1. When can you be declared bankrupt in Czech Republic?

The debtor is in bankruptcy if he / she has (i) at least two creditors, (ii) pecuniary obligations for more than 30 days after maturity, and (iii) is unable to meet these obligations.

The debtor shall be deemed unable to meet his or her pecuniary obligations if: (i) the debtor has ceased to pay a substantial part of his pecuniary obligations; (ii) or fails to meet them for more than 3 months after the due date, or (iii) it is not possible for creditors to obtain satisfaction of any of the pecuniary claims against the debtor by the judicial enforcement or execution; or (iv) the debtor has failed to fulfill the obligation imposed on him or her by the insolvency court and submit a list of his or her assets including receivables with indication of the debtors, a list of obligations, including creditors and a list of employees of the debtor.

A debtor who is a business entity (whether as a legal or a natural person) is also insolvent if over-indebted. Debtors are over-indebted if they have at least two creditors and the sum of their liabilities exceeds the value of their assets.

Impending insolvency means a situation where, taking into account all of the circumstances, it can reasonably be assumed that the debtor will be unable to meet a substantial part of his or her pecuniary obligations in a due and timely manner.

The insolvency petition is in principle entitled to be filed by the debtor or his creditor. With regard to impending bankruptcy, only the debtor may file the proposal.

The insolvency court examines the insolvency petition and, if it finds that the debtor is actually in bankruptcy after evaluating evidence, it shall issue a bankruptcy order. However, if the insolvency petition is submitted by the debtor itself, the bankruptcy of such a debtor is already proved in the data in his or her insolvency proposal and its annexes.

2.How long does it take to process a petition for bankruptcy in Czech Republic?

The insolvency court is obliged to take necessary measures leading to the decision of the case within 10 days from the filing of the insolvency petition. It shall decide on the insolvency petition without undue delay and no later than 15 days from its filing if the insolvency petition was filed by the debtor; if a moratorium is declared, this period shall not end earlier than 10 days after the moratorium has ended.

3. What happens if you are declared bankrupt in Czech Republic?

If the insolvency court declares bankruptcy over the debtor, the debtor loses its right to manage and dispose of assets belonging to the estate. This right is transferred to the insolvency administrator together with all the debtor’s rights with respect to the estate. If the debtor does not adhere to these rules and performs any legal acts to which the debtor is not entitled, such legal acts will be ineffective with regard the debtor’s creditors. The creditors would then be entitled to claim the ineffectiveness before a court.

The declaration of bankruptcy also brings consequences to the creditors. In general, upon a declaration of bankruptcy, the creditors of the debtor may exercise their rights only under the terms and conditions and in the manner stipulated by the Insolvency Act. In addition, all of the creditors’ claims against the debtor which are not yet due become due and payable, except in some special cases set forth by the Insolvency Act. 

4. What duties and powers does the receiver have?

According to Czech law, the insolvency administrator manages the debtor’s insolvency estate and handle incidental and other disputes. The insolvency administrator aims to achieve the highest possible economic satisfaction of creditors as a result of insolvency proceedings.

Insolvency administrators are obliged to act conscientiously and with due diligence. They are required to make every effort that may reasonably be demanded of them to satisfy creditors to the fullest possible extent. They must prioritise the common interest of creditors over their own and others’ interests.

In insolvency proceedings, the insolvency administrator assumes authorisation to dispose of the estate, to exercise rights and to discharge obligations pertaining to the debtor in estate-related matters. In particular, the insolvency practitioner exercises shareholder rights attached to shares in the insolvency estate, acts in the capacity of employer in relation to the debtor’s employees, and is responsible for the operation of the debtor’s business, bookkeeping and tax compliance. Insolvency administrators are as a rule tasked with monetising the estate.

5.What kind of obligations do I have as a bankrupt in Czech Republic?

Pursuant to Section 98 of the Insolvency Act, a debtor who is a legal entity or a natural person – an entrepreneur is obliged to file an insolvency petition (by means of its statutory body) with the court for declaration of bankruptcy over the debtor’s assets without undue delay after the debtor learnt or should have learnt of his or her bankruptcy with due care.

If a member of statutory body breaches its obligation to file the bankruptcy petition, he or she is liable for any damage caused to the creditors of the debtor, unless he or she can prove that the breach of the insolvency obligation did not affect the satisfaction of creditors in insolvency proceedings or that obligation was not fulfilled in view of facts which occurred independently of his or her will and which he or she could not avert even with all efforts that could be justly demanded of him or her.

6. How can I monitor the progress of the bankruptcy in Czech Republic?

Insolvency proceedings are published in the insolvency register managed by the Ministry of Justice of Czech Republic. This is an electronic public administration information system accessible at the website of the Ministry of Justice of Czech Republic.

The insolvency register exists primarily so that there is maximum publicity for insolvency proceedings and so that their progress can be monitored. The register is used to publish insolvency court decisions issued in insolvency proceedings and in incidental disputes, case-file submissions, and other information, where so provided by the Insolvency Act or decided by the insolvency court.

The insolvency register is accessible to the public and everyone has the right to peruse it, make copies, and take extracts from it.

Besides serving as a source of information, the insolvency register is crucial for the service of documents – it is a vehicle for the delivery of most court rulings and other documents. Insolvency proceedings are generally notified in the insolvency register within two hours of submission of a petition (during the court’s working hours). All court rulings and other documents are subsequently published in the insolvency register. This gives everyone an insight into insolvency proceedings conducted in the Czech Republic.

7. How long does a bankruptcy last in Czech Republic?

The average length of insolvency proceedings in Czech Republic is approximately 2 years.

8. Can I make arrangements with my creditors in Czech Republic?

Reorganisation may be used to deal with the insolvency or impending insolvency of debtors that are business entities. It involves reorganising the business. It is usually expected that creditors’ claims will steadily be satisfied while the debtor’s business remains in operation in accordance with measures to revitalise its management under a reorganisation plan approved by the insolvency court. Creditors monitor how the plan is progressing.

Reorganization is permissible if the total annual total turnover of the debtor for the last accounting period preceding the insolvency petition reached at least CZK 50,000,000, or if the debtor employs at least 50 employees. This limitation does not apply if the debtor has submitted to the insolvency court (together with the insolvency petition or at the latest by the insolvency decision) a reorganization plan adopted by at least half of all secured creditors calculated according to the amount of their claims and at least half of all unsecured creditors calculated according to the amount of their claims

Reorganization is not permitted if the debtor is a legal entity in liquidation, a securities trader or a person authorized to trade on a commodity exchange.

9. How can an employee collect outstanding salary from their Czech bankrupt employer?

In case of employer insolvency, employees’ claims have priority in the insolvency process.

These claims can be filed to the insolvency administrator at any time during the insolvency proceedings.

An employee may also file his or her employment related claims to the Labor Office of the Czech Republic.

An employee can be satisfied in the amount of the employment related claims payable for the three calendar months of the relevant period. Other claims against the same employer can be satisfied only after 12 months from the date of issue of the order for payment of employment related claims.

The total amount of employment related claims for one month is a maximum of 1.5 times the average wage in the national economy for the previous calendar year.

Afterwards, an employee can turn to the insolvency administrator with the remainder of his or her unsatisfied employment related claims.

10. What important advice can be given to a company director in the event of imminent bankruptcy in Czech?

In general, the insolvency law requires that company directors are fully aware of the financial situation of the company at all times, especially during imminent bankruptcy. They have to undertake reasonable efforts to overcome the reasons for insolvency, e.g. by pursuing restructuring measures with immediate effect. If the company directors breach their obligation to act with due care, they are obliged to surrender any profit they received in connection with such breach.

The company directors have the duty to supervise the financial state of the company to ensure that an insolvency is filed in due time.

In addition, the company directors are required to cooperate with the insolvency administrator, the insolvency court and creditors’ bodies where it is necessary in connection with the insolvency proceedings.

12. Is there a special arrangement for a private person who is in danger of going bankrupt in Czech Republic?

Debt relief is a way of dealing with insolvency or impending insolvency for debtors who are private persons. The aim is to give debtors a ‘fresh start’ and motivate them to participate actively in the redemption of their debt. Generally, debtors are required to have at least the capacity to cover the costs of proceedings and ongoing maintenance payments. Debt relief can be accomplished by monetization of the assets or by repayment scheduling with the monetization of the assets. A person other than the debtor is not entitled to apply for debt relief.