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Novelization of the Czech Insolvency Act 2017 (part one)

Novelization of the Czech Insolvency Act 2017 (part one)

This article is focused on main changes introduced by the last novelization of the Czech Insolvency Act, i.e. the Act No. 64/2017 Coll., by which the Act No. 182/2008 Coll., the Insolvency Act („the IA“), is amended, which became effective as of 1st July 2017.
The aim of this rather large novelization is especially: (i) to reinforce the protection of businessmen against so-called bullying insolvency petitions, (ii) to realize changes in the field of the debt relief, which have turned out to be necessary due to the application practise, and (iii) to increase the transparency of the insolvency proceedings.

I. Protection against so-called bullying insolvency petitions

The novelization embodies new institute of the preliminary assessment of an insolvency petition submitted by a creditor (Section 100a IA). The insolvency court will be newly obliged to assess the insolvency petition filed by a creditor immediately after its delivery, i.e. before its publication in the Insolvency Register. If the court will see any doubts about the legitimacy of such petition, it will decide that neither the insolvency petition nor any other accompanying documents will be published for a certain period of time. This procedure should eliminate negative impacts caused by abusing insolvency petitions, which are sometimes submitted by entrepreneurs in order to deliberately injure their business competitors by the actual fact that the opening of the insolvency proceedings is published in the Insolvency Register.

The novelization modifies the existing legal definition of bankruptcy in the form of insolvency in relation to businessmen keeping accounts. The novelization introduces new institute of so-called coverage gap, which means the difference between the amount of due monetary debts and the amount of debtor’s disposable incomes. According to the new legislation (Section 3 (3) IA) there is the presumption of non-bankruptcy, where the coverage gap reported in the statement on the state of liquidity does not exceed 10 % or where the outlook of liquidity developments certifies that the coverage gap will fall under this limit during the period for which the outlook has been drawn up.

Higher protection against so-called bullying insolvency petitions should be also ensured by implementation of the new obligation of the insolvency petitioner to evidence the existence of a mature claim – and to join the submission of this claim to the insolvency petition at the same time (Section 105 IA). In the case that the debtor is a legal entity, the insolvency petitioner, who is keeping accounts or tax records according to the Income Tax Act, will be obliged to give evidence of his claim by (i) the acknowledgement of debt with verified debtor’s signature or (ii) the enforceable decision or (iii) the notarial deed with the consent to enforceability or (iv) the executory deed with the consent to enforceability or (v) the confirmation made by an auditor, a court expert witness or a tax advisor and certifying that the creditor accounts for this claim.

The novelization also increases the upper limit of the fine, which may be imposed upon the insolvency petitioner by the respective insolvency court, if he submits flagrant groundless insolvency petition, i.e. from existing sum of CZK 50,000 to CZK 500,000 (Section 128a (3) IA).

II. Changes of Insolvency Act in the field of Debt Relief

In the field of the debt relief the novelization brings the new legislation in relation to the specification of the authorised persons entitled to submit the insolvency petition, where the bankruptcy will be solved by the debt relief. The debt relief petition can no longer be complied by the debtor itself, but it must be made only by an attorney, a notary, a court executor, an insolvency trustee or by an accredited person – a legal entity, which has obtained an accreditation of the Ministry of Justice for providing services in the area of the debt relief (public beneficial legal entities).

The provision about mandatory representation of a debtor by a professional will not be applied, if the debtor is a natural person and has Master’s Law or Economic Education or passes the exam for an insolvency trustee, or if such professional acts on behalf of a debtor, who is a legal entity.

The novelization also limits the amount of the remuneration for writing up and filling the debt relief petition. The authorised professional will be entitled to ask for a remuneration in the maximum amount of CZK 4,000 without VAT and in the case of joint debt relief of a married couple in the maximum amount of CZK 6,000 without VAT (Section 390a (3) IA). The accredited persons will be allowed to provide the services free of charge only.

These changes should help to ensure the satisfactory professionalism, when providing services connected with the institute of the debt relief, and at the same time they should lead to price reduction of these services.

By Michaela Fuchsová & Magda Stárková

 

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