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Article:

Insolvency and the coronavirus pandemic

02 April 2020

Situation as at 21 April 2020, 12:00 (will be continuously updated)

download pdf version Situation as at 21 April 2020, 12:00 (will be continuously updated)

The actual economic impact of the coronavirus pandemic and the government measures can hardly be anticipated. However, it is already clear that many entrepreneurs are in a financial crisis as a result of this situation. In early April, the government proposed an amendment to the Insolvency Act which should help entrepreneurs, in this respect.

In this article, we provide a summary of the major changes this amendment introduces. The Senate has already passed this amendment without any setbacks. In the following days, the amendment will be presented to the president of the Czech Republic for his signature and consequently come into effect – be promulgated in the Collection of Law. 

Insolvency petition filed by the creditor

In connection with the coronavirus pandemic and the emergency measures taken, many entrepreneurs find themselves in financial difficulties and are unable to meet their financial obligations in time. Due to the situation, normally economically healthy businesses may temporarily get into insolvency. Insolvency proceedings can only be initiated on application. In addition to the debtor, the application can be also filed by the creditor.

The approved amendment reacts to the emergency situation by not allowing the creditor to file an insolvency petition against his debtor until 31 August 2020. Should the creditor, nevertheless, file the insolvency petition, the insolvency court would inform him that his proposal does not produce any legal effects. The creditor will not be able to appeal against this notification. The amendment will give businesses in a difficult financial situation a period of time in order to regain their economic strength.

Responsibility of statutory bodies and obligation to file an insolvency petition on behalf of the debtor

A Business (its statutory body) has an obligation to submit an insolvency petition on itself if it determines its insolvency. A breach of this obligation by the statutory body leads to its legal liability for the debts of the business and the obligation to pay damages. In exceptional cases, criminal liability may also arise. 

The approved amendment modifies this provision of the Insolvency Act by “temporarily suspending” the statutory body's obligation. The statutory body will therefore not be compelled to file the insolvency petition from the date of entry into force of this amendment until the period of 6 months after the termination or annulment of the emergency measures is over, but no later than 31 December 2020.

We highlighted the need to suspend the abovementioned obligation of the debtor (or its statutory body) via the server E15.cz (https://www.e15.cz/byznys/firmy-budou-do-konce-srpna-chraneny-proti-insolvencnim-navrhum-1368247), as the original draft of the bill lacked this solution. We welcome the fact that the amendment contains this solution

Extraordinary moratorium

If the insolvency proceedings have already been initiated, the debtor will be allowed to request a declaration of an extraordinary moratorium until 31 August 2020, which the amendment introduces.

The effect is, in particular, that during the moratorium, the insolvency court cannot rule on the debtor’s insolvency, which gives him more time to restore his business operations. In such a case, the debtor will also be protected from the termination of certain contracts by his suppliers. In order to declare an extraordinary moratorium, there is no need for the creditors’ consent. However, should the extraordinary moratorium be prolonged, the creditors’ consent is necessary.

The extraordinary moratorium may last up to 6 months if extended by the court, at the debtor's request.

Mgr. Lukáš Regec
Attorney
E-mail: [email protected]
Tel: +420 602 738 680