The draft amendment of the Commercial Code that is presently undergoing a process of interdepartmental marking up features several novelties and adjustments that, once passed, are to become effective as of 1 January 2018.
The proposed changes follow from the action plan of the fight against tax fraud that the Slovak Republic is also committed to. The amendment primarily aims at improving the business environment and protecting honest entrepreneurs.
Hereby we would like to provide you with a summary of the most important upcoming changes in the Commercial Code:
- One of the significant upcoming changes will be the prevention of foul fusions of business companies. The measures will apply to speculative wind-ups of companies that seek fusions even though not being able to acquit their obligations and to cover the claims of their creditors. By being integrated into another company, failing business companies that are in danger of bankruptcy avoid the standard procedure of company wind-up and the whole process of debt recovery on behalf of the creditors thus become virtually impossible. In cases when a business company seeks a fusion with a business company in financial difficulties the former will be able to do so after having received an auditor’s report. The auditor is therefore responsible to certify that the fusion of such companies is not risk-bearing. Otherwise the auditor puts themselves at risk for losing their license. “Healthy” companies will still be able to pursue fusions.
- The amendment also seeks to proceed against so-called white knights. A person who merely lends their name and surname as well as their identity to acquire rights and duties that they have no real interest to exercise (a so-called white knight) will, once the amendment is passed, commit a new criminal offence – unfair winding-up. In such case the wite can be up to 15 years. Similarly, this criminal offence will also apply to the persons who transfer their share in a company to a “white knight” as well as to mediators of such transfers.
- Furthermore, irresponsible statutory bodies will be affected by stricter sanctions. Although they are legally obliged to file a petition for bankruptcy on time if their company is failing, this obligation is actually never followed in practice. Therefore, the draft amendment of the Commercial Code tightens up the responsibilities of statutory bodies. It proposes that each statutory body that fails to meet the obligation is held responsible for the damages that arise to the creditors due to a failure to file a petition for bankruptcy. The aggrieved creditor is therefore entitled to claim a disqualification of the statutory body. It means that the statutory body disqualified in such a way will not be allowed to act as a statutory body in any business company or association during a period of three years. In addition, they will be obliged to recompense the creditors for the damage that has arisen due to their failure to file a petition for bankruptcy. Furthermore, it is proposed to introduce the measure that a failure to file a petition for bankruptcy on time will also have criminal liability.
- The amendment of the Commercial Code will also govern executive board members in more detail. It is proposed that executive board members can only be a natural person who is fully eligible to enter legal acts and irreproachable in accordance with the special decree on business activities. The person who fails to meet the given requirements will not become an executive board member, even if the relevant authority agreed with the appointment of such person to the position.
- Another rule planned to be introduced concerns public sector partners. Under the new scheme, the public sector partners will be obliged to meet a 30-day maturity period of subcontractor invoices for public commissions.
- The upcoming changes will also affect the process of expungement of a company from the Commercial Register. In addition to an approval of the Tax Authority, an approval of the Social Insurance Agency will be also required under the new scheme. If these institutions register no debts of the person who requests an approval for expungement from the Commercial Register, they will issue the required approval in writing. It is only after this that the company may be expunged from the Commercial Register.
- The measures also concern the feasibility to establish a limited company. The persons who are registered on the tax debtor list and, under the new scheme, also the persons who are registered on the debtor list of the Social Insurance Agency will not be entitled to establish a limited company.
- Establishment of other capital funds. Even though the Commercial Code in some sections works with the term of so-called other own resources, the explicit arrangement of other capital funds has so far been lacking in the act. In practice, it has caused several legal as well as accounting confusions regarding their formation and allotment. This question has become ever more acute after a provision was introduced on a crisis of capital business company. The amendment predominantly aims at removing the problem from practice and clarifying the position of company’s own resources. The considered question is also necessarily related to bookkeeping rules. The draft amendment explicitly introduces, among other things, the notification duty, i.e. if a paid-up capital fund is to be reallocated among shareholders, the actual reallocation must be preceded by a test of company crisis. In addition, a notice of the extent of the reallocation must be published no later than 60 days prior to the reallocation. Regarding the fact that the payout of other capital funds currently represents a frequent, and perhaps even undefined issue (due to a lack of relevant legal arrangements), not least also in light of a company crisis, we are able to address any of your questions and provide you with expert consultancy based on our long-term experience in this field.
It is proposed that the described changes, following the marking up process and approval, become effective as of 1 January 2018.
