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Czech Republic

Privatization exemptions to mandatory buyout rules

Since 1996, any entity buying shares in a formerly state-owned enterprise as a result of privatization was excluded from the mandatory buyout obligation (the so-called privatization exemption), set out in the Czech Commercial Code. The mandatory buyout provision of the Code said that anyone buying shares above a specified threshold (including a controlling interest) must offer to buy the shares of minority shareholders.

The privatization exemption was repealed in November 2001, as part of a series of amendments to the Code, following a split vote in the Czech parliament. But within two weeks the Chamber of Deputies revoked its decision and reinstated the exemption. Soon afterwards, two complaints were filed in the Constitutional Court by a group of deputies. The first challenged the constitutionality of the procedure by which the Chamber of Deputies reinstated the exemption, and the second challenged the constitutionality of the exemption itself, saying it was discriminatory and broke international treaties.

On October 2 2002 the Constitutional Court declared the reinstatement of the privatization exemption unconstitutional and abolished the 2001 amendments with effect from April 1 2003. As a result of the ruling, the privatization exemption continues in effect and, in the absence of any further amendments to the Code or an adverse Constitutional Court decision on the constitutionality of the exemption itself, will remain in effect after April 1 2003.

The Constitutional Court will probably rule on the constitutionality of the exemption before March 31 2003. If the court upholds the exemption, nothing will change and the exemption will remain in force. If the court rules that the exemption is unconstitutional, any purchase of shares, including by way of privatization, after the effective date of the ruling will be subject to mandatory buyout obligations.

Protection of bank clients

Based on the new Act on Payment Systems, the Czech National Bank has adopted new rules entitiled General Terms of Issue and Use of Electronic Payment Instruments. Commercial banks in the Czech Republic that issue electronic payment instruments (such as payment cards, credit cards, internet banking or phone banking) may apply their own terms and conditions when doing so. But commercial banks must indicate to their clients whether their terms and conditions comply with the general terms issued by the Czech National Bank and specify the differences, if any.

The most important provisions of the general terms of the Czech National Bank are as follows:

The terms and conditions of commercial banks must be a part of the agreement on issuance and use of electronic payment instruments and must clearly indicate the governing law, related fees, safety precautions and procedures for contesting payments and other transactions.

Banks are liable for losses resulting from any failure to carry out a transaction in accordance with the client's request or instructions, unsolicited transactions or losses caused by technical failures in the electronic payment system.

Clients are required to use electronic payment instruments with due care, to report to the bank immediately any loss, damage, errors or unsolicited transaction that occurs, and keep their personal identification numbers (PINs) secret.

Clients are liable for losses caused by unauthorized use of their electronic payment instruments up to Kc 4,500 ($147), except in the event of gross negligence, fraud or failure to report the loss of electronic payment instruments immediately, in which case the client will be responsible for the full loss.

Disputes arising from the issuance and use of electronic payment instruments are to be decided by the Financial Arbitrator, an independent arbitral body, operating in close cooperation with the Czech National Bank.

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