Legal Q&A · 03

Securities & Shareholders — questions and answers.

19 answered questions on a subject we work on. Find related services in the catalogue: Securities & Shareholders.

Answered by , Czech and Slovak attorney, admitted to the Slovak and Czech Bars (SAK 300422 · ČAK 19654).

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Questions about Securities & Shareholders

  1. We repaid the loan, but the creditor refuses to remove the share pledge or issue confirmation. How can we secure removal? A pledge over shares terminates only when its termination is registered in the register of pledges. Repaying the loan alone is not enough. The creditor must submit the registration instruction without delay. You may also submit it yourself, but only with written confirmation that the obligation has been discharged or another document issued by the creditor. If the creditor refuses to issue the document, the next steps are a formal demand followed by court proceedings. The effect of the judgment depends on the obligation the court orders the creditor to perform.
  2. I want to give shares to my son. What is the procedure and what does CDCP require? To give shares as a gift, you need a written gift agreement. For book-entry shares, your son becomes the owner only when the transfer is registered in his account. For accounts it maintains, CDCP requires the instruction to be accompanied by the original agreement or an officially certified copy, with officially certified signatures of both the donor and the recipient. For certificated registered shares, endorsement, delivery of the certificate and entry of the change in the register of shareholders are required. Check the articles of association in advance, as they may make the transfer conditional on the company's consent.
  3. Is it worth converting book-entry shares into certificated shares, or vice versa? How does it work? Conversion is possible in either direction, but always for the entire issue and on the basis of a general meeting resolution amending the articles of association. Certificated shares may only be registered shares, and a simple joint-stock company cannot have them. On conversion to certificated shares, the central depository removes the shares from the accounts and cancels the issue. However, the depository continues to maintain the register of shareholders for certificated shares. Whether conversion is worthwhile depends mainly on how often the shares are transferred and whether they will need to be blocked by suspending the right to dispose of them.
  4. Can I establish a variable-capital fund in Slovakia similar to a Czech SICAV? Yes. The Slovak Commercial Code recognises a joint-stock company with variable share capital, which the Collective Investment Act calls an investment fund with variable share capital. It may be established only for collective investment, not as an ordinary commercial company. It is managed by a management company authorised by Národná banka Slovenska or manages itself under an authorisation. For smaller funds for professional investors, NBS also allows establishment without authorisation, subject to entry in its register of managers. Compared with a Czech SICAV, it has a higher minimum share capital and does not divide shares into founder shares and investment shares.
  5. We have an old securities account at CDCP from privatisation. What should we do with it? A holder account opened at the central securities depository for an individual by 30 September 2015 is treated as an unassigned holder account. Instructions for it are submitted through a depository member, and at the holder's request both the depository and the member must move the securities to an account with the member free of charge. However, part of this regime only takes effect once a technical system is launched, so the current position needs to be checked.
  6. We are a joint-stock company. Who maintains our shareholder list? This depends on the form of the shares. For book-entry shares, the records of book-entry securities maintained by the central securities depository replace the shareholder list, so the company does not maintain a separate list. For certificated registered shares, the issuer must enter into an agreement with the central securities depository to maintain the shareholder list without delay after issuing the shares. Failure to do so is often one of the first findings in an acquisition.
  7. We have inherited securities. How do we access the account at CDCP? The key document is the final inheritance decision, on the basis of which the securities are recorded in the heir's account. To retain inherited securities in their own account, an individual will generally open an account with a member. For a subsequent transfer, however, Section 18b permits an instruction directly from the deceased's account under the prescribed conditions, without the intermediate step of transferring the securities to the heir's account. Bear in mind that the duty to provide a free annual statement does not apply from the holder's death until the inheritance decision becomes final.
  8. What is the difference between a transfer, a transmission and a movement of securities between accounts? A transfer changes the holder of a security under an agreement; a transmission changes the holder as a result of another legal event, such as inheritance; and an account movement moves securities between accounts of the same holder. The legal basis also determines the instruction and form used for the central securities depository. The depository will reject and return an incorrectly selected instruction, so it is worth clarifying the distinction before filing.
  9. How do we create a pledge over shares, and what is entered in the pledge register? A pledge over securities arises only upon registration in the pledge register maintained by the central securities depository: signing the pledge agreement alone is insufficient. The pledgee or pledgor submits the registration instruction with written confirmation of the agreement's contents. For shares in an account maintained by a member, the instruction is submitted through that member. Alongside the parties and securities, the register records the amount and maturity of the secured claim.
