The new Czech Civil Code effective 1 January 2014 introduced new rules for determining the moment of legal effectiveness of the transfer of an enterprise.

For transferees registered in a Commercial Register, the ownership right to the enterprise will now transfer only upon publication of the information that the transferee has lodged an enterprise transfer deed in the Collection of Deeds of the transferee maintained by the Commercial Register.

For all intents and purposes, the moment of publication will be the moment when the information becomes available on the website of the Ministry of Justice (www.justice.cz), which also comprises the Collection of Deeds of persons listed in the Commercial Register.

New challenges

While the new rules aim to establish a "joint transfer principle" to ensure that all components of the enterprise are transferred simultaneously, it also creates new challenges.

Notably, the moment of ownership right acquisition now lies entirely in the hands of the officials of the commercial court whose job it is to file the enterprise transfer deed in the transferee's Collection of Deeds. The challenge is all the greater, as there is no fixed statutory deadline for filing such documents. The law only states that they must be filed "without undue delay", which can, however, result in diametrically different approaches by the various commercial courts operating the Commercial Register.

Since transaction timetables are typically predicated on precisely timed steps (in order to precisely define the moment when the ownership right is transferred, risk of damage passes or further post-transaction steps occur, eg termination of existing supply agreements), the above-outlined uncertainty over transaction timing may pose problems and requires the development of alternative procedures to eliminate the negative features of the newly introduced rule.

Proposed solutions

There are two simple ways to mitigate or eliminate the outlined risks entirely.

The first is to liaise with the competent official of the commercial court prior to the submission of the enterprise transfer deed in the transferee’s Collection of Deeds. This would still mean that publication would occur as soon as the servers operating the Ministry of Justice's website (www.justice.cz) are updated, which would still take some time (servers are usually updated at midnight). Naturally, this would require close cooperation with the competent officials of the commercial court, which may also prove to be a challenge.

The second way entirely eliminates the timing uncertainty by involving a notary public in the registration process. Enterprise transfer deeds are lodged in the Collection of Deeds of the transferee by the notary using a special online application for real-time access to the Commercial Register allowing direct registration. In this scenario, the following steps would typically occur:

  1. The notary executes an enterprise transfer deed in the form of a notarial deed (being an underlying notarial deed), confirming, among other things, that the conditions for the enterprise transfer were fulfilled (eg required corporate approvals were obtained);
  2. The notary then proceeds with the registration of general information on enterprise transfer in the transferee's listing in the Commercial Register – relying on the transferee's statutory right to request registration of facts important to it (eg information that an enterprise transfer agreement has been signed) – and within this registration process the notary would also submit the enterprise transfer deed in the Collection of Deeds of the transferee.

This step is practically included since the notary cannot submit a document into the Collection of Deeds without registering new information in the person's listing in the Commercial Register.

  1. Since the notary has real-time direct access to the Commercial Register, he or she would immediately verify that the enterprise transfer deed has indeed been submitted into the Collection of Deeds of the transferee, and can proceed with the registration of other general information stating that the enterprise was transferred on a certain date.

Such registration would only require that another notarial deed (being a verifying notarial deed) is executed to verify that the registration made on the underlying notarial deed (see 1. above) was successful.

All steps in the second solution could be performed at one meeting within a relatively short period of time.

Conclusions

These ways of submitting the enterprise transfer deed in the Collection of Deeds of the transferee, maintained by a Commercial Register, should eliminate or mitigate the negative consequences of the new rule for determining the moment of acquisition of an ownership right to an enterprise, without any substantial additional costs for the parties.

As the efficacy of dealing with an official of the commercial court depends to a great extent on the official's alacrity (or lack thereof), we tend to prefer the option of using a notary public with direct access to the Commercial Register.