Financial Assistance is Now Legal

Financial assistance, i.e. the provision of a loan, credit or security by a joint stock company for the purpose of acquisition of its own shares was not possible in the Slovak Republic. Experience has shown however that this strict attitude to financial assistance was extremely limiting. Therefore, financial assistance is allowed in the Slovak Republic as of 1 March 2024.

Prior to the provision of financial assistance, the company shall consider its own financial situation, as the provision of financial assistance shall not jeopardize its financial stability and liquidity. Financial assistance may not result in decrease of the company’s equity, under the subscribed registered capital plus reserve fund and other compulsory funds. Furthermore, financial assistance may only be provided under fair market terms. The company is required to create a specific reserve fund in the amount of the financial assistance.

The board of directors of a joint stock company plays a key role in the provision of financial assistance. It shall (i) verify the financial capability of a third party to which (or through which) financial assistance shall be provided and (ii) submit to the general meeting a report containing, inter alia, the reasons for the provision of financial assistance and the assessment of the risks associated with this. The general meeting subsequently passes a final resolution on (non)approval of the financial assistance.

A specific scenario occurs in case of the provision of financial assistance to a member of the board of directors or a person controlling the company. In this situation, the supervisory board is involved in the process. It assesses whether the provision of financial assistance is contrary to the best interests of the company.

Financial assistance is a crucial step to the company. It is therefore inevitable to duly consider all the aspects. Provision of financial assistance shall be allowed in the articles of association, while the company may establish additional (stricter) conditions for its provision beyond those provided by law.

By Mgr. Renáta Konštiaková

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