In its recent decision, the Supreme Court of the Czech Republic dealt primarily with the question of whether a dismissed and deleted from the Commercial Register executive officer of a company is entitled to defend against the entry of facts related to his or her dismissal or deletion from the Commercial Register pursuant to Section 101(2) of the Act on Public Registers of Legal and Natural Persons (the “Act on Public Registers“), in particular the situation when, in connection with the dismissal and deletion of the executive officer from the Commercial Register, the reason for the executive officer’s dismissal is simultaneously entered in the Commercial Register[1].
General to the application for registration
The right to file a petition for registration in the Commercial Register is vested primarily in the person registered, i.e., the company (pursuant to Section 11(1) of the Act on Public Registers). The Act on Public Registers provides for several exceptions where a person other than the company itself or a person designated by law may file the petition. One of them is the situation where the person statutorily authorised (obliged) to file the application for registration fails to comply with his obligation to file the application within 15 days from the date on which the obligation arose. Then, anyone who can prove a legal interest in the application for registration and attach to the application for registration the documents which are to prove the facts to be entered in the public register (pursuant to section 11(3) of the Act on Public Registers) may file the application for registration.
If the statutory petitioner fails to comply with its obligation, this procedure provides an opportunity for persons affected by its failure to act to defend themselves in some way or to act in their own legal interest in its stead. However, it may be inferred that if, even before the expiry of that period, the application will not be made and if there are substantial grounds for doing so, an application may be made under section 11(3) of the Act on Public Registers even before the expiry of the 15 days. Typically, this may be, for example, a removed member of the body of the legal person, an heir of the one who gave consent to the use of the name in the name of the legal person when withdrawing consent (section 133(3) CC), a house owner who has not given or has withdrawn consent to the location of the registered office (section 136 CC and section 14), etc.[2]
Another exception is section 101(2) of the Act on Public Registers, which provides that persons registered under another Act in the public register in the context of the registration of a registered person may, in the event of their deletion from the public register, seek to have the registration amended even if it was made otherwise than under section 98 of the Act on Public Registers. This provision ensures that persons entered in the register in the context of a registered person’s registration who are not parties to the registration proceedings under section 84 of the Act on Public Registers and therefore cannot appeal against the court’s decision to delete them from the public register can defend themselves against unjustified deletion from the public register.
Such persons may defend the cancellation or amendment of the registration both if the registration was made based on fiction (see section 101(1) in conjunction with section 98 of the Act on Public Registers) and if the registration was made based on a court order. Accordingly, the registry court must, within 3 working days of the date of registration of their deletion in the public register, send to those persons, with due application of section 102 of the Act on Public Registers, a notice of that registration and information about its contents. The registry court may give such notice by sending a decision on their cancellation or by sending an extract from the commercial register containing their cancellation.[3] It is this provision that the Supreme Court addressed in the present proceedings.
Right of a removed member to seek the deletion of the grounds for removal
The appellant, as the dismissed managing director of the company, objected to the entry of the reasons for which he should have been dismissed from the position of managing director by the general meeting, which was entered together with the deletion of his person as managing director of the company in the section “other facts”. The Court of Appeal, in agreement with the Court of Registration, assessed the appellant’s objections pursuant to section 11(3) of the Act on Public Registers, rejecting them on the grounds that the appellant is not a person entitled to file the application since the reasons for his removal as managing director are not the so-called decisive facts referred to in section 25(1)(j) of the Act on Public Registers, and therefore only a registered person may file an application for their deletion.
The Supreme Court, however, took a contrary view and considered the appellant’s application, or his filing of objections to the registration, not as an application under section 11(3) of the Act on Public Registers, but as an appeal under section 101(2) of the Act on Public Registers. The purpose of section 101(2) of the Act on Public Registers is to enable persons registered under any other law in the public register to object to their deletion during registration and thereby bring the registration into conformity with the facts, not to give such persons the opportunity to oppose the correctness of all the facts recorded. A grammatical interpretation of section 101(2) of the Act on Public Registers would thus lead to the conclusion that this provision does not allow the procedure chosen by the appellant, i.e., to seek the deletion of the grounds for removal from the office of the managing director. The Supreme Court concluded that the grammatical interpretation is only an initial approximation of the text of the legal norm contained in the interpreted provision, and in assessing the appellant’s entitlement, the provision must be interpreted teleologically, i.e., based not on the literal wording but on its purpose.
The facts, the deletion of which was sought by the appellant, are closely related (and are inseparably connected) with the deletion of the appellant’s person as the company’s managing director from the Commercial Register. If the appellant is entitled to seek a change in the entry in the Commercial Register in the event of his deletion from the Commercial Register, he must also be entitled to seek a change (deletion) of the entry in the Commercial Register for the reasons for which he was deleted from the Commercial Register, or, in the event of his removal as managing director by the general meeting, of the reasons for which he should have been removed.[4] The Supreme Court has thus fundamentally expanded the range of facts whose deletion can be invoked by persons entitled under the law and has thus abandoned the restrictive interpretation of the language which granted this right only to the persons concerned to appeal against their deletion from the Commercial Register.
