The Restructuring Review: Czech Republic
I OVERVIEW OF RESTRUCTURING AND INSOLVENCY ACTIVITY
Before giving an overview of the Czech insolvency market for 2019, we would like to make two important introductory comments. Firstly, we understand that the majority of readers will be concerned with insolvency proceedings of corporate debtors. Thus, in this chapter, we will primarily focus on insolvency proceedings relating to corporate debtors. Any numbers given in this chapter relate only to insolvencies of corporate debtors unless specifically indicated otherwise. However, since Czech insolvency law was subject to a comprehensive amendment in 2019, focusing on insolvencies of physical persons (and the discharge of debts process), it is necessary to provide a brief overview of this topic as well. Secondly, we already know that the world economy has been severely hit by the covid-19 pandemic and is experiencing extraordinary measures issued by most countries. Because we cover only developments in the Czech insolvency market for 2019, we intentionally leave this developing chapter of economic history closed for now, and will reopen it in the next edition.
Since 2016, which saw a peak in the number of insolvency proceedings, the Czech insolvency market has entered a stable period, and 2019 maintained this trend. There were 1,081 new insolvency proceedings initiated in the Czech Republic in 2019 (meaning 1,081 new insolvency petitions were filed).2 This is six more than in 2018, when 1,075 insolvency petitions were filed.3 Of the 2019 number, 695 cases resulted in a declaration of bankruptcy and 16 cases in approved reorganisation.4
This breakdown shows that the success rate of insolvency petitions in 2019 was approximately 64 per cent, which is rather low. Additionally, the number of successful reorganisations in the Czech Republic is still extremely small compared to bankruptcies and has not increased over time. In 2016 there were 26 approved reorganisations, while in 2017 and 2018 there were only 17 approved reorganisations each year.5 From our experience, the low number of successful reorganisations is caused primarily by the fact that companies tend to try to solve their financial problems only when the situation is already critical and there does not seem to be enough time to prepare a feasible reorganisation plan and negotiate its approval by creditors within an insolvency proceeding. Unfortunately, corporate debtors have not learned much from past mistakes in this regard.
On the creditors' side, banks remain key players in the Czech insolvency market, with overall 710 receivables registered in 2019. Among that group, Komerční banka, a.s. (174 receivables), Československá obchodní banka, a.s. (113 receivables), Českomoravská záruční a rozvojová banka, a.s. (88 receivables) and Česká spořitelna a.s. (80 receivables) are the most active banks in Czech insolvency proceedings.6
II GENERAL INTRODUCTION TO THE RESTRUCTURING AND INSOLVENCY LEGAL FRAMEWORK
Czech insolvency law is mainly governed by the Insolvency Act,7 which entered into force on 1 January 2008. The Code of Civil Procedure8 applies complementarily to the Insolvency Act and is used in cases not governed by Insolvency Act.9
The idea behind the Insolvency Act was to address the fundamental problems of the previous insolvency law, in particular, to ensure greater transparency and predictability of insolvency proceedings, increase creditors' influence on insolvency proceedings and, mainly, to encourage debtors in financial distress to resolve the problem at its early stages. The Insolvency Act was inspired by other modern insolvency regulations, in particular, those of Germany, Austria and the United States.10
i Insolvency tests and insolvency petition
The Insolvency Act recognises three causes for initiation of insolvency proceedings. Liquidity insolvency and balance sheet insolvency are the most common insolvency causes and refer to a situation where the debtor is undergoing financial distress. The third option, impending insolvency, occurs when, with regard to all the circumstances, it may be reasonably assumed that the debtor will face financial distress.
Liquidity insolvency is a situation in which the debtor cumulatively: (1) has multiple creditors (at least two);11 (2) has outstanding monetary liabilities that are more than 30 days overdue; and (3) is unable to fulfil those liabilities.12
Furthermore, the Insolvency Act enumerates a list of presumptions as to when the debtor is unable to fulfil its outstanding monetary liabilities, including: (1) seizure of payment of a substantial part of financial liabilities; (2) having financial liabilities more than three months overdue; and (3) inability to satisfy liabilities by way of court enforcement.13
The presumption of an inability to fulfil monetary receivables may be refuted by the debtor by a coverage gap. This happens when the debtor proves that the difference between the amount of its outstanding monetary liabilities and the amount of its available funds is less than 10 per cent. Even if the coverage gap is higher than 10 per cent, the debtor may demonstrate that the coverage gap will fall below this level within a reasonable time (usually from two to three months).14
From a practical perspective, liquidity insolvency is used in the majority of creditor insolvency petitions because it can be proved even without a detailed knowledge of inside information relating to the debtor and also provides the creditor with an option to use presumptions. The presumptions under (1) and (2) above are used most frequently.
