Key Points

  • An important amendment to the Insolvency Act is now in the second reading in the Chamber of Deputies of the Czech Republic (the lower house of Parliament)
  • A significant part of the amendment relates to debt relief as a way of resolving insolvency
  • It is expected that the amendment will enter into force in the first half of 2017

According to s 389 of the Insolvency Act, a debtor’s insolvency can be dealt with via a debt relief procedure, provided the debtor is a legal or a natural person who has no debt arising from business activities.

The amendment includes a new s 390a. This introduces the obligatory representation of debtors when filing a petition for a debt relief permit, by an attorney, notary, insolvency administrator or a legal person that has been granted an accreditation by the Ministry of Justice. A person who wrongly or without accreditation provides debt permit services is committing a misdemeanour or administrative offence. This is punishable by a fine of up to 500 000 CZK.

The objective of the proposed amendment is to prevent commercial debt relief-focussed companies with insufficient expertise from exploiting inadequately informed debtors. The intention of the Ministry of Justice as the initiator of the amendment is to tighten the conditions for the provision of advice on debt relief and to regulate debt relief generally.

Bankruptcy Instead of Debt Relief

If the insolvency court refuses or dismisses the debt permit petition, it will grant a bankruptcy order. S 309a grants discretion to the court in this matter. The court can decide on the more appropriate of the two methods, after consideration as to whether or not the debtor´s property suffices to satisfy the creditors. The insolvency court, however, cannot decide on a bankruptcy order if the petition for the debt permit was not submitted concurrently with the insolvency petition; and the property is insufficient to completely satisfy the creditors.

In the Czech Republic, once a petition is filed and insolvency proceedings are initiated, the case is made public in the insolvency registry, which is accessible to all via the Internet.

The amended Act introduces preliminary assessment of the insolvency petition submitted by a creditor. Should the court have reasonable doubts about the insolvency petition, it may decide that neither the insolvency petition nor other documents will be made public in the insolvency registry within the 7-day period starting on the day of delivery of the petition to the court.

The aim of such regulation is to protect the position of the debtor in such cases where the petition is filed without reasonable grounds.