The New Civil Code and Act on Commercial Corporations

| January 2, 2014 | 0 Comments

sipThe Czech legal system will obtain a new private law basis as at 1 January 2014 when the new Civic Code, denoted as 89/2012 Coll., is to replace the previous Civic Code stemming from as far as 1964. The former Code was updated and developed by many amendments and supplemented by more specialized acts and stipulations. Such structure became rather complicated and, in a way, struggled hard to reflect dynamic changes in both the society and economy that had occurred since the Velvet Revolution. The new Civic Code contains all the necessary parts and also incorporates gained social and business experience to create a reliable anchor of the Czech legal system.

It can hardly be required from this short article to cover all major changing parts in the scope of the new legislation; only main features can be displayed here. The article specializes more or less in what concerns business in the Czech Republic. The reader should therefore consult more detailed texts that are available[1].

The new Civil Code builds on stability of positive legal achievements in the past, with greater accent on preserving freedom of choice and legal security of contract parties. The bona fide principle and information duty between parties on substantial facts of the contract are the most prominent new factors of the regulation. Also unreasonable interruption of negotiation on a contract will no more be tolerated. The role of usual or published commercial terms is enhanced with due protection against “surprising clauses”. If an unexpectable and extreme change occurs in the circumstances of the contract the Code facilitates a new negotiation on the contract conditions. The new Code also brings more liberty in limitation periods of actions that can be newly contracted by parties unless there is major inequality between the parties.

Non-negligible changes come in the sphere of real estate as well. The internationally acknowledged principle of material publicity of the Land Register was fully introduced. This supports the position of an honest buyer in belief of the Register entries. On the other hand, this stipulation prompts the real estate owners to care for the correctness of the respective entries to prevent potential problems. Another new principle is the priority of the property of land before that of a building. Buildings and their legal status will henceforth subside to lands, but it may take a long time when the ownership of both unifies.

The Code at the same time guarantees stability of already existing legal facts. Such facts like contracts and their conditions concluded under the force of previous legislation will continue to be governed by that legislation. Also trade conditions and proposals valid and effective in the moment of the conclusion of a contract will remain in force unless parties agree otherwise. Nothing prevents, however, the parties to agree that they subordinate their existing contract relations to the stipulations of the new Code.

The Civic Code contains general regulation of legal persons and corporations. As to more detail, it is complemented by the new Act No. 90/2012 Coll., on Commercial Companies and Cooperatives (on Commercial Corporations) effective also from the beginning of the next year, which offers, in comparison to the previous legislation, a broader choice of options concerning sorts of shares, management schemes, representation etc.

The new Act on Commercial Corporations[2] replacing the existing Commercial Code defines jointly with the Civic Code more precisely the relation between prudent care of a proper manager of a corporation and inherent managerial risk. If the manager acts loyally, carefully and with the necessary knowledge, and in good faith reasonably assumes that it is in an informed and defensible business interest of a corporation, no legal sanctions can apply. Similarly, also the responsibility of influential persons (e.g. mother companies, creditors etc.) for a harm induced to a business corporation may result in a recovery of the harm unless the person proves that it acted in good faith and reasonably assuming that it was in a defensible interest of the influenced corporation.

The abolition of the current Civil Code and the Commercial Code and with them of a number of stipulations in more legal regulations, and their replacement by the new Civil Code and Act on Commercial Corporations is another step in adjusting the Czech commercial legislation to proven international practice. Only time will show whether it will execute its function without further corrections and amendments.

Emanuel Šíp

Partner

Allied Progress Consultants Association


[1] A provisional machine English translation of the new Civic Code can be found e.g. at http://www.czechlegislation.com/en/89-2012-sb while an authoritative translation may come even by the time this article is published. A specific assistance should be sought at prominent local legal offices.
[2] A provisional machine English translation in http://www.czechlegislation.com/en/90-2012-sb

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