Balance sheet insolvency
Balance sheet insolvency occurs if a debtor (either a legal entity or a natural person/entrepreneur) has multiple creditors, and, at the same time, the aggregate amount of its liabilities (due and not yet due) exceeds the aggregate amount of its assets (liquid and illiquid).
The Insolvency Act takes into account the going-concern principle when assessing a debtor's assets. One must not only consider the aggregate amount of a debtor's liabilities in relation to the aggregate amount of its assets; consideration must also be given to the future management of the debtor's assets (such as rental income, dividends and interest) and further operation of the debtor's business (expected profit, in particular), if it can be reasonably assumed that the debtor will continue to manage its assets and operate its business for the foreseeable future.15
Since determining balance sheet insolvency requires a lot of inside debtor information, the balance sheet insolvency test is used almost exclusively in debtor insolvency petitions.
Impending insolvency occurs when it can be reasonably expected that a debtor will not in the future be able in good time to meet a substantial part of its monetary liabilities.16
A company or person can be subject to insolvency proceedings even though not insolvent at the moment of initiation and must then use remediation methods to resolve the distressed situation, such as reorganisation (for a legal entity or entrepreneur) or discharge of debts (for a non-entrepreneur). Bankruptcy is not possible in the case of impending insolvency proceedings.
Opening of insolvency proceedings
Under the Insolvency Act, a debtor17 must file an insolvency petition without undue delay if it becomes aware or should have become aware18 of meeting the liquidity insolvency or balance sheet insolvency tests. The only exception when the debtor does not have an obligation to file an insolvency petition is with respect to an impending insolvency. Failure to exercise this duty may lead to personal liability of a debtor (in the case of a person) or the management of a debtor (in the case of a corporation) for damages.
In an insolvency petition, the debtor should ideally propose how its insolvency will be handled (bankruptcy, reorganisation or discharge of debts). A petition for moratorium can be also included in a debtor's insolvency petition to gain further protection from creditors and additional negotiation time if reorganisation is the desired option.
Creditors are also entitled to file an insolvency petition against a debtor to maximise satisfaction of their receivables.19 Although creditors may use both liquidity insolvency and balance sheet insolvency as grounds for filing, the option of using the latter is largely theoretical because it requires deep insight into a debtor's accounts, which creditors usually lack (except for bank creditors with facility agreements and similar instruments). Filing an insolvency petition in case of a debtor's impending insolvency is not an option for creditors.
Creditors have higher standards than debtors with respect to filing an insolvency petition. Mainly to prevent frivolous and groundless petitions used to pressure a debtor, a creditor must own an overdue receivable and register it at the insolvency court. Furthermore, the creditor has an obligation to keep its receivable against the debtor on its books and duly document and verify the receivable when filing the insolvency petition. International creditors must also provide confirmation of the foreign state on the verification of their receivables.20
ii Types of insolvency proceedings
There are (except for specific circumstances relating to insolvency of payment institutions) three types of insolvency proceedings available under the Insolvency Act.21 Each type seeks to achieve different goals. Bankruptcy proceedings look to liquidation of a debtor's assets to achieve the highest satisfaction of creditors' receivables. A reorganisation focuses on maintaining a debtor's business and gradual satisfaction of creditors while keeping the debtor operational. A discharge of debts is a specific form of proceedings for natural persons (non-entrepreneurs) with gradual satisfaction of creditors and can function either on the basis of a sale of a debtor's assets or repayment of debts in instalments.
Bankruptcy is the default way of resolving a debtor's insolvency pursuant to the Insolvency Act after the commencement of insolvency proceedings or after an unsuccessful attempt to solve the insolvency by reorganisation or discharge of debts. It is also by far the most common way in which insolvency is dealt with in the Czech Republic.
