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Czech Supreme Court comments on executive directors’ duties when delegating their powers

13.01.2020

According to a Supreme Court decision (file no. 27 Cdo 90/2019) dated 30 September 2019, an executive director, as a statutory body member in a limited liability company, does not need to have all the professional knowledge, abilities or skills required to perform the activities that come under the body’s remit. If, however, an executive director lacks the knowledge needed to manage the business affairs within his/her remit, he/she must ensure that those tasks are assessed by a third person with that knowledge. Part of the manager’s duty is to recognise the activities that he/she cannot perform because of a lack of necessary knowledge or skills.

When selecting a delegate, the statutory body member (i.e. executive director) must proceed with due care, making the deliberate choices of a reasonable person (the selection duty). The director must clearly inform the delegate of the task to be assessed and provide that person with all necessary cooperation. Finally, he/she must oversee the exercise of delegated powers, carrying out this supervision not only in person but also through proper monitoring systems (the oversight duty).

Although the conclusions above were reached based on the former law in effect until 31 December 2013, they have applied since 1 January 2014 to the interpretation of Sec. 159 (1), Sec. 51 (1)  and Sec. 52 (1) of the Civil Code.