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SQUEEZE OUT V ČR

Summary

The basic information is that looting of portfolio investors’ property is going on in the Czech Republic with the knowledge and active help of the Czech State. The state power of the Czech Republic has the primary responsibility for the existing situation. Robbing of portfolio investors is happening with the help of countless so-called experts and so-called expert institutions that at the turn of the millennium in the Czech Republic suddenly appeared from nowhere and parasitize financially on the "squeeze out Czech style". Robbing of portfolio investors is aided by passivity of yet another state authority – the Czech National Bank (formerly the Securities Commission) that should in some cases oversee the fairness of prices.
 
A "squeeze out Czech style" works in practice as follows:
1.  A principal shareholder determines the amount of compensation for shares. It is naturally in his interest that the compensation is as low as possible because, obviously, the less money he pays for shares, the more is left for him.
 
2.  The main shareholder must support the amount of compensation with an expert valuation but he chooses an expert himself and negotiates with him the amount of payment for the valuation. It is clear that the arrangement does not have to involve only the fee but also how high the shares will be valued. If the principal shareholder and the expert do not reach an agreement, the principal shareholder may contact another expert as many times as he needs to until he finds the person who will carry out the valuation as the principal shareholder wishes. This system automatically excludes objective experts from the game. True, the expert should value the shares so that the compensation is "adequate" but to what and to what extent adequate, the law does not say; therefore, the interpretation of the term "adequate" depends freely on the expert’s reasoning, and on what values of input parameters he selects for the cash flows based valuation.       
 
3.  Experts cheat the most at two points: first they estimate future profits as too small, and second, they even discount this too small profit at a too high discount rate (they argue that the estimated returns are burdened with a too high risk).
 
4.  Under these conditions, an expert valuation does not offer any protection for squeezed out shareholders. Even less so because the professional level of many Czech so-called experts is appalling and because there are no legally binding rules in the Czech Republic for valuation of shares. An expert therefore cannot break any rules and is not in danger of a criminal legal recourse, no matter how much his valuation defies common sense.
 
5.  The legal fiction of an objective valuation by an expert is unrealistic even in the review process because there is a general problem that experts are financially dependent on paid contracts that principal shareholders may or may not assign to them in the future. Experts therefore value in review proceedings as well in such a way as to please the principal shareholders. In addition, they cannot value objectively in review proceedings anyway because it would be an admission that all the previous valuations made for principal shareholders for the purpose of "squeeze out Czech style" in other companies (before they were appointed as a review expert in judicial review proceedings), were performed incorrectly – they can not and do not want to deviate from previously used valuation techniques.
 
6.  Most of minority investors were deprived of their property through the "squeeze out Czech style" without the supervision of the Czech National Bank. The original law effective from 07/01/2005 did not envision any supervision. Supervision of expert valuations, or their approval was placed within the competence of the Czech National Bank only by the law revision effective from 09/29/2005, when most of squeeze outs in the Czech Republic had already taken place. In the case of unlisted shares, the Czech National Bank again does not have to approve expert valuations after 04/01/2008 – see the latest news from 07/01/2008. This state authority, however, does not offer squeezed out shareholders the needed protection anyway. Nothing has changed with the looting of assets of minority investors even under the supervision of the Czech National Bank (see the section "Supervision by the Czech National Bank”).
 
7.  Only individuals who are motivated by the lowest valuation are valuing shares before the transfer of shares to the principal shareholder. The control of valuations has been entrusted (only in some cases, see paragraph 6 above) to Czech National Bank officials, who have no personal interest in the outcome of valuations and do not have clear instructions what to check, either. A minority shareholder, who is the only one with a genuine interest in the correct valuation of shares, is not even allowed to speak before the transfer of shares and therefore cannot argue in his own favor.
 
8.  After the transfer of shares to a principal shareholder, squeezed out shareholders are face with almost insurmountable obstacles to secure their rights.
 
In the case of the review procedure under the CLC Section 220k, following the so-called pseudo squeeze out under the CLC Section 220p, the high financial costs of these review proceedings are for ordinary minority shareholders grossly disproportionate to the possible benefit to them due to the unreasonably rigid interpretation of this legislation by the Supreme Court of the Czech Republic and due to the new law on a merger of commercial companies and cooperatives, in force from 07/01/2008 (see the section "The Decision of the Czech Highest Courts" - Decision 1). The vast majority of shareholders cannot initiate a review procedure at all because of that.
 
The review process under the CLC Section 183k, following the so-called genuine squeeze out under the CLC Section 183i to 183n, is still burdened with confusion.

In any case, only wealthy individuals who have superior legal and professional background and a large dose of enthusiasm can get into the litigation that should re-establish the correct amount of compensation for shares and the amount of a pay-up. Plaintiffs in a review process are confronted with unfair valuations by review experts (see the section "Shady Practices of Czech Court Experts”) and with the passivity of judges (see the section "How the Court Review Process does (not) Work"), while opponents are represented by the most renowned and the most expensive law offices who argue that the valuation is "adequate" and the "squeeze out Czech style” is in order. Due to the slow Czech justice system, review proceedings take place many years after the dispossession of shares, and principal shareholders and their legal representatives in them always maintain that the amount of the discount rate had been determined correctly, and that the pessimistic forecast of financial activity corresponded to the state of information on the reference date of the valuation. And, they claim, if the real (later) performance of the economy was better than the forecast, it could not be predicted and thus this argument cannot be used in the review either. Czech courts are leaning to this view, so the review is “examining” only what economic activity forecast that particular expert "could have estimated" to the reference date of the valuation, which is indemonstrable. It is a totally unequal battle between robbed minority shareholders and financially much stronger principal shareholders, in which the law and the courts do not respect the principle of protecting the weaker party, which belongs to the basic legal principles within the European Union.

From 04/01/2008, even enthusiastic minority shareholders, possessing adequate financial means, may not get a word in at all: The legislative power completely blocked the review process for all shareholders robbed in a squeeze out (Civic Court Regulations Section 83), except for the first plaintiff to file suit (see the section "How the Court Review Process does (not) Work” and the latest news from 07/01/2008). Despite the Supreme Court ruling that tries to remedy the lawmaker’s “error” in this matter, some courts so far ignore it and do not allow concurrent review of all claims in one proceeding.