Key points

Yet another major amendment to the Insolvency Act has been recently approved by the Czech government and passed to the Chamber of Deputies. The amendment is expected to become legally binding at the beginning of 2017. However, this timing does not allow for any potential obstacles or prolonged proceedings, which are common features of the Czech Parliamentary process.

Revising existing methods for the allocation of insolvency cases

Past experience of insolvency administrators has shown their tendency to focus on profits instead of the stated aims of the Insolvency Act, i.e. to handle bankruptcies fairly and even-handedly.

It has become common practice for a single insolvency administrator to open many branch offices, as insolvency cases are assigned according to the list of district branches.

In future, however, cases will be allocated on a regional basis. The Czech Republic has 14 regions (‘kraj’) which are administrative units. The judicial system loosely follows this division – there are 13 regional courts, with the last region being the capital of Prague with its system of municipal courts.

Administrators will be allowed to maintain branches in each region. However, for the purposes of receiving their allotment of insolvency cases, they will be allowed to nominate only their seat; and if they are seated in a different region, then one branch of their choosing in any region. This should lead to a fairer assignment of cases.

Extending supervisory powers over insolvency administrators

The amended Act also grants new supervisory powers to the Ministry of Justice.

Currently, administrators are supervised by the framework of insolvency proceedings, within the competence of the respective courts. They are also liable in damages for breach of their duties. There is no overarching authority overseeing the administrators’ compliance with their legal obligations, such as proper performance of their duties in accordance with the aims of the Insolvency Act or compliance with the law generally.

The amended Act aims to fix this legislative gap. Now, the Ministry of Justice will monitor the exercise of administrators’ legal duties.

Administrators will now need to inform themselves concerning the many and various new offences created by the amended Act. These will penalise: breaching information duties owed to the Ministry; failure to cooperate when inspected by the Ministry; or repeatedly filing a flawed debt relief proposal on behalf of a debtor, to name a few. The Ministry will now be authorised to impose a fine of up toCZK 5.000.000 and/or to suspend administrators from their office.

Comment

The Ministry of Justice intends to fix problems with the Act that have, to-date, been uncovered.

However, experienced practitioners fear that the combination of high penalties and the raft of recent amendments may leave confusion, instability and uncertainty in their wake.

Read more articles in the May 2016 edition of RCR Update