CZECH REPUBLIC Law and Practice Contributed by: Petr Janů, Vladislav Klimeš and Leoš Vavřík, BADOKH
one is still reasonably close to the settlement of the deal on the other hand. Czech statutory law recognises the concept of pre-contractual liability (culpa in contrahendo) and general duty of good faith and fair pre-con - tractual negotiation. However, litigation con - cerning pre-contractual liability is not common, unless the parties agreed on specific contractual penalties in a binding term sheet, letter of intent or similar pre-contractual instrument. 10.3 “Broken-Deal” Disputes In the context of the COVID-19 pandemic, a certain type of buyer’s behaviour could be observed, namely the use or sometimes even abuse of MAC (material adverse change) clauses in connection with the occurrence of the pan - demic. These provisions were used by buyers in order to (i) terminate the deal; (ii) delay the deal for at least a certain period of time; or (iii) re-enter into additional negotiations on the terms of the transaction (usually wishing to modify the purchase price). Despite this, “broken-deal” dis- putes are not common in the Czech Republic. Shareholder activism is present in the Czech Republic and its role has been increasing over the past years, but not dramatically. Most com - monly, activist shareholders make use of their minority rights under the Business Corpora - tions Act. For example, they use their rights to (i) request that extraordinary general meetings be called; (ii) request information from the company; (iii) challenge resolutions of the general meeting at court; or (iv) request additions to the agenda of general meetings. 11. Activism 11.1 Shareholder Activism
In more extreme cases, activist shareholders also seek to initiate legal disputes with majority shareholders (typically over the alleged misuse of majority shareholders’ rights) or board mem - bers (typically over alleged breaches of their fiduciary duty). The possible influence of minority shareholders on M&A transactions should always be assessed as a part of the due diligence exercise and be taken into consideration during transaction structuring and post-closing structuring (eg, when setting up stock option plans). Other potential activists, such as trade unions, play a significantly less substantial role in M&A transactions in the Czech Republic. 11.2 Aims of Activists Shareholder activism is most frequently aimed at increasing the value for minority sharehold - ers to the detriment of the majority shareholders. Typical cases include boycotting the squeeze- out procedure, making it hard for the majority shareholder to divest or onboard a new investor. Activists seeking to encourage companies to enter into M&A transactions, spin-offs or major divestitures are almost non-existent in the Czech Republic. 11.3 Interference With Completion Shareholder activists do sometimes interfere with the completion of transactions. However, it is more common for them to interfere in the early stages of the M&A process, and usually some sort of an agreement is reached in order to mitigate the risk of troubles in the later stages of the M&A process. All parties usually want to avoid entering into disputes before courts.
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