Principle of the “squeeze out Czech style” Law
According to the pertinent statutes of the CLC sections 183i to 183n, the principal shareholder is obligated to grant so-called adequate cash compensation in consideration of the minority shareholders’ shares. However, the law does not specify what it means “adequate”. The principal shareholder (acquirer) sets this adequate compensation, or its amount, while the share price must not be less than determined by a court certified expert. However, the principal shareholder chooses the expert and pays him for his services according to a mutual agreement.
There are no assessment regulations in the Czech Republic for valuation of shares for the purpose of squeeze out, and the activity of experts is not organized in any way. Therefore, every expert is free to determine the “adequate price” of shares according to his own judgment, whichever way and whatever amount.
Great majority of Czech court certified experts are not real experts. In the Czech Republic, there is no special expert school or examination for court experts. Most practicing court experts gained their certification simply by showing interest to become experts in the times of strongest state demand at the beginning of this millennium.
To explain: In 2001, introduction of the so-called pseudo squeeze out pursuant to the CLC Section 220p triggered in the Czech Republic the first wave of mass buy-outs of minority shareholders for prices that had to be supported by an expert valuation. Before that, there were only few court experts in Czech Republic, whose small number could not facilitate buy-outs of minority shareholders in many hundreds of companies. Therefore, “it was necessary” to quickly certify many court experts. Any kind of economic education was sufficient for applicants to be issued expert certificates. Acceptable was even education from the socialist era when the most important subject in economic universities was Marx Leninist theory, and now obsolete pseudo economy was taught. Until today, nobody has verified the actual expertise of Czech so-called experts.
It is no surprise that under these conditions in Czech Republic, valuation of shares for the purpose of “squeeze out Czech style” looks exactly how the principal shareholder ordered it from the expert and paid for. Otherwise, the principal shareholder would not choose that particular expert for the valuation; he would rather find another. The number of experts the principal shareholder may consecutively contact is not limited, which means that impartial experts are automatically excluded from the valuation process.
At the General Assembly of Shareholders where squeezing out of minority shareholders is decided, the principal shareholder can approve the amount of compensation himself because he has at least 90% of all votes. Minority shareholders cannot defend themselves against this because once the squeeze out is approved at the General Assembly, their shares are transferred to the principal shareholder without their approval. Minority shareholders cannot prevent transfer of their shares even if the granted compensation is obviously low. Squeezed out shareholders can ask the court only for a review of the share price but the immutable rule is that correctness of the price is judged after the shares are transferred, which can happen at whatever price.
State power makes all kinds of obstructions to the review of the granted price (see the section “How the Court Review Process does (not) Work”).
The arrangement of conditions for “squeeze out Czech style” clearly indicates that in most cases, the main motive for applying this law is the opportunity to rob the property of minority shareholders with impunity.