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.