Sea change in Czech law

Czech Republic: The Czech Republic has a new private law as of 1 January 2014

New private-law provisions have come into force as of 1 January 2014, i.e., provisions governing the relations between autonomous parties, be they regular citizens or businesses. Anyone who resides or does business in the Czech Republic will be affected by changes.

The cornerstones of the new framework are two massive laws: a new Civil Code (which governs the law of obligations, the law of property, family law, and inheritance law), and the Corporations Act (which contains rules governing trading companies and cooperatives). They are flanked by a host of other new laws; moreover, dozens of existing laws and regulations had to be amended to comply with the new framework.

The differences between the new and the old private law are vast and variegated. To mention but a few aspects, the new law strengthens the freedom of contract and introduces the concept of precontractual liability, as well as numerous institutions designed to protect the weaker party in a legal relationship – or to protect creditors. A fundamental change is the return (after a 50-year hiatus) to a principle according to which permanent structures are always part of the land whereon they were built. Another novelty has a precedent in Anglo-American law – the trust. Moving on to the law of companies, we should at least mention the substantial tightening of liability on the part of corporate bodies (i.e., chiefly, managing directors and board members) of companies as they enter insolvency, the abolition of the minimum capital stock requirement in the case of limited liability companies, the option to replace the board of directors and the supervisory board at joint-stock companies with a single body, or the obligation to disclose membership in a group of companies on the websites of each and every affiliate.  

The new legal framework may have opened up many new opportunities and is principally headed in the right direction. Even so, we must expect legal certainty to be compromised for some time to come, especially due to the absence of relevant case law in certain areas, and due to certain ambiguities which found their way into the new law. As another consequence, the new law also necessitates that corporate governance documents of companies with a presence in the Czech Republic be brought in line with the new rules; appropriate adjustments should also be made in the contractual documents used by companies (agreements, general terms and conditions, etc.).

Source: New Civil Code (Act No. 89/2012 Coll.); Corporations Act (Act No. 90/2012 Coll.)

Mgr. Pavel Pravda, Attorney-at-Law, Partner

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