Effective date of the amendment to the Insolvency Act approaching

The present Insolvency Act contains a number of criteria intended to indicate whether or not a debtor is in bankruptcy. However, the economic reality is sometimes hard to assess through the prism of legal regulations. In these situations, a new “coverage gap” concept should help debtors by expressing the difference between due and payable liabilities and disposable funds; debtors with a coverage gap lower than one tenth of due and payable liabilities will be considered solvent.

Insolvency tourism, i.e. debtors moving their registered offices to make it more difficult for creditors to assert claims or to get a more favourable treatment of their case, is to be prevented by another new concept: the fixation of local jurisdiction. Under the new rules, the place where the debtor had a registered office six months prior to commencement of the insolvency proceedings shall be decisive in determining the insolvency court. Furthermore, the courts will have the option to preliminarily assess insolvency petitions filed by creditors. Where a court doubts whether an insolvency petition is substantiated, it may decide not to publish it; this will in principle protect debtors against reputation damage from a published but unsubstantiated insolvency petition.

Creditors filing insolvency petitions will have to prove that they have a due and payable receivable from the debtor. Creditors may support such a receivable by the debtor’s acknowledgment of debt signed by a verified signature; an enforceable ruling; a notary’s or bailiff’s record of consent with enforcement; or an auditor’s, certified expert’s or tax advisor’s confirmation that the receivable is in the creditor’s accounting records. A creditor that is a corporate entity acquiring the receivable by assignment (cession) or in a similar manner within the last six months preceding the commencement of insolvency proceedings or after their commencement will also have to produce information on their beneficial owner under the Act on Certain Measures Against Legalisation of Proceeds from Crime (the AML Act). For creditors that form a group with the debtor, the new regulation will substantially limit their voting rights.

Finally, the regulation of an individual’s discharge of debts will also change significantly. For instance, advisory on the discharge of debts may now only be provided by accredited entities holding a permit of the Czech Ministry of the Interior.