Czechia has recently overhauled its corporate law in connection with the EU Directive on cross-border conversions, mergers and divisions. ¹

On 19 July 2024, an amendment to the Act No. 125/2008 Coll., on Transformations of Business Corporations and Cooperatives (Amendment), came into force. The aim is to align Czech law with the EU directive and create a more efficient legal framework for businesses operating in Czechia and other EU member states.

The Amendment introduces several important changes to both national and cross-border conversions, mergers and divisions. It also incorporates practical insights by modifying rules that previously caused procedural issues.

The main changes are:

• A simpler process

The mandatory notice to creditors and other persons affected by a transformation no longer has to be published in a paid-for commercial bulletin. It now only has to be published in the Collection of Deeds of the Czech Commercial Register and the company's website (if established).

The company(s) involved in the transformation can appoint a valuation expert independently, without having to apply to the court to appoint an expert.

• Changes to the protection of creditors

In the absence of an agreement with the company concerned, creditors' right to adequate security for claims adversely affected by a transformation must be exercised with the competent court within three months (not six months as before) after the publication of draft terms of the transformation. This now also applies to future and contingent claims arising from liabilities incurred before the publication.

• New form of division

A new form of transformation has been introduced – a division by separation. This means part of the company being divided is transferred to one or more recipient companies (newly established or already existing), in exchange for shares in the recipient company. As a result, the shares are acquired directly by the company being divided and not its shareholders (as was usually the case before the Amendment).

• Conversions from/to non-EU countries

The Amendment expressly provides for the possibility to proceed with a cross-border conversion (relocation of the registered office) from or to a jurisdiction outside the EU or the European Economic Area (EEA). So a company from a third state can be converted into a Czech company without being dissolved in the third state (unless prohibited by the law of the third state). This can be a practical solution (not only) for companies with Czech shareholders that are based in foreign jurisdictions such as Switzerland, UK or Panama and want to move their company to Czechia.

The Amendment is a significant step towards creating a more unified and efficient legal environment in Czechia, enabling businesses to better seize the opportunities provided by the EU single market.

¹ Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions.