Article

Section 316–364 of Act No. 182/2006 Coll.; Entire Act No. 284/2023 Coll.

Description

The application for insolvency can be made either by the insolvent company or by the creditors. Three options are available in case of insolvency: reorganisation, debt relief and bankruptcy. Reorganisation, according to the Act No. 182/2006 Coll., aims to satisfy creditors' claims while allowing the company to continue its business. Conditions for permission of reorganisation by the court are:

• the total annual net turnover of the debtor for the last accounting period preceding the insolvency petition has reached at least CZK 50,000,000 (about €1,850,000), or
• the debtor employs at least 50 employees, or
• the reorganisation plan has been adopted by at least half of all secured creditors counted according to their claims and at least half of all unsecured creditors.

Debt relief is another measure that must be agreed by the creditors (provided that creditors receive no less than 30% of the amounts due) and approved by the court.

If the two options above are not feasible, the court proceeds with bankruptcy measures.

The reorganisation can be done mainly through the following measures:

• Restructuring the claims of creditors, consisting in the remission of the debts of the debtor, including their accessories or delay their maturity;
• Selling the entire estate or part thereof, or sale of debtor's business;
• Issuance to creditors of the debtor's assets or transfer of these assets to a newly formed legal entity in which creditors have a stake;* Merger of the borrower - legal entity with another person or transfer its assets to a partner to maintain or change the rights of third parties concede;
• Issuance of shares or other securities of the debtor or a new legal entity;
• Providing funding for the debtor's business;
• Change the founding document or statutes or other documents regulating the internal affairs of the debtor.

If the court approves the reorganisation, the insolvency administrator is also appointed by the court.

The insolvency administrator shall exercise supervision over the activities of the debtor and perform tasks such as surveying of the estate and its inventory, leading incidental disputes, compiling and adding a list of creditors. In addition, the insolvency administrator shall regularly inform the bankruptcy court and creditors' committee about the results of his/her activities.

In 2023, Act 284/2023 Coll., on preventive restructuring, came into effect. In preventive restructuring, an agreement is reached between an entrepreneur and his key creditors with the aim of saving the company from bankruptcy by restructuring assets, liabilities and capital structure at an early stage.

If a company wants to initiate or continue preventive restructuring, it must meet the following conditions in accordance with the law: * 1. It must be in good faith in maintaining or restoring the operability of its business. * 2. It must face real financial difficulties that are so serious that if restructuring measures are not taken, its bankruptcy would occur. * 3. It must not be insolvent at the time of the initiation of the preventive restructuring process.

Preventive restructuring is inadmissible if: * the company is in liquidation; * the company has been declared bankrupt by a court decision in the last 5 years; * preventive restructuring was terminated due to dishonest intent in the last 5 years before its re-initiation.

Commentary

Act No. 182/2006 Coll., on bankruptcy and settlement regulates the resolution of insolvency of the debtor established by court procedures through one of the following procedures: restructuring, debt relief or bankruptcy. These procedures allow to achieve the highest possible proportional satisfaction of the debtor’s credit for all creditors. Restructuring according to this act is used rarely in the Czech Republic. For data on insolvency proceedings, visit the Ministry of Justice of the Czech Republic / Ministerstvo spravedlnosti České republiky

Act No. 284/2023 Coll., on preventive restructuring assumes a very active role for the entrepreneur. If the entrepreneur wishes to participate in preventive restructuring, he will have to regularly monitor his financial situation so that he can take appropriate measures in a timely manner. The Ministry of Justice has therefore launched a publicly accessible interactive web application called Financial Health, which is intended to help entrepreneurs identify potential problems in a timely manner and initiate steps to avert bankruptcy.

Additional metadata

Cost covered by

Companies Employer

Involved actors other than national government

Other Court Trade union Works council

Involvement (others)

Creditors or partners, restructuring court, restructuring administrator, employees and their representatives

Thresholds

Affected employees: No, applicable in all circumstances
Company size: 50
Additional information: The Preventive Restructuring Act does not set a specific limit on the number of employees that an entrepreneur would have to meet in order to initiate or continue preventive restructuring

Sources

• Statistics in the field of Ministry of Justice of the Czech Republic
• Act No. 284/2023 Coll., on preventive restructurin
• Act No. 182/2006 Coll., on bankruptcy and settlement (insolvency act