  10. What does suspension of the right to dispose of securities mean, and who can have it registered? Suspension of the right of disposal (PPN) is an entry in the records of the central securities depository or a member that temporarily blocks dealings in securities: no transfer is registered while it applies. The holder, a pledgee, an enforcement officer, the issuer and other persons listed in Section 28 of the Securities Act may instruct a suspension for a fixed or indefinite period. However, PPN does not prevent a transmission, such as on inheritance.
  11. Is the shareholder register of a simple joint-stock company public, and how can I obtain an extract? Yes. The shareholder register of a simple joint-stock company is public: the central securities depository publishes the data, except shareholders' personal identification numbers and dates of birth, on its website, and anyone may request an extract in writing. Who owns a j. s. a. and how many shares they hold is therefore no secret. This needs to be considered when setting up an ESOP or bringing in an investor.
  12. We have incorporated a joint-stock company. How do we register a share issue at CDCP and obtain an ISIN? For book-entry shares, registering the issue with the central securities depository is mandatory: the shares come into existence as securities only when credited to holder accounts. The process has three stages: allocation of an ISIN at the issuer's request, an issue registration agreement and creation of the issuer's register, and crediting the shares to shareholders' accounts. Until then, the company is registered in the Commercial Register but has not issued its shares.
  13. Shares are missing from my account at CDCP. Is this an error in the entry, or a dispute over ownership? It depends on where the error arose. If the records do not correspond to the instruction or document on the basis of which the entry was made, this is generally an incorrect entry and is dealt with by objection, after which the correction is made as at the day of the incorrect entry. If the records do correspond to the instruction but you are challenging the agreement or the authority of the person who gave the instruction, this is a dispute over ownership and the records will be corrected only on the basis of a final court decision.
  14. The error is in the records of a bank or dealer, not at CDCP itself. Who do I file the objection with? If your holder account is maintained by a member of the central securities depository, that is, by a bank or a securities dealer, you file the objection with that member. On an objection by the account holder which it recognises as justified, the member must correct its records as at the day of the incorrect entry. An issuer has a different route: its objection is dealt with by the central securities depository, which also carries out the correction in the member's records.
  15. How do I verify that my shares are correctly recorded in CDCP's records? The basic tool is the holder account statement. The central securities depository or the member maintaining the account must provide it after every entry crediting or debiting the account, at your request and free of charge at least once a year. Compare the statement with your agreements, decisions and instructions; if it does not match, an objection under Section 108 of the Securities Act is the appropriate step.
  16. Our shares are pledged to the bank. May we pledge them to a further creditor or sell them? The Securities Act does not permit a further contractual pledge over the same shares: securities that are already pledged cannot be the subject of a pledge agreement. The law does not directly prohibit selling pledged shares, but the pledge also binds the acquirer, and the pledgor and the acquirer must register the change in the person of the pledgor. A sale of book-entry shares is additionally often barred by a suspension of the right of disposal that the creditor reserves in the pledge agreement.
  17. I bought certificated registered shares, but the company will not have the change entered in the shareholder register. What can I do? You cannot arrange this directly with the central securities depository, because the depository enters a change of shareholder in the register only on the issuer's instruction. The company must, however, arrange the entry without delay once you prove to it the change in the person of the shareholder, and it is liable for damage caused by breach of that duty both to you and to the seller. The approach is therefore to prove the transfer in writing, put the company on notice and, if it refuses, turn to the court.
  18. A minority shareholder in our j. s. a. refuses to sell under the drag-along. Can we transfer their shares without them? If the right to require a share transfer is registered in the register maintained by the central securities depository, then yes. The entitled shareholder may transfer the obliged shareholder's shares to the buyer, acting in the name and on the account of the obliged shareholder, provided the purchase price for the obliged shareholder has been placed in notarial escrow or opened on an irrevocable letter of credit and satisfaction of the conditions has been certified by a notary. Where the drag-along is unregistered, no such route exists and what remains is court enforcement, which the Act confers on the acquirer of the shares.
  19. Our investor is leaving the j. s. a. How do we amend or delete a registered tag-along and drag-along? A registered right to join in a share transfer and a registered right to require a share transfer are amended by registering the amendment in the central securities depository's register; if the content of the arrangement changes, the instruction must be accompanied by written confirmation of the amendment to the shareholders' agreement with certified signatures of both the entitled and the obliged person. Where the right is cancelled by agreement or waiver, it ends only upon registration of that agreement or waiver. If the right has ended on another ground, the entitled person must give an instruction for deletion without delay.

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