The aim of bankruptcy proceedings is to satisfy the claims of registered creditors by monetising the debtor's assets. The proceeds of the monetisation are divided proportionally among the creditors, and, generally speaking, receivables that are not satisfied by a bankruptcy do not expire but usually continue to exist. The existence of the debtor (corporation or entrepreneur) is usually terminated after the bankruptcy proceedings are concluded.
By declaring bankruptcy, the insolvency court transfers the right to dispose of the insolvency estate, as well as to exercise debtor's rights and obligations, if they are related to the insolvency estate, to the insolvency trustee, appointed by the insolvency court.22 The insolvency trustee may monetise insolvency estate in several ways, namely by public auction, sale outside a public auction and sale of movables and real estate in accordance with the provisions of the Code of Civil Procedure on the enforcement of decisions, or by auction conducted by a bailiff. After a consultation with the creditors' committee, the insolvency trustee decides on the specific method.23
Secured creditors are entitled to receive the satisfaction of their receivable primarily from the proceeds of the monetisation of the collateral. In the event that specific collateral is subject to security rights serving several creditors, the creditors are satisfied in the order in which their collateral was perfected. Any part of the secured claim that is not satisfied from the collateral is then deemed to be unsecured and is satisfied along the unsecured claims pari passu.
If the debtor is a natural person or an entrepreneur whose turnover for the last accounting period prior to declaration of bankruptcy does not exceed 2 million Czech crowns (approximately €75,000) and who does not have more than 50 creditors, a special form of bankruptcy applies. In this minor bankruptcy certain specific procedures apply which simplify the process.24
A reorganisation is a remediation method for solving the insolvency, primarily focused on larger corporations and entrepreneurs. The Insolvency Act defines reorganisation as the gradual satisfaction of creditors' claims while maintaining the operation of the debtor's business, ensured by measures to improve the management according to the reorganisation plan approved by the insolvency court with ongoing control of its performance by creditors.25 In a reorganisation, disposition rights regarding the insolvency estate usually stay with the debtor; however, these rights can be reduced by a decision of the insolvency court.
Reorganisations are intended primarily for larger entrepreneurial debtors, specifically for debtors whose annual total net turnover for the last accounting period reached at least 50 million Czech crowns (approximately €2 million), or for debtors who have at least 50 employees. However, this restriction does not apply in the case of a 'pre-packed' reorganisation, in which, along with the insolvency petition, a reorganisation plan already approved by a majority of both secured and unsecured creditors is submitted to the insolvency court.26
Both the debtor and any of its creditors may request the insolvency court to approve a reorganisation. Upon the approval of the insolvency court, the debtor has 120 days to present a reorganisation plan (this does not apply in case of a pre-packed reorganisation, where the plan is already submitted along with the insolvency petition). Should the debtor fail to do so, creditors may present their own reorganisation plan.
The reorganisation plan generally describes the way in which the debtor business will be reorganised and also how the creditors will be satisfied during the reorganisation process. The reorganisation plan must follow an honest intention of the debtor to provide the creditors with satisfaction at least as high as in bankruptcy proceedings.27 Once the reorganisation plan is submitted, it must be approved at the creditors' meeting by a majority of creditors in each class. If approval is not reached in any particular class, the insolvency court may apply a cross-class cram down and approve the reorganisation plan, even given the disapproval of certain classes, if the reorganisation plan is fair to this class. At least one class must approve the plan before cross-class cram down is used.
Discharge of debts
Discharge of debts is a specific way of resolving insolvency for debtors who are not entrepreneurs or who do not have debts from entrepreneurial activity. Discharge of debts can be done in two ways. The first is the monetisation of insolvency estate. The second contemplates the debtor paying unsecured creditors in instalments for five years (maximum) a sizeable part of its income and secured creditors satisfying themselves from the proceeds of their collateral.28
iii Informal restructuring
Informal restructuring procedures are not formally part of the Insolvency Act and occupy a grey area between M&A and insolvency law. Regardless of this fact, they are generally performed on the Czech market.
One of the potential, and arguably the most trending, informal restructuring methods is the entry of a strategic investor who invests funds into the business in exchange for a share of a target, or the creation of a joint venture. Other methods include restructuring (reducing the cost aspect of a group holding, spinning-off of distressed and profitable assets and so forth) and selling non-core assets to generate cash.
On the other hand, probable opportunities for investors lie in the acquisition of receivables and investing in targeted companies.
iv The taking and enforcement of security
The Insolvency Act recognises a secured receivable as a receivable secured by particular assets belonging to the insolvency estate. The secured receivable simply represents the strengthening of the position of the creditor (secured creditor), who satisfies its claims primarily by selling the collateral.
In insolvency proceedings, collateral is considered to be, among others, a lien (a mortgage), a retention right (a right not to extradite another's property until the debt is settled legally) or a transfer of a right as security (the debtor temporarily transfers some of his or her property rights to the creditor and only if the debtor fails to settle his or her liabilities does the creditor become the owner).29
The secured creditor may give instructions to the insolvency administrator concerning the administration of the collateral and exercises significant influence regarding the desired way of monetising the collateral in the bankruptcy proceedings.
Only if the proceeds from the sale of collateral exceed the amount of the secured receivable may the proceeds then be subsequently used to satisfy the receivables of unsecured creditors.30 On the other hand, if the proceeds do not cover the whole secured receivable, the unsatisfied part of the secured receivable is considered (in bankruptcy and reorganisation) as an unsecured receivable and is satisfied pari passu with the unsecured receivables. In the case of discharge of debts, the secured creditors can be satisfied only from the proceeds of the monetisation of the collateral.31
v Duties of directors of companies in financial difficulties
Under Czech law, members of the statutory body must perform their duties with due care.32 A breach of these duties might result in personal liability of the members of the statutory body, possible disqualifications from the function of a member of any statutory body (up to three years) and an obligation to return any monetary benefit received over the course of two preceding years.33 A director or board of directors of a limited liability or joint-stock company has an obligation to call a general meeting of the company to address the financial distress.34
The Insolvency Act imposes an obligation on the debtor (and as a consequence its management) to file an insolvency petition without undue delay, upon it becoming aware (or when it should have become aware35) of meeting either the liquidity insolvency test or balance sheet insolvency test. The persons responsible for filing the insolvency petition are, among others, the members of the statutory body of the debtor.
Failure to file the insolvency petition on time may result in personal liability for damages caused to creditors by late initiation of insolvency proceedings and subsequent lowered satisfaction of their receivables. According to the Insolvency Act, these damages can amount to the difference between the amount of the receivable registered by a creditor in an insolvency proceedings (and acknowledged in the insolvency proceedings) and the amount received by such a creditor during the insolvency proceedings.36 Since the average satisfaction of creditors in Czech insolvency proceedings ranges from approximately 3 per cent to 64 per cent (depending on the proceeding type and existence of security),37 the liability can be quite material. It is irrelevant whether a member of the statutory body has caused a breach of the obligation to file an insolvency petition or not.
Aside from the obligation to file for insolvency, the members of the statutory body are also personally liable for any damages caused to the creditors by wrongful actions of the debtor during a moratorium38 or while lacking creditors' committee approval for significant legal acts during a reorganisation. The members of the statutory body may also incur criminal liability for certain preferential actions or for diminishing of the insolvency estate.39
vi Clawback actions
The Insolvency Act provides that legal acts (or omissions) of a debtor that may result in diminishment of an insolvency estate can be declared ineffective by an insolvency court based on a legal action filed by the insolvency trustee. The aim of this regulation is to prevent a debtor from diminishing the insolvency estate prior to the initiation of insolvency proceedings (where oversight from the insolvency court and insolvency trustee is exercised) so as to preserve the maximum satisfaction of creditors.
If the trustee's action is successful, the legal act in question will be declared ineffective by the insolvency court. With the legal act becoming ineffective in the insolvency proceedings, the debtor's counterparty must return the consideration given for the act to the debtor.40 The legal act still remains valid outside the insolvency proceedings.
According to the Insolvency Act, the following conduct provides the basis for potential clawback actions if performed one year (in the case of third parties) or three years (in the case of related parties) prior to the initiation of insolvency proceedings:41
- disposition without an adequate consideration: the debtor made a transaction (transfer of assets, provision of security, etc.) without consideration at all or adequate consideration;
- preferential treatment of creditors: a preferential legal act is a legal act as a result of which a creditor receives, to the detriment of other creditors, greater satisfaction than it would otherwise receive in bankruptcy proceedings; and
- deliberately diminishing the satisfaction of a creditor: a legal act by which the debtor intentionally diminished the satisfaction of a creditor.
