Bankruptcy

motiv článku - Bankruptcy The text deals with issues related to financial difficulties and it provides useful information on bankruptcy and insolvency proceedings as well as methods and procedures forhandling such situations.

Legal requirements

Entrepreneurs can avoid bankruptcy by anticipating difficulties – if they are aware of details of their company`s financial situation.

Business brings with it frequent entrepreneurial risks, especially financial ones. In case business does not go well and the entrepreneur does not want to or is not able to adhere to his/her financial obligations, he/she may become insolvent. Since 1 January 2008, bankruptcy and insolvency proceedings in the Czech Republic have been regulated by the Insolvency Act (Act No. 182/2006 Coll. On Insolvency and Its Settlement Methods) which stipulates in which cases the debtor becomes insolvent, how the debtor settles with his/her creditors and the individual methods of such a settlement.

Insolvency Register


The insolvency register is a publicly accessible list that contains about the insolvent party and the status and course of the insolvency proceedings stipulated by law. The insolvency register is also used to deliver a significant portion of court documentation related to the proceedings. It is, therefore, up to the creditors of the insolvent party to protect their rights and to monitor the proceedings that might be relevant for them by regularly monitoring the insolvency register. The insolvency register is accessible electronically.

Insolvency


Generally, a debtor is insolvent if he/she has more creditors with past due receivables and he/she is unable to repay such obligations. The legislation stipulates under which circumstances the debtor is presumed unable to repay his/her obligations. In the case of an entrepreneur, he/she is insolvent if over-indebted, a scenario under which he/she has multiple creditors and the sum of liabilities exceeds the value of his/her assets. The law also deals with the issue of the so-called impending insolvency.

Methods of resolving insolvency

There are several methods of dealing with insolvency. These include the traditional method when bankruptcy proceedings represent a gradual sale of the bankrupted property, the acquired revenue being divided among the creditors, which is a mostly liquidation solution for the bankrupt party, as well as new forms of bankruptcy solutions such as reorganisation and discharge of debt.

Bankruptcy

Bankruptcy is the most frequent method of dealing with a debtor's insolvency. Within the bankruptcy proceedings, the assets of the debtor are realised and the proceeds divided among creditors based on conditions stipulated by law, while claims of certain creditors will have a priority position. In the case of the debtor being a physical person, a non-entrepreneur, or where the annual turnover of the debtor does not exceed CZK 2 million and the debtor does not have more than 50 creditors, the court may decide on so-called minor bankruptcy, which is a shortened and simplified version of bankruptcy

Reorganisation

Reorganisation may be used only to deal with insolvency of entrepreneurial entities. Reorganisation is used for gradual fulfilment of creditor's claims while maintaining the operation of the debtor's company; at the same time, measures are taken to improve the economic situation of the given company. In order to select reorganisation as the method of resolving insolvency, several legal criteria must be met, including consent of the relevant majority of creditors.

Discharge of debts

This method of resolving insolvency is limited only to non-entrepreneurs and requires the consent of a majority of creditors defined by law. Following an agreement with creditors and immediate payment of a portion of claims, a debtor repays the rest of his/her debt in defined instalments; after the period of five years has elapsed, the remainder of the debt is expunged.

Entrepreneurs who have experience with bankruptcy should not lose trust in their ability to start another business.

Resources

The following governmental and non-governmental institutions and web portals offer further information and useful services in the area of insolvency proceedings and insolvency solutions.

Personalised help and advice

The Enterprise Europe Network is an extensive network (with 600 host organisations and 4 000 full-time staff) providing information and advice to entrepreneurs through its local partners.

Legal texts

Document created in co-operation between Your Europe - Business (EU portal for companies) and BusinessInfo.cz.

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