However, notwithstanding the newly ruled possibility to file a motion for the deletion of other facts pursuant to Section 101(2) of the Act on Public Registers, it is still valid that in the framework of such initiated proceedings the petitioner, in this case, the dismissed executive, cannot seek a review of the validity or invalidity of the resolution of the general meeting on the basis of which he was dismissed from his position. In proceedings under section 101 of the Act on Public Registers or in conjunction with section 117 of the Act on Public Registers, the court cannot assess the validity of a resolution of the highest body of a legal person which was the basis for registration. These conclusions were also confirmed earlier, for example, by the High Court in Prague in its decision of 20 February 2018, Case No. 7 Cmo 232/2017, according to which the court is entitled to review the validity of a decision of the highest body of a legal person only in proceedings for the declaration of invalidity of such a decision, adding that: “…in any other proceedings, the court is no longer entitled to review the validity of a resolution of the general meeting (…), even as a preliminary question. Even in proceedings under section 101 of the Act on Public Registers (or under section 101 in conjunction with section 117 of the Act on Public Registers) as sui generis registration proceedings, the validity of a resolution of a general meeting cannot be reviewed (…).”
Notification of the entry of grounds of appeal and defence against it
Following the first conclusion regarding the right to request a change in the entry of reasons that are directly related to the deletion of a given person (see above), the Supreme Court subsequently concluded that the registry court is also obliged to notify the deleted executive not only about the deletion of his/her person from the Commercial Register but also about the possible entry of the reasons for which his/her function as an executive should have ceased (Section 101(2), part of the sentence after the semicolon of Section 102 of the Act on Public Registers).[5] The person being removed or erased thus has the opportunity to defend himself in time by appealing against his erasure or against the registration of other facts.
An appeal against erasure or registration must be accompanied by relevant documents proving the facts alleged in the appeal (depending on the grounds for appeal). It is important to distinguish the context in which the person is defending against the erasure or recording. In proceedings before the Registry Court, it is possible to defend an expungement, for example, on the basis of a document that does not show the reason for the expungement, on the basis of a forged document, or on the basis of an apparent resolution of a general meeting – in these cases, in the proceedings before the Registry Court, the court will base itself on the documentary evidence and may decide directly on the relevance of the appeal against the expungement. However, the situation is different in the case of an expungement based on a resolution suffering from a defect rendering it null and void (see also in the article above). In this case, a special proceeding to declare the invalidity of the order must first take place, and only then can the court of registry examine the validity of the deletion.
If the court ultimately deletes the grounds for removal from office from the commercial register, they will no longer appear in the current extract from the commercial register. This fact, i.e., their entry and subsequent deletion, would still be detectable in the full extract from the commercial register. They would remain in the full extract from the Commercial Register without the possibility of getting rid of them, as it follows from the resolution of the Constitutional Court, III. ÚS 767/08 of 12 February 2009, which confirmed the conclusions of the Supreme Court, namely that “…it is not possible to allow the deletion of a fact entered in the Commercial Register in such a way that the full text of the entry in the register does not show that such an entry was made and subsequently deleted. If the previously entered data from the “history” of the commercial register were erased … the acquisition of a so-called complete extract from the commercial register would lose its meaning.” Although false and misleading information is often entered and subsequently deleted, which may have a negative impact on the reputation and professional life of the persons concerned, as is often the case for reasons of removal from office in the context of, for example, hostile takeovers or other shareholder conflicts, it is not possible to obtain its “definitive” removal from the commercial register. The fact that the decision based on which a certain fact was entered in the commercial register was subsequently annulled because it was wrongly issued can possibly be at least partially reflected by the entry of these accompanying circumstances in the “other facts”.
Conclusion
In its decision, the Supreme Court significantly shifted the interpretation of the law and newly allowed the removed or deleted member of a commercial corporation to seek the deletion of the reasons for his removal from the Commercial Register in proceedings under Section 101(2) of the Act on Public Registers. At the same time, the court of registration is obliged to notify the person concerned of the registration of these grounds (as well as of his or her deletion). The Supreme Court has thus opened the floodgates for the growth of proceedings concerning the defence against the registration of reasons for removal from the office of members of a body of legal persons since neither the existing case law nor the specialist literature granted such a right to the removed member. Only the future will show to what extent this agenda of the registry courts will grow and how they will react to it in their decision-making practice.
We are available to answer any questions regarding registry proceedings, as well as other substantive issues related to corporate law, so please do not hesitate to contact us.
[1] Resolution of the Supreme Court of the Czech Republic, Case No. 27 Cdo 1744/2022 of 25 January 2023.
[2] HAVEL, Bohumil. § 11 [Podání návrhu na zápis]. In: DĚDIČ, Jan, HAVEL, Bohumil, JINDŘICH, Miloslav, ŠTENGLOVÁ, Ivana a kol. Zákon o veřejných rejstřících právnických a fyzických osob. 1. vydání. Praha: C. H. Beck, 2015, s. 31–32.
[3] ŠTENGLOVÁ, Ivana. § 101 [Obrana proti fikci zápisu]. In: DĚDIČ, Jan, HAVEL, Bohumil, JINDŘICH, Miloslav, ŠTENGLOVÁ, Ivana a kol. Zákon o veřejných rejstřících právnických a fyzických osob. 1. vydání. Praha: C. H. Beck, 2015, s. 351.
[4] See point 18 of the Resolution of the Supreme Court of the Czech Republic, Case No. 27 Cdo 1744/2022 of 25 January 2023.
[5] See point 19 of the Resolution of the Supreme Court of the Czech Republic Case No 27 Cdo 1744/2022 of 25 January 2023.
Mgr. Martin Heinzel, senior attorney – heinzel@plegal.cz
Ráchel Kouklíková, legal assistant – kouklikova@plegal.cz
8. 6. 2023