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If a joint stock or a limited liability company's accounting
period matches the calendar year, the company is obliged to approve
its ordinary financial statements by 30 June 2012. If the
company's financial statements contain any red numbers, the
statutory body of the company should examine the severity of the
company's losses.
Pursuant to Section 193 (1) of the Czech Commercial Code, Act no.
513/1991 Coll., as amended (the "Commercial
Code"), the statutory body must convene a general
meeting without undue delay upon discovering or if it may
reasonably be assumed, that the company's total losses, based
on any financial statements, have attained such a value that upon
payment of the losses from the company's available resources,
the unpaid loss would be equal to half of the registered capital of
the company. The statutory body of the company must also convene a
general meeting without undue delay upon discovering that the
company is insolvent. In either scenario, the statutory body of the
company must either propose at the general meeting the winding up
of the company or other measures.
The company is deemed insolvent if it meets the following
criteria: (i) the company has more than one creditor; (ii) the
company's monetary obligations have been due for more than 30
days and (iii) the company is unable to fulfil these monetary
obligations (defined in Czech as platební
neschopnost").
Possible solutions for situations in which the company is in
negative equity are as follows:
covering the losses by the expected profits of the company in
the forthcoming years (provided that it is reasonably envisaged
that the company's financial situation shall significantly
improve, and that the company will make a profit);
increasing the equity of the company via a contribution outside
the registered capital of the company; or
increasing the registered capital of the company.
Each of the above solutions has legal formalities and
requirements which the company must meet (e.g. approvals from the
general meeting or notarial deeds).
In the event that the executive directors of limited liability
companies or the members of the board of directors of joint stock
companies fail to comply with the above requirements, they become
jointly and severally liable for any resulting damages suffered by
the company. Furthermore, together with the company they become
jointly liable for any claims made against the company by creditors
of the company.
This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register for
Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance
only. The information and opinions expressed in all Law-Now
articles are not necessarily comprehensive and do not purport to
give professional or legal advice. All Law-Now information relates
to circumstances prevailing at the date of its original publication
and may not have been updated to reflect subsequent
developments.
The original publication date for this article was
23/07/2012.
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