An extensive amendment to the Insolvency Act

An extensive amendment to the Insolvency Act deals with conditional receivables (including bank guarantees), assessment of companies‘ payment incapacity and insolvency petitions, debt relief and other aspects of insolvency proceeding.

Act no. 64/2017 Sb.

Effectiveness: 1 July 2017

The amendment introduces a preliminary assessment of an insolvency petition and limits a possibility of filing mischievous proposals

An insolvency petition filed by a creditor will be newly, before publishing of such petition in the insolvency register, subject to a preliminary assessment. In the event of any doubt about the legitimacy of the insolvency petition, a court may decide that for a limited period of time such petition will not be published in the insolvency register. A court has to assess as to whether the insolvency petition is obviously groundless or not within seven days of filing of the insolvency petition.

In the event of the creditor’s insolvency petition, a creditor shall always be obliged to put down a deposit for cost of the insolvency proceeding in the amount of CZK 50,000 in the event of legal entity being an entrepreneur, and CZK 10,000 in the event of a petition against a legal entity which is not entrepreneur or an individual.

If the insolvency petition filed by a creditor is refused due to its obvious groundlessness, an insolvency court may impose a penalty on the petitioner for filing of such groundless petition up to the amount of CZK 500,000. Moreover, an insolvency petitioner will be entitled to file a new petition against a same debtor no sooner than after six months.

The amendment stipulates a different concept of a bankruptcy.

The amendment supplements current concept of the bankruptcy in a form of the payment incapacity for entrepreneurs keeping the books by introducing the “coverage gap”. The coverage gap means a difference between the amount of debtor’s due monetary obligations and debtor’s disposable incomes. Thus, the entrepreneur is not bankrupt provided that the coverage gap is lower than 10 % of the amount of the entrepreneur’s due receivables in the course of the relevant period according to the liquidity statement.

However, in the event that the coverage gap is not lower than 10 % of debtor’s due receivables, a debtor still does not have to be considered as payment incapable. This could be a case when it could be expected that the coverage gap will lower below 10 % of debtor’s due receivables prospectively.

A new principle is introduced in the event of the assignment of receivable

A creditor - legal entity, which has acquired a receivable within six months before the initiation of the insolvency proceeding or after such initiation, shall be obliged to provide information on its beneficial owner under the Money Laundering Act. Unless the creditor fulfils such obligation, it is not entitled to exercise its voting rights connected with respective receivable.

A creditor does not have the above-mentioned obligation in the event that the respective transaction from which the receivable arose is not subject to an inspection under the Money Laundering Act (in the event of transaction between the “obliged person” and the creditor). The creditor does not have such obligation also if the consideration from the transaction (between the creditor and other person than the obliged person), from which the receivable arose, is lower than EUR 10,000.

If the creditor is an entity without a beneficial owner in line with the Money Laundering Act, it is sufficient that the creditor provides an affidavit stating that it does not have a beneficial owner.

The amendment introduces innovations regarding a discharge

The amendment stipulates an obligation for a debtor that his/her petition for discharge permit has to be drafted and submitted on behalf of a debtor by attorney-at-law, notary, bailiff or insolvency administrator. Such person is entitled to a reward in the maximum amount of CZK 4,000 (CZK 6,000 in the event of a discharge of spouses respectively). The petition may also be drafted and submitted on behalf of a debtor by an accredited person, which is not entitled to any reward. Such accredited person may be only a legal entity. The accreditation is granted by Ministry of Justice upon submitting respective application to the Ministry. The applicant has to prove, inter alia, its public beneficial status and also impeccability in the course of providing services concerning a discharge.

A debtor is entitled to submit a petition on his own provided that he has a legal or economic education or passes an exam of insolvency administrator. In the event that a debtor is a legal entity, such conditions have to be fulfilled by its representative.

The amendment further stipulates an obligation to submit the petition on the prescribed form.

Moreover, the amendment introduces a new mechanism of allocation of particular cases concerning discharge so that the principle of district courts is substituted by the principle of regional courts so that such mechanism corresponds to that used with respect to bankruptcy.

As a reaction to persisting lack of interest on the part of creditors regarding attendance on the convened creditors meeting, in the event of discharge, creditors meeting shall be convened upon a proposal of majority of all creditors owning receivables representing simultaneously a majority of registered receivables or an insolvency administrator or creditors committee. Further, the amendment stipulates a right of courts to convene creditors meeting ex officio.

Unsuccessful discharge does not have to result in bankruptcy

In line with the current legislation a court is obliged to decide on a bankruptcy as a method for resolving debtor’s insolvency in the event that the petition for discharge permit is refused, taken into account or dismissed by a court. As of the effectiveness of the amendment a court may decide whether to undertake such step or not. A choice of a method for resolving insolvency is in the sole discretion of a court. In the event that a court does not decide on a bankruptcy as a method for resolving insolvency, a court shall strike out the proceeding.

A court is not entitled to decide on a bankruptcy as a method for resolving insolvency in the event that the insolvency petition is not submitted by a debtor (or on his behalf). Further, the bankruptcy cannot be ordered in the event that a court finds out that a debtor’s property is completely insufficient for satisfying creditors.

On the other hand, a court shall decide on a bankruptcy as a method for resolving insolvency in the event that a debtor is in default with fulfilment of his obligations arising from the approved discharge or it becomes apparent that substantial part of a payment calendar cannot be fulfilled. In such a case, a court shall simultaneously decide on a cancellation of the method of discharge originally ordered.

The amendment makes conditions for voting of related parties and close persons more strict

As opposed to the current wording of the insolvency Act, the amendment forbids to creditor to vote in matters of a person close to the creditor or a person which forms a concern with the creditor (unless stipulated otherwise by the law). Moreover, such ban shall also apply to a situation where the creditor is a person close to the debtor or forms a concern with the debtor. On the contrary, such ban shall not apply in the event of voting on the restructuring plan submitted by a person other than the debtor or above-mentioned creditor. In justified cases an insolvency court may allow voting of such close persons or related persons.

The amendment introduces an obligation to prove a claimed receivable

In the event of creditor’s insolvency petitions, the insolvency petitioner, who is keeping the books, is obliged to prove its claimed receivable against a debtor – legal entity.

Claimed receivable could be proven by acknowledgement of a debt with verified signatures, enforceable decision, notarial deed or bailiff’s deed with permission to enforceability or confirmation of auditor, judicial expert or tax advisor stating that the petitioner is keeping books regarding the respective receivable.

In the event of the insolvency petitioner being a foreign entity, either legal entity or individual, the receivable may be proven by a certificate verified or issued by a foreign state, which corresponds to the above-mentioned documents in line with the law of such state.