Restructuring

Since the early Nineties, Czech insolvency legislation has undergone a number of positive changes. Creditor position improved, including that of secured creditors, and the protection of both the debtor and the bankrupt has also been strengthened. Moreover, with the new Insolvency Act effective from 2008, reorganization began to be more widely used in addressing bankruptcies. In Czech insolvency procedure, however, certain problematic areas still remain. One of them involves frivolous insolvency petitions filed by both creditors and debtors themselves. Creditor motivation may include efforts to discredit the debtor as competitor or pressure seeking the settlement of a disputable claim. In turn, debtors may try to prevent or delay this way the execution of judgment over their assets. The “anti-frivolous” Amendment to Insolvency Act was designed to legislatively cure the above undesired practice. At present, insolvency courts may oblige insolvency petitioners to provide a deposit to secure a potential damage originating from insolvency petitions filed by them, or reject insolvency petitions due to being evidently unfounded within 7 days of filing. However, even the above legal tools are unable to fully eliminate frivolous petitions. Therefore, measures are currently being considered such as suspension of effects of the commencement of insolvency proceedings that would restrict debtor operations for days (as opposed to the actually required two hours) from filing the petition, enabling courts to reject frivolous petitions while minimizing their negative impact. Generally, it still applies that courts should review insolvency petitions in light of their specific circumstances, and weigh on “pharmacy scales” whether a particular petition is one of a frivolous nature and, therefore, it is necessary to protect the debtor, or whether a justified petition is involved, one which requires the full protection for creditor interests.
A version of this Bankruptcy Blog post was originally published on the Newton Industry Specialized Digest – Czech Republic.