Krok kupředu nebo „amnestie pro tuneláře“
The Czech State could earn tens of billions of crowns if it started systematically to enforce fines on the companies that that are in breach of their duty to share information. An improvement in the Czech companies’ approach to their duty to disclose their financial statements in the collection of legal documents could be enforced by virtue of an amendment to the corporate act, now discussed in parliament. But its main goal, apart from ushering more transparency into the Czech business environment and weeding out “sleeping businesses” from the register of firms, might be an “amnesty for asset strippers”, known as “tunnel diggers” in the Czech environment.
The goal of the amended company and co-operative act (“Business Corporation Act”), written by the Czech Republic’s Ministry of Justice, is to address the problem of companies that do not display any economic activities and only exist on paper. The amendment envisages that a business corporation can be wound up without bankruptcy proceedings if it fails to file its two consecutive financial reports in the register of documents for two consecutive accounting periods and it is impossible at the same time to serve it with a subpoena demanding that the missing documents be supplied to the register as stated above.
As of the closing date for 2017 (data provided by 31 July 2018), 84 percent of the Czech firms have not yet fulfilled their legal obligation. Under the law, the firms that do not insert their financial statements in the collection of documents might face sanctions not exceeding three percent of the value of their assets and a disciplinary fine not exceeding CZK 100,000. The Bisnode consulting company used data on all Czech business firms to compile a model according to which the Czech Republic ‘s budget could have gained at least 23 billion crowns’ worth[1] and up to 625 billion crowns’ worth of additional income[2] by 2016 if it had systematically enforced fines for the breach of terms in case of the firms that failed to meet their information duty. “Courts are not likely to always meet the maximal fines, but even if they enforced only a part of the maximal fine, it would be a major addition to the national budget,’’ says General Director of Bisnode Czech Republic and Slovakia Jiří Skopový. And he adds: “The non-use of control and sanction mechanisms witnessed thus far enhances a non-transparent business environment, where a minority of the firms does observe applicable laws, while a majority of them profits from the dysfunctional system and conceals their financial data. By so doing they indirectly hamper the business of the other entities, which cannot effectively and systematically verify their business partners on the face of financial data, which might lead to bad debts and ultimately also to bankruptcy.”
Firms in default on their information duty in 2013-2017
|
|
2017 |
2016 |
2015 |
2014 |
2013 |
|
Joint-stock companyAkciová společnost |
82.28 % |
49.96 % |
44.80 % |
41.28 % |
36.99 % |
|
Limited-stock company |
84.18 % |
64.60 % |
60.51 % |
57.73 % |
55.32 % |
|
84.08 % |
63.77 % |
59.57 % |
56.71 % |
54.13 % |
Source: Bisnode (*data as at 31. 7. 2018)
Fines for firms in default of 2016 reporting duty
The 2016 reporting duty was met by 147,891 firms (31.9 %) but dishonoured by 315,009 firms (68.1 %).
Disciplinary fine (not exceeding CZK 100,000) for 315,009 firms
|
Model fine |
Total fine |
|
CZK 10,000 |
CZK 3,150,090 000 |
|
CZK 20,000 |
CZK 6,300,180 000 |
|
CZK 50,000 |
CZK 15,750,450,000 |
|
CZK 100,000 |
CZK 31,500,900,000 |
Asset sanctions (up to 3 %) against 315,009 firms by asset size according to Bisnode model
|
Model fine |
Total fine |
|
0.1 % |
CZK 19,766,935,542 |
|
1.0 % |
CZK 197,669,355,424 |
|
2.. % |
CZK 395,338,710,847 |
|
3,0 % |
CZK 593,008,066,271 |
Total fine
|
|
Disciplinary fine |
Sanctions |
Total fine |
|
Slight estimate |
CZK 3,150,090,000 |
CZK 19,766,935,542 |
CZK 22,917,025,542 |
|
Somber estimate |
CZK 6,300,180,000 |
CZK 197,669,355,424 |
CZK 203,969,535,424 |
|
Medium estimate |
CZK 15,750,450,000 |
CZK 395,338,710,847 |
CZK 411,089,160,847 |
|
Max estimate |
CZK 31,500,900,000 |
CZK 593,008,066,271 |
CZK 624,508,966,271 |
Source: Bisnode (*data as at 31. 7. 2018)
Public procurement contracts are often awarded to companies in default on their reporting duty and thus also in breach of the law. Many orders were awarded by public institutions, e.g. town halls, hospitals and government ministries.
|
Principal |
Contractor |
Date of order |
Amount incl. VAT |
|
Ministry of Defence |
První SaZ Plzeň a.s. |
26. 4. 2017 |
CZK 89,394 |
|
Prague 1 Borough |
KOHOS, a.s. |
5. 4. 2018 |
CZK 226,379 |
|
Prague City Council |
OPTOMONT, a.s. |
23. 9. 2017 |
CZK 67,158 |
Source: Bisnode (*data as at 31. 7. 2018)
The Bisnode consulting agency’s analysis also goes to show that the firms that avoid their reporting duty are riskier than those which regularly release their financial statements. “Caution and verification of business partners is always the right thing to do. Missing financial statements in the collection of documents should send a warning signal. Companies that conceal their financial affairs more often face negative events than those which obey the law,” Bisnode’s Jiří Skopový notes.
Risk factors when meeting/neglecting reporting duty
|
|
Unreliable VAT payer |
bankrupt |
Assets seized |
Debts |
Wound up |
Risk environment |
|
Meets |
1.69 % |
0.89 % |
3.33 % |
1.51 % |
8.81 % |
11.12 % |
|
Fails |
2.72 % |
1.38 % |
5.44 % |
2.34 % |
14.37 % |
16.39 % |
Source: Bisnode (*data as at 31. 7. 2018)
The amendment to the Business Corporations Act newly envisages the possibility of winding up a firm without bankruptcy if it fails to insert two consecutive annual financial statements in the collection of documents and it is not possible to serve a notice requiring the inclusion of such in the collection of documents. “The State believes this step will cleanse the business register of dormant firms which do not report any business activities,” adds Karel Škácha of the Anticorruption Endowment (NFPK), who admits that this action might entail certain risks.
“According to the Bisnode methodology, there are 102,000 dormant businesses in the Czech Republic, or about one fifth of all registered firms, which theoretically could face deletion from the register of companies. However, there are 145,000 companies in the Czech Republic that have not once released their financial statements in the past seven years, or nearly 30 percent of all Czech businesses,” the Bisnode director concludes.
Number/share of firms in repeated default on reporting duty
|
Years |
Count |
Business share |
|
2017 and 2016 |
277,416 |
57.10 % |
|
2017 and 2016 and 2015 |
240,810 |
49.56 % |
|
2017 and 2016 and 2015 and 2014 |
211,470 |
43.52 % |
|
2017 and 2016 and 2015 and 2014 and 2013 |
185,277 |
38.13 % |
|
2017 and 2016 and 2015 and 2014 and 2013 and 2012 |
165,585 |
34.08 % |
|
2017 and2016 and 2015 and 2014 and 2013 and 2012 and 2011 |
144,959 |
29.84 % |
Source: Bisnode (*data as at 31. 7. 2018)
For additional information please contact:
Petra Štěpánová, PR Director CZ&SK
Mobile: +420 606 744 909
E-mail: petra.stepanova@bisnode.com
Karel Škácha, ředitel NFPK
Mobile: +420 602 681 513
E-mail: karel.skacha@nfpk.cz
[1] Sanction applied for 0.1 % of assets and disciplinary fine amounting to CZK 10,000
[2] Max sanction of 3 % of assets and max fine of CZK 100,000
