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The requirement of the due managerial care in Czech Republic

The requirement of the due managerial care also applies to the proposals of the General Meeting's decision made by the statutory body

At the end of this year, there is not that many legislative news, which would be generally relevant for all entrepreneurs, as usual. Not only the Czech legislature, but also the Czech authorities can bring changes for entrepreneurs. The most important news brought by the decision of the Czech Office for Personal Data Protection can be found in this post. One of the interesting and important case law for entrepreneurs in 2019 is the decision of the Supreme Court of the Czech Republic regarding the extent of the obligation of the members of the Board of Directors to act with due care, even if they act in accordance with the instruction and decision of the General Meeting.

The requirement of the due managerial care also applies to the proposals of the General Meeting's decision made by the statutory body

In August 2019, the Czech Supreme Court's decision made on June 27, 2018, File No. 29 Cdo 3325/2016, was announced in the Czech Collection of Case Law, where the Supreme Court interpreted the extent of the liability of the statutory body members for damage incurred to the company, even if they acted in accordance with the instruction given by the General Meeting. "If the Statutory body of the company proposes to the General Meeting to adopt a resolution that shall be subsequently followed by the statutory body (that will be "implemented"), its members are obliged to act in accordance with the due maager’s care (see above) already when they summon the General Meeting; formulate a draft of the resolution to be adopted by the General Meeting, as well as when providing all relevant information to the shareholders, so that the shareholders can make a decision at the General Meeting with sufficient knowledge of the matter and bearing in mind the advantages, disadvantages and risks associated with the proposed resolution of the General Meeting. If they fail to do so, and propose to the General Meeting a resolution for which they are aware, or must have been aware (if they acted with due managerial care) that it is disadvantageous for the company (i.e. it is not in the best interest of the company) and that it may cause harm to the company.
"It is established from the constant case law of the Czech Supreme Court, that the members of the Statutory body are responsible for the proper performance (in accordance with the due managerial care) of their functions, not for the result of their actions. If a member of the Statutory body acts with the due managerial care, such member is not obliged to compensate the company for any damage, even if such damage would result from the Statutory body member’s conduct. In order to meet the requirement of due managerial care, a member of the Statutory body is required to act (among other things) with the necessary knowledge and therefore, to make informed decisions, i.e. to use reasonably available (factual and legal) information sources and based on those sources carefully consider all possible advantages and disadvantages (recognizable risks) of existing business decision options.” “Part of the due managerial care is the duty to be loyal, i.e. the duty of a Statutory body member to give preference to the interests of the company over his own, or over any interests of third parties, including the interests of those shareholders, who voted him into the function in the Statutory body by the weight of their votes.

For more information, 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
About ECOVIS ježek advokátní kancelář s.r.o.
The Czech law office in Prague ECOVIS ježek practices mainly in the area of Czech commercial law, Czech real estate law, representation at Czech courts, administrative bodies and arbitration courts, as well as Czech finance and banking law, and provides full-fledged advice in all areas, making it a suitable alternative for clients of international law offices. The international dimension of the Czech legal services provided is ensured through past experience and through co-operation with leading legal offices in most European countries, the US, and other jurisdictions. The Czech lawyers of the ECOVIS ježek team have many years of experience from leading international law offices and tax companies, in providing legal advice to multinational corporations, large Czech companies, but also to medium-sized companies and individual clients. For more information, go to www.ecovislegal.cz/en.

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