CZECH REPUBLIC Law and Practice Contributed by: Petr Janů, Vladislav Klimeš and Leoš Vavřík, BADOKH
tiations with the target board of directors to increase the likelihood of a successful takeover bid. 9.2 Directors’ Use of Defensive Measures The directors in a public company have to follow the duty of neutrality once they become aware of the likelihood of receiving a takeover bid. Once the duty of neutrality becomes relevant, the directors may not undertake any defensive measures that could stave off the takeover bid unless the company’s general meet - ing has sanctioned such actions, or the law requires such actions, or such actions fall within the ordinary course of the company’s business. Nonetheless, the directors may freely put in place defensive measures before becoming aware of the likelihood of receiving a takeover bid or actively pur - sue a competitive takeover bid and even submit their own competitive takeover bid after becoming aware of the likelihood of receiving a takeover bid, without breaching any principal directors’ duties. Directors of a private company may undertake any defensive measures as long as they follow the general due care requirements and act in the company’s best interest. 9.3 Common Defensive Measures Various defensive measures can make the condi - tions of a hostile takeover more difficult. The direc - tors and shareholders are likely to implement some of the defensive measures well in advance of receiving a takeover bid, as implementation in the latter stages would become troublesome. These advance defen - sive measures typically include: • issuance of different share classes, where one share class has stronger voting rights and such shares remain in the hands of founders (making them virtually inaccessible to the bidders); • implementing a higher quorum of voting rights at the general meeting for certain reserved matters (such as change of by-laws, recall of directors, issuance of new shares, and so forth), making the company less attractive for a takeover by creating obstacles for the bidders; and • purchase of own shares by the company.
Another common defensive measure may be the so- called white knight’s response, in which the directors actively pursue a competitive takeover bid. The white knight’s response typically becomes relevant only once there is a bid to compete with. Other defensive measures one may usually see in different jurisdictions such as “poison pills”, “suicide pills” or “golden parachutes” are either not permis - sible or impractical under Czech law. 9.4 Directors’ Duties At all times, the directors are obliged to act with due care in the company’s best interest, which may or may not be aligned with the interests of the directors or shareholders of the company. In public companies, the directors have to follow the duty of neutrality. Despite this, the shareholders may instruct the direc - tors to adopt certain defensive measures in response to a takeover bid (see 8.1 Principal Directors’ Duties and 8.3 Business Judgement Rule ). 9.5 Directors’ Ability to “Just Say No” As long as the directors act with due care and in the best interest of the company, they effectively have the means to block a private business combination by adopting defensive measures, though the ultimate decision lies with shareholders. By contrast, in a public business combination, the directors must follow the duty of neutrality and their ability to “just say no” is significantly limited. This means that the directors may not adopt measures that would adversely influence the shareholders’ opportu - nity to freely decide whether to accept or refuse the takeover bid, though the directors may express their opinion (even a negative one) on the takeover bid in the management report on the takeover bid.
10. Litigation 10.1 Frequency of Litigation
Litigation in connection with M&A deals (especially in connection with the squeeze-out of minority share - holders) is quite common in the Czech Republic. This is mainly due to the fact that the legal fees for initiating
407 CHAMBERS.COM
Powered by FlippingBook