In the decision of the Grand Chamber of the Supreme Court, Case No. 31 Cdo 1993/2019, the Supreme Court summarised the existing case law and concluded that the business management of a company is the organisation and management of the company’s normal business activities, in particular the decision-making on the operation of the company’s business (plant) and related internal matters of the company, regardless of whether it is performed by the company’s board of directors or by agent member of the board of directors or a third party.

Business management is always vested in the statutory body.  The managing directors, the Board of Management and the Administrative Board are governed by the policies and instructions approved by the General Meeting, provided that they are in accordance with the law and the articles of association. However, no one is authorised to give instructions to a member of the statutory body concerning the conduct of business ¹ This is without prejudice to Article 51(2). BCA .

The obligation to comply with the principles and instructions approved by the General Meeting, provided that they are in accordance with the law and the founding documents, was added to the Act on Business Corporations (“BCA”) by an amendment made by Act No. 33/2020 Coll. Principles, or strategic management of a company, is an area of company management that goes beyond the area of business management, as it represents decision-making on conceptual (longer-term) plans, or the development of the company. As for the identification of decisions that comply with legal and internal regulations, those guidelines that are outside the scope of commercial management are generally binding on the statutory bodies.

Pursuant to Section 51(2) BCA, a member of the statutory body of a capital company may request the highest authority of the corporation to give instructions concerning the conduct of business; this does not affect his or her duty to act with due care. However, the legislator does not comment on the reasons that may lead the statutory body to request an instruction on business management. One can agree with the reasons given by J. Lasák ² LASÁK, J. § 51. In: LASÁK, J., J. DĚDIČ, J. POKORNÁ et al. Act on Business Corporations. Commentary. 2nd edition. Prague: Wolters Kluwer, 2021. , according to which: “Section 51(2) is aimed, from the point of view of internal management … at situations where a member of a corporate body considers two or more comparable options in terms of business management, which, in accordance with the rule of business judgment, he considers to be comparable in terms of the defensible interest of the capital company, and intends to delegate the decision as to which of the possible options of business management should be preferred to the highest body of the capital company.“ The foregoing does not mean that the statutory body necessarily has to put more than one alternative resolution to the General Meeting, as often the failure to adopt a proposed resolution will result in the statutory body proceeding to the remaining alternative. However, in any case, the statutory body is obliged to provide the General Meeting with the necessary justification as to why the instruction is requested and the information necessary for the General Meeting to make an informed decision ³ Refer to the decision of the Supreme Court Case No. 29 Cdo 3325/2016. .

In contrast to the business judgment rule expressed in the first paragraph of Section BCA, it is apparent that the application of the second paragraph is considerably narrower, as:

• it applies only to limited liability companies, whereas the business judgment rule applies to all business corporations,
• applies only to members of statutory bodies and not to elected members of other bodies ⁴ The question is to what extent the members of the supervisory board of both capital companies can nevertheless request the general meeting to instruct them to bring an action against a member of the statutory body. In our opinion, such a procedure should be possible in a similar way as in the case of an action for the invalidity of a decision of another company body when it decides within the competence of the general meeting. .

From the wording of the provision, it appears that a business management instruction is not requested by the body as a whole, but may be requested by any member of the statutory body ⁵ However, there is a controversy among the professional community, where there is a view that the statutory body as a whole applies for the granting of the instruction. .

A request for instructions under that provision may relate only to a matter falling within the field of business management. ⁶ Refer to the decision of the Supreme Court, Case No. 27 Cdo 238/2022 – “(…) if the board of directors could have asked for instructions concerning business management (Section 51(2) of the Civil Code), it could – all the more so (argumentum a minori ad maius) – have asked for instructions in the area of strategic management” . If a member of the statutory body requests the General Meeting to give instructions in another area, this is a permissible procedure. Intervention by the General Meeting in the conduct of business is thus justified only by the statutory body’s request for such instruction and the General Meeting is therefore precluded from taking a decision other than that proposed by the statutory body.

As stated above, the request is made by invitation to the General Meeting. The members of the statutory body are required to formulate by way of a draft resolution an instruction to the General Meeting as to how the statutory body should proceed in the matter. The request itself will be part of the explanatory statement of the draft resolution (as a mandated part of the invitation in the case of a public limited company) or, in the case of a limited liability company, may be an annex to the invitation.

By the fact that the request does not affect the duty of a member of the statutory body to act with due care, it is meant that in a matter in which a member of the statutory body has asked for instructions, he is not relieved of the duty to act with due care. This means that the statutory body is always bound by the instruction of the General Meeting ⁷See Sections 195(2), 435(3) and 456(3) BCA. unless the instruction is contrary to law or an internal regulation or there is a risk of default. In such cases, the statutory body may disobey the instruction of the General Meeting.

In the next part, we give you an overview of the consequences of a breach of due diligence.