CZECH REPUBLIC Law and Practice Contributed by: Petr Janů, Vladislav Klimeš and Leoš Vavřík, BADOKH
ver 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 effec - tively have the means to block a private business combination by adopting defensive measures, though the ultimate decision lies with sharehold - ers. 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’ opportunity 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. Litigation in connection with M&A deals (espe - cially in connection with the squeeze-out of minority shareholders) is quite common in the Czech Republic. This is mainly due to the fact that the legal fees for initiating a dispute and related costs are still low in comparison to the value at stake. However, the overall number of M&A-related court proceedings concerning complex or high- value M&A deals is on the decline. This is due to the fact that the parties are increasingly using more sophisticated provisions in the transac - tion documents which help to resolve issues between the parties in advance or without the interference of courts. Moreover, the expertise 10. Litigation 10.1 Frequency of Litigation
of the Czech courts in resolving complicated M&A transactions may not always be reliable and the prospects of such proceedings may be rather unpredictable. Standard court litigation may easily take two or three years to reach an enforceable decision, with complicated cases lasting well over five years. Czech courts require high standards of proof for litigation concerning damages, and the courts are generally reluctant to award high damages claims or consequential damages. Therefore, the contracting parties usually rely on contractual penalties and tend to avoid litigation involving claims for damages based on statutory provi - sions or general terms of the contract. If the parties have concluded an arbitration clause in the transaction documents or agreed that the dispute shall be resolved by an arbitra - tion court, the dispute may be brought before a Czech arbitration court (eg, the Arbitration Court attached to the Economic Chamber of the Czech Republic and Agricultural Chamber of the Czech Republic). Although the reputation of the arbitration court has been tarnished in recent years, it is not unusual for parties to choose arbitration, as the costs of proceedings are very similar to those of court proceedings, but arbitration is usually much quicker. 10.2 Stage of Deal There is no consistent pattern as to the exact stage at which litigation is brought. Litigation may be brought at any stage of the deal. The period that is most likely to give rise to a dispute is the period of six to 12 months from the settle - ment of the deal. This is the time when the pur - chaser has already gained detailed information about the target company on the one hand, but
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