unilateral legal act which is not dependent on the consent of the other members of the body, the general meeting or the shareholders. The Czech law thus protects the individual against involuntary retention in office.
Resignation from office in Czech commercial corporations (executive officer, member of the board of directors, etc.)
For members of elected bodies of Czech commercial corporations (e.g. s.r.o. (LLC), a.s. (joint stock company), cooperatives), the procedure is set out in Section 58 of the Czech Business Corporations Act. The resigning member notifies his/her resignation to the body that elected him/her (typically the general meeting).
- The resignation shall end on the date on which the resignation was or should have been considered by the body of the Czech company which elected him, unless the articles of association provide that consideration by the body of which he is a member is sufficient. The competent body is obliged to consider the resignation without undue delay, but at the latest at the next meeting after the resignation has been received. (Section 58 paragraph 1 of the Czech Business Corporations Act)
- In the case of a member of an elected body of the Czech cooperative, the performance of the office shall end no later than 3 months after the delivery of the resignation. (Section 58 paragraph 1 of the Czech Business Corporations Act)
- If the resigning member gives notice of his or her resignation directly at a meeting of the competent body, his or her office shall terminate at the expiration of 2 months after such notice, unless the competent body, at his or her request, approves a different time of termination. (Section 58 paragraph 2 of the Business Corporations Act)
- If the General Meeting of the Czech company is held by a single member, the exercise of the function shall end on the expiry of 2 months from the date of delivery of the notice of resignation to the sole member, unless the General Meeting approves a different time of termination of the function at the request of the resigning member. (Section 58 paragraph 3 of the Czech Business Corporations Act)
Resignation of representatives of Czech associations and other Czech legal entities according to the Czech Civil Code
For associations and other Czech legal entities not covered by the special regulation of the Czech Business Corporations Act, the general regulation in Section 160 of the Czech Civil Code applies.
- A member of an elected body resigns from his or her office by a declaration delivered to the Czech legal entity.
- The function shall cease with the expiry of two months from the receipt of the declaration by the legal entity. (Section 160 of the Czech Civil Code)
Obligations of the statutory body of the Czech company (in particular the managing director) in connection with resignation and financial difficulties
Even when resigning from office, a member of the statutory body of the Czech company is obliged to act with due care and maintain loyalty to the legal entity. The resignation should not be made at an inappropriate time in a way that would be detrimental to the Czech legal entity.
Special obligations arise if the legal entity is in financial difficulties, which may also be grounds for the resignation of a member:
- Duty to act when bankruptcy is imminent: The statutory body of the Czech company is obliged to take the necessary measures to avert bankruptcy without undue delay. This includes the obligation to monitor the economic situation and to react adequately in the event of an impending bankruptcy or negative equity, which may include convening the highest authority (e.g. a general meeting) to discuss the situation and propose a solution.
- Obligation to file an insolvency petition: According to Section 98 paragraph 1 of the Czech Insolvency Act (Act No. 182/2006 Coll.) a debtor who is a legal entity or a natural person - entrepreneur is obliged to file an insolvency petition without undue delay after he became aware or, with due diligence, should have become aware of his insolvency. The statutory bodies of the debtor also have this obligation (Section 98 paragraph 2 of the Czech Insolvency Act).
- Consequences of failure to comply with the obligation to file an insolvency petition: A person who breaches this obligation is liable to the creditor for damage or other harm caused by the breach of this obligation (Section 99 of the Czech Insolvency Act).
Furthermore, Section 66 of the Czech Business Corporations Act provides for possible consequences for a member of the statutory body who has contributed to the bankruptcy of the Czech business corporation by violating his or her duties, including a possible obligation to hand over the benefit obtained from the contract of office or to provide performance to the estate. It is important to note that resignation from office does not relieve a member of the body from liability for actions taken during the performance of his or her duties.
Removal from the register after resignation in the Czech Republic
The process does not end with the resignation and termination of office. The key is to have the resigning member removed from the public register (e.g. the Commercial Register, the Federal Register). As long as the person is entered in the register, third parties may believe in good faith that he or she is still entitled to act for the Czech legal entity.
Primary duty of a legal entity in the Czech Republic
According to Section 11 paragraph 2of the Czech Act No. 304/2013 Coll., on public registers of legal and natural persons, the application for registration (i.e. also for the deletion of a member of the body) must be submitted without undue delay after the occurrence of the decisive fact. This obligation is primarily incumbent on the Czech legal entity itself.
What to do if a Czech legal entity fails to act?
If the legal entity (e.g. due to a non-contacting member or inactivity of the remaining members of the body) does not file a petition for deletion, the resigning member has the following options:
- Proposal for entry by a resigning member of the Czech company:
If the legal entity fails to comply with the obligation to file a petition for registration within 15 days from the date on which this obligation arose, anyone who can prove a legal interest and attach the necessary documents to the petition may file a petition for registration (Section 11 paragraph 3 of the Czech Act on public registers of legal and natural persons). The resigning member undoubtedly has such a legal interest.
In particular, the application must be accompanied by proof of resignation (e.g. a copy of the resignation with a receipt or the minutes of the meeting of the body where the resignation was announced/discussed) and proof that the office has ceased to exist (e.g. on expiry of the relevant time limit). The application must be submitted on a prescribed form (available on the Justice.cz portal) and is subject to a fee of CZK 2,000 (entries relating to associations are exempt from the fee).
- Submission of a complaint to the Czech registry court:
The alternative is to file a less formal petition with the Czech registry court. In it, the resigning member informs the Czech court of the discrepancy between the registered status and the facts and provides evidence of the termination of his/her office. It is advisable to wait until after the expiry of the period within which the legal entity itself should have acted before filing the petition.
The court may initiate compliance proceedings ex offo on the basis of the petition. There is no fee for filing a complaint, but the applicant does not become a party to the proceedings and there is no certainty that the court will actually initiate the proceedings. If the court initiates the proceedings and finds that the legal entity has failed to act, it may impose a fine (up to CZK 100,000; Section 104 of the Czech Act on public registers of legal and natural persons) or, in extreme cases, decide to dissolve the legal entity with liquidation if this is in the interest of protecting third parties (see Section 104 et seq. of the Czech Act on public registers of legal and natural persons).
Conclusion
The Czech law allows members of statutory bodies to resign from office without the consent of the Czech company or society and the inaction of the other party does not affect the effectiveness of the resignation. The key is that the resignation is formally correct, demonstrably served and that, once the statutory time limits leading to the termination of office have expired, the former member takes steps to secure his or her removal from the public register. This will avoid potential complications and protect him/her from any liability associated with the appearance of remaining in office. In the event of ambiguity or impending litigation, it is always advisable to consult a professional.
For more information, please do not hesitate to contact us at:
JUDr. Mojmír Ježek, Ph.D.
ECOVIS ježek, advokátní kancelář s.r.o.
Betlémské nám. 6
110 00 Praha 1
e-mail: mojmir.jezek@ecovislegal.cz
www.ecovislegal.cz
O ECOVIS ježek, advokátní kancelář s.r.o.
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