The Importance of Correct and Updated Data in the Commercial Register – Failure to Comply May Result in the Involuntary Liquidation Ordered by Court

The Civil Code, the Business Corporations Act, and the Act Governing the Public Registers of Legal Entities contain a number of provisions regulating the non-voluntary and irrevocable dissolution of a legal entity with liquidation by a registration court. The court proceeds with such a dissolution if the legal entity fails to properly meet the duties imposed by the legislation specified above, and fails to respond to the subsequent request for rectification issued by the court.

The result is an irrevocable dissolution of the business corporation by the registration court, and according to the valid legislation and the current judicial decisions of the Supreme Court of the Czech Republic it is not possible to challenge such a decision of the court in any manner.

In particular, this pertains to a breach of the following duties:

  • breach of the duty of a legal entity to submit essential documents or documents which are to be filed in the Collection of Deeds, upon request issued by the registration court,
  • the company has specified a virtual registered office address, and does not actually have any establishment at this address,
  • the business corporation has lost all authorisations to conduct business,
  • a new executive of a limited liability company, or a new member of the board of directors or the supervisory board of a joint stock company has not been appointed within the time period stipulated by law,
  • the business corporation has not been able to conduct business activities and thus fulfil the purpose of the company for a period exceeding 1 year,
  • the business corporation conducts a business activity, which may be conducted only by an individual pursuant to the applicable legal regulations, without the assistance of such persons (typically without an authorised representative who is necessary for certain types of trade),
  • the legal entity conducts business activities which constitute a violation of law or which aim to attain the objective in an illegal manner,
  • a limited liability company fails to meet the duty to decide, after paying out the settlement share, on the transfer of the released share (not later than within one month) or, otherwise, to lower the registered capital,
  • the number of members of the corporation no longer meets the minimum number stipulated by law,
  • shares of a joint stock company, which have been acquired by the company in a manner which is in conflict with the Business Corporations Act, must be disposed of by the company within one year, otherwise the shares must be cancelled and the registered capital must be reduced by their nominal or book value,
  • the business corporation may not conduct business activities due to irreconcilable conflicts that exist among the shareholders,
  • a shareholder of an unlimited liability company is in breach of his/her duties in a particularly serious manner, or it is not possible to fulfil the purpose for which the company has been established.

In respect of the statutory duties of legal entities specified above it is therefore necessary to fulfil the requests issued by the registration court, because in cases where the law stipulates that such a court is entitled to commence – even without a petition – proceedings to dissolve a company with liquidation (it is thus not a voluntary dissolution of a legal entity) and the legal entity has failed to rectify the specific stipulated shortcoming within a reasonable time period granted by the court, such a dissolution of the company cannot be currently challenged in any way. At present, the valid legislation does not provide for any remedy which could reverse such a decision – even if the shortcoming is subsequently rectified!

In the course of our work we have seen many cases where the liquidation resulted from (in addition to petitions filed by the original lessors whose address the company is not entitled to use as a registered office, for example) activities of tax offices which initiate proceedings at courts in charge for the given register – on the basis of a failure to file documents in the Collection of Deeds, or a failure to act towards a tax administrator.