III RECENT LEGAL DEVELOPMENTS
On the legislation agenda, the major area of concern was the comprehensive Insolvency Act amendment which became effective on 1 June 2019 and implemented changes to the discharge of debts procedure for physical persons not having entrepreneurial debts.42
At first glance this topic might seem uninteresting for corporate readers. However, it is a market standard that a physical person can issue a guarantee for the obligations of a company in which it is a shareholder. If the business becomes unsuccessful, it is only a matter of time before the guarantee is called upon and the guarantor might find him or herself in bankruptcy with creditors seeking satisfaction in the discharge of debts procedure. Also, in the Czech Republic there were more than 115,000 physical persons involved in insolvency proceedings in 2019,43 which is significantly more than in the case of corporations (695).44
The amendment introduced new ways of discharging debts for a physical person, enabling the debtor to become debt free if he or she satisfies all of his or her unsecured creditors, or within three to five years, upon having satisfied at least 30 per cent (over five years) or at least 60 per cent (over three years) of his or her unsecured creditor receivables.45
A special regime applies for the discharge of debts of physical persons in burdensome social situations (e.g., pensioners and certain handicapped persons). Such persons can become debt free after three years provided the discharge of debts has not been cancelled during this period, regardless of the actual level of satisfaction of creditors.46
In June 2019 an expert group commenced its work on the transposition into Czech law of EU Directive 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications and measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency)47. Even though no specific wording of the transposition is known at the time of writing, the following basic principles have been disclosed by the expert group.
The major principle is the aim of shielding the subject in financial distress from negative publicity, which the insolvency proceedings will bring, and to provide it with space to negotiate with its creditors. The expert group also emphasises the need to present the insolvency court with a sophisticated restructuring plan, providing for measures enabling a going concern. Should any creditor obstruct the debtor's efforts for restructuring, the insolvency court must have the power to step in to support the debtor by way of a general or individual moratorium. Probably to balance the generosity of the above principles, it is proposed that the insolvency court will decide on the approval of a presented restructuring plan only once, with definite effect. It should also be noted that it is also expected that providers of additional financing of the contemplated restructuring will have a preferential position and will, to a certain extent, be resistant to clawback actions.
The above principles are to materialise in a proposal for a new act on restructuring, which should offer viable entrepreneurs another way to resolve financial distress in cooperation with creditors, thus averting an impending insolvency. The solution in the form of preventive restructuring is expected to have a positive impact on the preservation of jobs in affected firms as well as on creditors who, in the event of insolvency, rarely manage to obtain full satisfaction of their claims. Court supervision should safeguard a fair and transparent process.
IV SIGNIFICANT TRANSACTIONS, KEY DEVELOPMENTS AND MOST ACTIVE INDUSTRIES
In 2019, there were few high-profile insolvency cases such as the following, all of which occurred in previous years: OKD (coal mining), Oleo Chemical (petrochemical industry), Vitkovice Group (heavy machinery) and Královopolská Ria (engineering).
Among the largest insolvency proceedings in 2019 were two steel industry cases. Pilsen Steel and its subsidiaries filed for insolvency in 2019 and were declared bankrupt shortly afterwards. This massive steelworks, with 600 employees, which had already undergone a complex reorganisation in 2012–2014, was not able to turn itself around in the hands of its new Russian owners and was left with a sizeable debt amounting to almost 10 billion Czech crowns (approximately €400 million) in 2019. This inevitably led to an insolvency petition and declaration of bankruptcy at the beginning of 2019. The unfortunate fate of Pilsen Steel led to renewed doubts about reorganisations in the Czech Republic in the wake of the 2008 credit crunch and their actual success in the longer term.
ČKD Kutná Hora shared a similar fate in 2019, with almost 400 employees affected. However, in contrast to Pilsen Steel, ČKD Kutná Hora decided to handle its insolvency through reorganisation and was able to secure the creditors' vote to approve it. The insolvency proceedings are still pending; thus, it remains to be seen if there will be a happy ending after all.
