Background

By way of introduction it should be stated that under Czech law, certain legal acts (voidable transactions) can be opposed pursuant to the Civil Code as well as the Insolvency Act. There are therefore two kinds of opposition rights: general (i.e. outside of insolvency) and insolvency right to oppose, whereby the latter can be generally applied during insolvency proceedings, while the former cannot.

The decision

In its decision from 7.10.2014, Ref. Nr. 21 Cdo 2299/2013, the Supreme Court distinguished between two situations, depending on whether the general defence indictment was lodged before or after the insolvency proceedings were initiated.

In the former instance, the commencement of the insolvency proceedings has an effect on the general defence indictment akin to it being suspended. However, the procedural time limits still run, which can result in the indictment becoming final after the insolvency proceedings have been initiated but before the decision on insolvency became effective (final and absolute). If so, the creditor can keep what he recovered from the eventual execution.

If the general defence indictment does not become enforceable in time, it will be ceased: “In such case, the performance arising from the debtor’s voidable (legally ineffective) legal acts can be used for the satisfaction of its creditors only if they have registered their claims and provided that based on the defence indictment lodged by the insolvency administrator the claims belong pursuant to the Insolvency Act to the assets.” General defence indictment lodged post-commencement of the insolvency proceedings will be denied.

Comment

The case sets down clear and procedurally simple, yet harsh rules – if creditors lodge their general defence indictments in time or attach their claims to the insolvency proceedings, they might succeed. If not, too bad.