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New Insolvency Act

01/01/2008

On 1 January 2008, the Act on Bankruptcy and Settlement, otherwise knows as the Insolvency Act, came into force. The aim of this piece of legislation is to modernise bankruptcy proceedings.

The new Insolvency Act introduces a lot of new concepts. The most important includes the launch of the Insolvency Register (http://isir.justice.cz), which should bring greater transparency during bankruptcy proceedings, as it is accessible not only to creditors and debtors, but to the general public as well. It also acts as a delivery mechanism, as most court decisions will be delivered using this register.


Other new concepts include expansion of the solutions available for resolving a debtor’s bankruptcy. Whereas in the past, practically the only solution was to sell the debtor’s assets, the Insolvency Act now introduces the concepts of reorganisation of an enterprise while keeping it in operation and debt relief for individuals.

Reorganisation is intended primarily for large enterprises with a turnover exceeding CZK 100 million or who have at least 100 employees. This is essentially a prudent organisation of relationships with creditors, with courts having the main say in the entire process of the “agreement”. In comparison, debt relief can only be used for debtors who are not undertakings.


In this case, a debtor has two possibilities for resolving his situation: either a one-off settlement of all debts consisting primarily in selling his assets or a five-year repayment schedule, during which the debtor hands over to creditors almost all his income above subsistence level. This method should help in particular honest debtors and low-income earners. It is therefore possible that after the debtor pays off 30% of the debt, the court can decide to waive the remaining debt. However, to use this way of resolving a debtor’s financial situation, the debtor has to fulfil very strict conditions, such as providing income and asset statements, spousal consent, etc.


The new regulations should lead to greater transparency and overall acceleration of insolvency proceedings.