One construction sector matter, which is notorious for insolvency proceedings, scored highly among the insolvency cases in 2019. PSJ, a traditional constructor of skyscrapers, collapsed and was declared bankrupt after several unsuccessful insolvency petitions, leaving behind a debt amounting to almost 2 billion Czech crowns (approximately €80 million) and almost a thousand creditors. PSJ's demise arose partly due to problems with several projects in Russia. It also had problems in the Czech Republic, including an insufficiency of qualified workers on the market.
Another industry that suffered quite some blowback in 2019 was the fashion industry. A symbol of this decline was ZOOT, until then one of the biggest and most famous online retailers in the Czech Republic, focusing on world-famous fashion brands, who filed for moratorium at the beginning of 2019, followed by a successful (at least currently) attempt at reorganisation. ZOOT got into financial trouble because of its bold attempts at expansion as well as the long-term unprofitability of its sales points. However, ZOOT's case is a textbook example of a very clever use of a combination of moratorium followed by request for reorganisation. Using the three-month moratorium, ZOOT was able to secure enough time to negotiate with a strategic investor as well as its key creditors. As a result of this, ZOOT has been able to carry out, until now, a successful reorganisation process. The insolvency proceedings are, however, still pending and only time will tell if the contemplated changes will be enough to put the company on the right track.
Apart from the industries mentioned above, the automotive industry (primarily parts suppliers) found itself more often in the crosshairs among insolvency practitioners, as an economic slowdown was expected to come at the end of 2019. However, the automotive industry was able to reach the 2019 year-end without suffering any major casualties. Nonetheless, this sector remains one of the industries with a likelihood of insolvency-related issues in 2020.
Like most EU Member States, the Czech Republic has not yet adopted or implemented into its legislation the Model Law on Cross-Border Insolvency of the United Nations Committee on International Trade Law, and to our knowledge nothing indicates that a change in this respect is on the horizon. It is therefore the recast EU Regulation on Insolvency Proceedings48 that represents the main source of law concerning cross-border insolvency proceedings in the Czech Republic, both for its direct applicability among EU Member States,49 as well as for its notable influence on national legislation applicable in relation to non-EU countries. The regulation entered into force on 26 June 2017 and serves as a complex legal framework applicable to proceedings commenced after that date.
Insolvency matters concerning non-EU countries in the Czech Republic are governed by the Act on Private International Law,50 which came into force as part of a significant civil law recodification in 2014. Its relevant sections dealing with cross-border insolvency matters51 provide that where the jurisdiction of Czech courts to commence insolvency proceedings is given under a directly applicable EU regulation, these proceedings will also apply to the debtor's property located in a non-EU country, provided such country recognises its effects within its territory and only to the given extent of such recognition.
Similarly, foreign decisions regarding insolvency matters are recognised in the Czech Republic under the condition of mutual reciprocity, provided that the debtor's COMI52 is in the country that issued the decision and that its assets located in the Czech Republic are not subject to an ongoing proceeding at the Czech courts.
Czech courts are also entitled to commence insolvency proceedings with regard to a branch situated in the Czech Republic and debts relating to this branch, and also to individuals with residence in Czech Republic.
VI FUTURE DEVELOPMENTS
At the end of 2019 it was apparent that the covid-19 epidemic would not just be a Chinese issue and that it would inevitably come to Europe. At the mid-point of 2020, the Czech economy, just like Europe at large, is awaiting a possible slowdown as a reaction to covid-19 spreading around the world. If the reaction of the Czech government is not up to the task, and should this affect the free EU market in any significant way, the Czech economy (which is one of the most open economies in the EU, relying heavily on exports) can very easily get into trouble, along with many regional and local firms. This situation may cause serious liquidity problems, a sizeable increase in the number of insolvencies, causing a domino effect on the market and leaving even healthy firms on the verge of collapse. However, as the Czech Republic is not as heavily indebted as some other EU member states, there may still be some scope for getting more liquidity in the markets and turning the situation around. Also, new legislative measures can be implemented to help local firms to survive. The only questions would be how long it will all take to get back on a more normal track and how sophisticated the Czech government will be while approaching this complex issue.
