1. Introduction

Act No. 90/2012 Coll., on commercial companies and cooperatives (“BCA”) has not only changed the responsibilities of statutory bodies, but also presents new rules governing the exercise of their functions. The BCA places special emphasis on remuneration for members of statutory bodies and sets relatively strict rules, failure to comply with which is punishable by making the exercising of that office free of charge (see Section 59 (3) BCA).

The aim of this article is to briefly describe the important changes in performance contracts and also to highlight the problems associated with this new legislation, using the example of the status of a member of the statutory body of a limited liability company (s.r.o.) holding office without a performance contract.

2. Before and now

Before the BCA came into effect, performance contracts were governed by the Commercial Code, and were classed as mandate contracts. The BCA now stipulates that the rights and responsibilities between a commercial company and a member of its body are governed accordingly by the provisions of the Civil Code concerning mandates (see Section 59 (1)). This minor change immediately presents two fundamental problems, both of which are elaborated below (see legislative error and dual interpretation).

3. Legislative error

Pursuant to Section 59 (1) BCA, the remuneration of a member of a statutory body in situations when no performance contract has been concluded is governed by a mandate contract pursuant to the provisions of Section 2430 et seq. of Act No. 89/2012 Coll., Civil Code (“CC”). According to Section 2438 CC the mandator (company) provides the mandatory (member of the statutory body) with remuneration, if such remuneration has been agreed or is usual, particularly with regard to the business of the mandatory (member of the statutory body).

Compared to the previous legislation, which took account of the mandatory’s business when determining whether remuneration was usual, there is a clear difference in that account will now be taken of the mandatory’s business. It must be emphasised that there is no logical justification for this change and that it is not explained in any way in the explanatory memorandum to the CC. It may therefore be assumed that this is a legislative error, albeit one with fundamental consequences, when according to the BCA and CC a member of a statutory body will only be entitled to remuneration if such remuneration is usual given the nature of the mandatory’s business, which in our opinion will be very rarely.

4. Dual interpretation

Another important change, and also one which entails a further complication, is the sanction on the free exercise of an office upon failure to comply with the laws concerning remuneration.

The previous legislation, however, stated that unless it has been specifically agreed that an office is to be exercised free of charge, a fee is paid for the exercising of that office. The BCA also pressures commercial corporations and the members of their statutory bodies to negotiate remuneration in accordance with the requirements of the BCA (see Section 60 and 61 BCA) in the actual performance contract. In other words, the BCA forces corporations to enter into performance contracts.

A problem is therefore raised by Section 59 (3) BCA, which states that if remuneration is not negotiated in accordance with the BCA, the exercising of the office is free of charge. This provision raises a certain problem of interpretation, as it is not clear whether this is intended to apply solely to cases where remuneration is negotiated in contravention of the BCA (i.e. a contract exists), or also to cases where no remuneration is negotiated at all (i.e. to cases where no contract exists). Mention of this has also been made in some of the specialised literature, according to which the office of a member of the body is exercised free of charge in cases where no performance contract has been negotiated and the reason for this is not an impediment on the part of the capital company, as assumed by Section 59 (4) BCA (see Lasák; Pokorná; Čáp; Doležil et al. Zákon o obchodních korporacích (Act on Commercial Corporations) – commentary, 1st edition. Prague: Wolters Kluwer, 2014, to Section 59).

This provision would then constitute the sole protection for members of statutory bodies with no performance contract, as it grants them the right to claim remuneration at the usual amount if a performance contract is not concluded for reasons on the part of the commercial corporation (remuneration not payable for reasons on the part of the commercial corporation, contract not concluded due to an impediment on the part of the commercial corporation or contract not approved by the corporation’s supreme body without undue delay).

Both these problems pose a serious risk for members of statutory bodies who do not have a written performance contract that meets all the requirements of the BCA, as not only do both these variants not entail legal uncertainty regarding the legitimacy of their remuneration, but in fact indicate that in such a case the exercising of the office should be free of charge.

5. Basic requirements stipulated by the BCA for performance contracts

For the sake of completeness it must be stated that the BCA prescribes that performance contracts must be in writing in capital companies (limited liability (s.r.o.) and joint stock (a.s.)) and also requires that they be approved (including any subsequent changes) by the company’s supreme body.

If remuneration, including other payments, is enshrined in a performance contract concluded prior to 1 January 2014 and the agreed rules do not contravene the new provisions, the performance contract does not need to be changed in any way.

The methods used for remuneration in capital companies are then defined in Section 60 BCA, which treats the mandatory details of remuneration that must explicitly be included in the contract. These include:

• a definition of all remuneration components to which the member of the body is or could be entitled, including any material consideration, reimbursement to a supplementary pension scheme or other performance,

• specification of the amount of the remuneration or the means used to calculate it and the form of that remuneration,

• specification of the rules governing the payment of special remuneration and shares in profit for the member of the body, if claimable, and

• details of the perks or remuneration of the member of the body consisting of the transfer of participating securities or enabling the member of the body or a close person to acquire such securities, if the remuneration is to be provided in this form.

As stated above, failure to comply with these requirements is punishable by the office being exercised free of charge.

6. Conclusion

With regard to the above it may be concluded that the current legislation ascribes too much legal uncertainty to the status of a member of a statutory body who has not concluded a performance contract.

The potential dual interpretation results in legal uncertainty and both interpretations focus more on the risk of deeming the exercise of an office to be free of charge.

The BCA has therefore particularly made it necessary to conclude a written performance contract, as this is the only way to eliminate the aforementioned uncertainty.

Given its importance (the risk of the office being exercised free of charge) and the structured requirements concerning remuneration, the preparation of the contract should be entrusted to experts, which will ensure that the contract complies with the law and who are also able to draw attention to any risks involved with the office of the statutory body member.

For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail:jkucera@kuceralegal.cz ; tel.: +420604242241.