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Companies should expect extensive legislative amendments

Ministry of Justice of the Slovak Republic, in order to improve the business environment in the Slovak Republic, developed a draft law amending the entire Commercial Code a whole series of other Acts with regard to the merges, acquisitions and divisions of companies, legal regulation of capital funds and trade secrets (hereinafter referred to as the "Amendment").

The main purpose of the Amendment is to resolve application problems with respect to chain mergers, acquisitions and divisions of the companies, which are commonly used to avoid obligations to dissolve the company or initiate the bankruptcy proceeding. The Amendment shall include also extension of liability of statutory body, shareholders and bankruptcy trustees and amends also the Criminal Code by introducing a new crime, a crime of unfair dissolution. The Amendment introduces new institutes and terms, for example a guarantee of controlling person, definition of capital funds and several new obligations and restrictions in respect to the mergers to submit an auditor´s report.

In order to increase protection of the creditors, the Amendment introduces guarantee of controlling person. A controlling person shall guarantee for a damage caused by bankruptcy of a controlled person. The liability shall be triggered when the bankruptcy was caused by a decision of controlled person’s relevant body or if a controlling person gave an instruction for such decision. The definition of the capital funds aims to clarify position of other own resources. As a prerequisite for the creation of the capital funds is an arrangement in the foundation agreement or the statutes and approval of the general meeting. A contribution to the capital fund could the same as the contribution to the registered (share) capital, i.e. a monetary contribution or in-kind contribution. Contributions which could have an advantage in respect to the profit distribution cannot be refunded as such advantage in respect to the profit distribution is de facto avoiding the ban of interest accrual on contributions. In case of capital funds which can be distributed among the shareholders, the Amendment implies an obligation to undertake a company crisis test and fulfil the notification obligation.

Further new obligation introduced by the Amendment relates to registration or deletion of limited liability companies in the commercial register, where is a proposed an obligation to submit approval of Social Insurance Authority with the pertinent registration or deletion.

It is also worth mentioning the proposed clarification and widening of definition of subject matter of the trade secrets infringement. Proposed widening constitutes unlawful acquisition, use and disclosure of the trade secrets. This is not an exhaustive enumeration but, on the contrary, only a demonstrative enumeration, since as a trade secrets infringement is also considering any other conduct which, under the circumstances, is considered as unfair commercial practice.

The Amendment changes Bankruptcy and Restructuring Act with regard to the proposed changes of the Commercial Code and tries to resolve some application problems, for instance proposal of clarification of subject matter of damages for the breach of obligation to submit application for the initiation of bankruptcy proceeding, or proposal to determine the jurisdiction of the court by the rule with the retrospective effect.

The Amendment, inter alia, modify also the Banking Act, as well as the Income Tax Act. Mostly, in mentioned acts, modifications related to the proposed changes of the Commercial Code. The definition of the contribution in the Tax Income Act is supplemented. The contribution constitutes both, a monetary and non-monetary contribution to the registered capital, as well as a monetary and non-monetary contribution to the capital fund. According to transitional provisions, the contribution constitutes also any increase of the registered capital by earning after taxes (dividend) under condition that such earnings after taxes (dividend) can be only from the tax periods where it was not a subject of tax. In addition to the proposed arrangement of the capital fund, the tax impact of the capital fund on the income tax assessment base is also adjusted.

Proposed effectiveness of the Amendment is on 1 January 2018.

For more detailed information and the impact of this Amendment on planned transactions do not hesitate to contact JUDr. Michal Hulena and Mgr. Vladimír Kordoš, LL.M., Partners of the Konečná & Zacha office in Bratislava.

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