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Changes in the law on debenture bonds

Czech Republic: On 1 August 2014, amendment No. 137/2014 Coll. to the Act on Bonds came into force, introducing new concepts that seek to modernize the world of debenture bonds

One new aspect is the reduced scope of mandatory requirements which must be fulfilled for a proper issue of bonds. From now on, a bond is deemed properly issued if it is furnished with the statutory minimum particulars, or if these particulars can be determined by referring to the relevant register of book-entry securities. These particulars include, e.g., the identity of the issuer and the owner of the bond, the yield, and the date (or moment) of maturity. This simplifies the review of bonds in practice.

Prior to the effective date of the Bonds Act Amendment, one governing principle of Czech bond law was that the terms of issue for bonds could not be changed without the consent of the bondholders.   Save for a few exceptions set out in the law, changing the terms of issue was only permissible with the approval of the bondholders' meeting. Only now has it become possible to limit the number of cases in which bondholders need to consent to changes. Conversely, the terms of issue may broaden the number of cases in which the bondholders' meeting must be convened to effect changes.

Another freedom that did not previously exist is for one and the same issuer to issue several types of bond.

In addition, the Bonds Act Amendment allows for a broader application of the Act on Bonds: if a right to payment of a certain debt is vested in a security, then the Act on Bonds may now be applied to such securities (to the extent that the terms of issue of these securities provide for it), even if they do not otherwise qualify as bonds.

Given that the lawmaker's rationale behind the Bonds Act Amendment was to accommodate findings made in practice, and to resolve certain issues encountered in this respect, the lawmaker's efforts will presumably have purely positive effects on the Czech capital market.

Source: Act No. 137/2014 Coll., on the amendment of Act No. 190/2004 Coll., on Bonds, as amended