[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN CZECH REPUBLIC] 31
KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER CZECH LAW Overview of the Czech Insolvency Framework and Core Concepts
of a debtor who is not an entrepreneur. The Insolvency Act also sets out specific rules for resolving the insolvency of financial institutions, such as banks, insurance companies and reinsurance companies. Commencement of Insolvency Proceedings Insolvency proceedings are initiated by filing an insolvency petition, which may be submitted either by the debtor or by a creditor. Insolvency proceedings are conducted by regional courts. The local jurisdiction of a regional court is determined by the debtor's registered office or place of residence. A debtor who is either a legal entity or an entrepreneur must file an insolvency petition as soon as they become aware of their insolvency, or as soon as they (acting with due care) should have become aware of it. This obligation rests with the debtor's statutory body or debtor's liquidator. Insolvency proceedings may also be initiated on the grounds of the debtor's imminent insolvency. Imminent insolvency arises when, based on all relevant circumstances, it is reasonably expected that the debtor will not be able to properly and promptly fulfil a substantial part of their monetary debts. Insolvency proceedings are formally initiated by publishing the insolvency petition in the insolvency register. The insolvency register is accessible remotely, which also means that almost all documents contained in the insolvency file are accessible to the public online. In view of the potential for harm that may be caused to the debtor as a result of the publication of an illegitimate insolvency petition, the Insolvency Act sets out the liability of creditors who file abusive or frivolous insolvency petition.
The Czech insolvency regime is mainly codified in the Insolvency Act and applies equally to both legal entities and natural persons, including entrepreneurs. The Act outlines the procedures and methods for resolving the insolvency or imminent insolvency of a debtor, ensuring that all of the creditors in the same class are repaid in a proportionate manner (pari-passu). The Act distinguishes between two forms of insolvency: cash-flow insolvency and balance- sheet insolvency. A debtor is considered to be in cash-flow insolvency if the following conditions are met:
• A multitude of creditors (at least two),
• The debtor´s monetary debts are more than 30 days overdue,
• The debtor is unable to pay their debts.
A debtor is considered to be in balance-sheet insolvency if the following conditions are met:
• A multitude of creditors (at least two),
• The sum of the debtor's debts exceeds the value of all of the debtor's assets (when considering also the outgoing enterprise value). The Insolvency Act regulates three methods for resolving insolvency. The first is liquidation bankruptcy, which (in simple terms) involves the proportional satisfaction of creditors' established claims from the proceeds of the liquidation of the debtor's insolvency estate. The second method is reorganisation, which includes the gradual satisfaction of creditors' claims while maintaining and restructuring the debtor's business according to an approved reorganisation plan. The third method is debt relief, which is a way of resolving the insolvency
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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