In the second half of 2019 voices predicting a potential economic slowdown in the automotive industry became louder and louder. A massive shift to electric vehicles forced many traditional car manufacturers to rethink their strategies and restructure the way they handle business. This process may lead to cuts in the workforce in future years, leaving more and more people unemployed and reducing the spending capacity of Czech households, eventually sucking liquidity out of the market and leaving many traditional sectors vulnerable. We do not know to what extent the Czech government will involve itself. The Czech economy has for many years been strongly dependent on the automotive sector, especially the German automotive sector. Thus, once changes start there, they will inevitably come to the Czech Republic.
This year, 2020, will surely be a challenging one for insolvency practice. How the Czech Republic handles this challenge will very much influence the way the this chapter will be written in 2021. It may be a report on a successful process of crisis management and reasonable amendments to the Insolvency Act to address pressing matters, but it may also very well be a report on a massive hike in the number of insolvency proceedings and companies going under.
1 Tomáš Brožek is a senior attorney co-leading the Restructuring & Insolvency practice of Deloitte Legal Czech Republic. Judita Hrabčáková and Jan Dudik are associates in the Restructuring & Insolvency team of Deloitte Legal Czech Republic.
7 Act No. 182/2006 Coll., on insolvency and insolvency procedures, as amended (Insolvency Act).
8 Act No. 99/1963 Coll. on civil procedure, as amended (Code of Civil Procedure).
9 Section 7 of the Insolvency Act.
10 See the Explanatory Report to the Insolvency Act.
11 In order to prevent frivolous insolvency petitions, anyone who has acquired a receivable against a debtor from an insolvency petition six months prior to or after the commencement of an insolvency proceedings cannot be considered when assessing the number of creditors (Section 143(2) of the Insolvency Act).
12 Section 3(1) of the Insolvency Act.
13 Section 3 (2) of the Insolvency Act.
14 Section 3 (3) of the Insolvency Act.
15 Section 3 (4) of the Insolvency Act.
16 Section 3 (5) of the Insolvency Act.
17 Non-entrepreneurs do not bear the obligation to file an insolvency petition pursuant to Section 98 of the Insolvency Act.
18 While conducting reasonable care in the business.
19 Section 97(7) of the Insolvency Act.
20 See Section 105 of the Insolvency Act for further details.
21 Bankruptcy, reorganisation and discharge of debts.
22 An exemplary description of an insolvency estate can be found in Section 206 of the Insolvency Act.
23 Section 286 of the Insolvency Act.
24 See Section 314 et seq. for further details.
25 Section 316 (1) of the Insolvency Act.
26 Section 316 and 148 of the Insolvency Act. Pursuant to Section 316(3) of the Insolvency Act, reorganisation is not permissible for debtors undergoing liquidation, operating as brokers or participating on a stock exchange.
27 Section 348 of the Insolvency Act.
28 Section 398 et seq. of the Insolvency Act.
29 Others include restriction of real estate transfers and assignment of a receivable for the purpose of lien. See Section 2(g) of the Insolvency Act for further details.
30 Section 298 and 305 of the Insolvency Act.
31 Section 398 of the Insolvency Act.
32 51 et seq. of Act No. 90/2012 Coll., Act on Commercial Companies and Cooperatives, as amended (Act on Business Corporations).
33 Section 62(51) et seq. of the Act on Business Corporations.
34 Section 182 and 403 of the Act on Business Corporations.
35 While conducting their duties with due care.
36 Section 99 (2) of the Insolvency Act.
37 See Richter, T. Insolvenční právo. 2. vydání. Praha: Wolters Kluwer ČR, a.s., 2017.
38 Section 127 of the Insolvency Act.
39 For further details, see Section 222 et seq. of Act No. 40/2009 Coll., Criminal Code, as amended.
40 Section 235 et seq. of the Insolvency Act.
41 Section 240 et seq. of the Insolvency Act.
42 See Act No. 31/2019 Coll.
45 Section 412a (1) of the Insolvency Act.
46 Section 412a (4) of the Insolvency Act. For reasons for calling off see Section 418(1) of the Insolvency Act.
48 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, recasting and replacing the previously applicable Regulation (EC) No 1346/2000.
49 Replaced Regulation (EC) No 1346/2000. Denmark is not bound by this regulation or subject to its application.
50 Act No. 91/2012 Coll., on Private International Law, as amended (Act on Private International Law).
51 Mainly Sections 111 to 116 of the Act on Private International Law.
52 Centre of main interest.