Amendment to the Czech Transformations Act aims to simplify M&A transactions

Effective from 19 July 2024, the Czech Transformations Act (“CTA”) has been amended to harmonise Czech transformation rules with the EU Directive on cross-border conversions, mergers, and demergers (“Amendment”). Here is an overview of the key changes introduced by the Amendment.

• Division by separation – The Amendment introduces a new form of transformation called divisionby separation (rozdělenívyčleněním), where part of the assets of the divided company is transferred to one or more successor companies (new or existing). In this model, the divided company does not dissolve but becomes a shareholder in the successor company. This process may be favoured over the traditional demerger by spin-off, where the shareholder of the divided company becomes the shareholder in the successor company.
• Simplified information obligations – Companies will no longer need to publish announcements in the Commercial Bulletin. Instead, companies can file the transformation project plan and related notices to creditors, employees and shareholders to the Collection of Deeds (effectively part of the Commercial Register), which is much easier.
• Modification of creditor rights – The timeframe for creditors to request adequate security (if they claim to be affected by the corporate transformation of their debtor) will be reduced from six to three months, beginning with the publication of the transformation project in the Commercial Register.
• New cross-border relocation options – To increase the economic cross-border mobility of companies, the Amendment extends the option to transfer their registered office from in EU to countries outside EU or EEA states.
• Elimination of court-appointed experts – Where the CTA requires the involvement of an expert valuator, companies can now select their own expert from an official list, avoiding the past time consuming and costly court appointments.
• Multiple transformations with the same effective date – In response to increasing demand for this option, the CTA now explicitly allows companies to participate in multiple transformations with the same effective date, which was not possible under the previous rules.

In conclusion, the Amendment represents a proactive response to the impracticalities identified in the previous regulations. By aligning with the EU standards, these changes aim to lessen the administrative burden and financial costs associated with corporate transformations and to expedite the transformation processes both domestically and in cross-border operations.