Insolvency

Both individuals and legal entities, whether business or private, can get into a situation where they are unable to fulfil their obligations. This situation is generally referred to as insolvency and the relevant law sets out the methods of its resolution.

Insolvency in the form of inability to pay due debts occurs when a person has multiple creditors and its debts are overdue for more than 30 days, and it is unable to pay these debts for objective reasons. Insolvency in the form of over-indebtedness occurs when a legal entity or an individual entrepreneur has multiple creditors and is overindebted (its debts exceed the value of its assets).

You can initiate insolvency proceedings against a debtor who meets the above-mentioned criteria (i.e. is in insolvency) by filing an insolvency petition with a court, along with registering your claim. If the insolvency petition is not filed by an employee, the court will impose a deposit of up to CZK 50,000. Please note that if you solely lodge a claim, insolvency proceedings will not be commenced. However, if the insolvency proceedings were initiated by another petition (filed by another creditor), you do not have to file a new petition and it is sufficient to register your claim. After its registration, your claim will be included in the insolvency proceedings and can be later satisfied. Claims must be asserted in writing against the person entitled to handle the insolvency estate; at the same time, it is necessary to notify the insolvency administrator of the claim enforcement.

The law allows resolving the insolvency of a debtor (an individual) by means of personal bankruptcy (debt relief). Only the debtor may file a petition for debt relief, attaching a number of documents for the court (income statements, statement of property, etc.). The court determines whether the debtor’s intention is honest and whether his/her debt relief plan is economically realistic. Those creditors whose claims are not secured must receive at least 30 percent of their claims. Further information on debt relief can be found here.

 

Bankruptcy can be used as a means of resolving the insolvency of any debtor. The insolvency of debtors who are entrepreneurs can also be resolved by means of reorganisation. The insolvency law thus enables to choose which of the insolvency resolution options is most suitable for the particular debtor, offering not only liquidation procedures (bankruptcy) but also the recovery element (reorganisation and debt relief). The selection of the appropriate method of resolving the debtor’s insolvency must be guided by the intention to satisfy the creditors as much as possible.

Information on particular insolvency proceedings, including the name of the insolvency administrator, can be found in the online Insolvency Register. Further information on the insolvency administrator can be found if you search by name in the List of Insolvency Administrators, which forms a part of the Insolvency Register.