The Czech Supreme Court commented on certain aspects of business transfer in its Judgment File No. 27 Cdo 2645/2018 dated 29 May 2019.

The term “part of a business” as used in Section 190 (2)(i) of the Business Corporations Act means an independent organizational unit of a business (i.e., not any factually important section of a business). In case of a transfer, only transfers of an independent organizational unit require approval at a general meeting under Sections 2175 to 2183 of the Civil Code and only if the given transfer would result in a significant change of the existing structure of the business or activity of the company. Both requirements must be met at the same time. This means that when, for example, one of many branches of a company is transferred, as long as all the branches do the same business and achieve approximately the same turnovers, the requirement of significant change is normally not met. Even though such transfer will concern an independent organizational unit, no approval at a general meeting will be necessary to effect the transaction.

Transactions, which—as a whole—result in a (factual) transfer of an independent organizational unit, as long as such branch meets the significant change criterion, are also subject to approval at a general meeting. In other words, there is no way for directors to circumvent the general meeting by “splitting” a branch transfer into several contracts.

The approval may be either unconditional or dependent upon certain conditions (of the relevant agreement). A director may only effect the transfer or pledge on conditions approved at a general meeting. Any agreement not reflecting the terms specified in the applicable general meeting resolution is to be deemed unapproved and thus void under Section 48 of the Business Corporations Act.

A general meeting may grant its approval subsequently (both for transfer and pledge of business or a part thereof); in such cases, the agreement is to be deemed defective, resulting in the possibility to contest the agreement as relatively invalid. Otherwise, if the agreement is subsequently approved by a general meeting, the defect is remedied.

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