JŠK Legal Flash
Screening of foreign investments
The Act on the Screening of Foreign Investments will enter into force from 1 May 2021, regulating investments in the Czech Republic from countries outside the EU that pose a security risk. The regulation mainly concerns investments in critical infrastructure, communications or the development and production of military equipment, including dual-use goods. Such investment will require prior government approval. Foreign investments in other areas may be retrospectively screened for up to five years from their implementation. If they are found to pose a security risk, their further duration may be prohibited and sanctioned (e. g. by sale of assets or shareholding interests). Foreign investors can consult the Ministry of Industry and Trade in advance about planned investments to avoid legal uncertainty.
What changes does the Act on the Register of Ultimate Beneficial Owners introduce?
The obligation to register the ultimate beneficial owners of companies and other legal entities has already existed for some time. However, the recently adopted act significantly broadens the scope of those who will be considered ultimate beneficial owners. Moreover, the relevant entries in the register will now be made publicly available. Keep in mind that the most important changes consist of sanctions for a failure to register the ultimate beneficial owner, namely the prohibition of payment of dividends, the suspension of voting rights and the impossibility to assert rights from certain agreements before the courts.
Supreme Court: Actions taken in error in concluding transfer agreements
The Supreme Court dusted off and supplemented its case law on the topic of actions taken in error in concluding transfer agreements and reminded the relationship between legal due diligence, the transferor's statements, and disclosure. According to the court, under the old Civil Code, an action taken in error is invalid if the error is substantial and at the same time excusable. A substantial error is when the (un)truthfulness of the fact is decisive for the legal action, i.e. had the actor known of the error they would not have concluded the contract at all. The acquirer's error is excusable if they proceeded with the usual degree of caution, which can also be regarded as concluding a contract while trusting (subject to limited due diligence) in the truthfulness of the transferor's statements, unless it was already clear at the time the contract was concluded that these statements were untrue. Simply put, if the buyer does not have the opportunity to conduct thorough due diligence of the company, they are protected by trust in the seller's statements and this trust is regarded as the usual degree of caution. If the seller's statements were false, the buyer's actions are an excusable error.