Failure to deposit financial statements in the Collection of Deeds as a risk of company dissolution

Each company is obliged to publish mandatory documents in the Collection of Deeds kept for each company by a commercial court. What penalties may be imposed for a failure to do so? And are there any changes ahead? Such mandatory documents include founding documents, financial statements, annual reports and related-party reports. This obligation has been in place since the 1990s. In 2014, the Act on Public Registers of Legal Entities and Natural Persons came into effect, laying down rules for operating public registers for such entities and for the registration procedure. A change could now be introduced by an amendment to the Companies Act, which is aimed at dealing with the risks associated with a potentially fraudulent behaviour of inactive companies. According to the Czech Ministry of Justice, such companies may be potentially abused for fraudulent activities by other entities, particularly for tax frauds. It is estimated that the duty to publish the above documents fails to be complied with, at least in part, by more than a half of the companies. Compliance with the statutory duty should be monitored by commercial courts. Companies that fail to comply with the court’s request for depositing documents may face a fine of up to CZK 100,000 and in extreme cases such companies may be dissolved with liquidation. The amendment to the Companies Act, which could enter into force in 2020, imposes stricter and, at the same time, more efficient penalties on companies that fail to fulfil their statutory duties related to mandatory disclosures on a long-term basis. This applies to companies with often mere formal existence and undertaking no business activities. The amendment is expected to eliminate the existence or significantly reduce the number of such inactive companies. Under the new rules, companies could also be dissolved without liquidation if they fail to deposit in the Collection of Deeds financial statements for two consecutive fiscal periods and, at the same time, cannot be reached. This means that there is no way of delivering the company a court request for fulfilment of the duty, i.e. there is no person present at the registered office who is authorised to receive documents. If these two conditions are met, the commercial court may initiate a procedure to dissolve the company and will enter the information in the Commercial Register. Unless it becomes apparent within 6 months that the company owns assets sufficient to cover the costs of the liquidation, the court will rule to dissolve the company without liquidation. In the opposite case, the court will rule on dissolution with liquidation. If the amendment passes through the legislative process, dissolving inactive companies could be, in theory, relatively simple. However, there is probably no risk of mass dissolutions. Courts still have insufficient capacity to detect such failures and in most cases respond to complaints raised by parties to the proceedings, prosecuting attorneys, the police and officers. Please do not hesitate to contact us. We will be pleased to advise you on the Collection of Deeds and financial statements.