Reorganisation is one of the means of resolving a company’s insolvency under Czech law. In the course of reorganisation the debtor’s enterprise continues to carry out its business activity within the framework set out by the reorganisation plan. The aim of reorganisation is a recovery of the debtor’s business and settlement of the relationships between the debtor and his creditors.
Generally, the reorganisation is not available to company which is;
- in liquidation;
- a securities broker; or
- a person authorised to trade on a commodities exchange.
Depending on the conditions which must be fulfilled, we distinguish between two types of debtors whose enterprises may be reorganised.
Debtors fulfilling the general conditions for reorganisation
These are debtors whose annual net turnover for the last accounting period preceding the insolvency petition reached at least CZK 50 million, or which have at least 50 employees.
Debtors who do not fulfil the general conditions for reorganisation
Even if the debtor does not fulfil the general conditions for reorganisation it can still resolve its insolvency by means of reorganisation if the debtor submits to the insolvency court a reorganisation plan prior to the court’s decision on the company’s insolvency. The reorganisation plan must be accepted by a simple majority of the secured creditors and simple a majority of the unsecured creditors. The calculation of the majority is made on the basis of the amount of the creditors’ receivables.
Situation in 2014
Statistics show that, unlike bankruptcy, reorganisation is a very poorly used means of resolving a company’s insolvency. In the period from 1 January 2008 to 30 June 2012 1,882 insolvency proceedings, in which an insolvency trustee was appointed, were initiated. In 1,486 cases the insolvency was solved by bankruptcy proceedings, in 361 cases by debt release (for non-entrepreneurs) and only in four cases by reorganisation.
The highest court of the Czech Republic ruled in 2011 that even if the general conditions for a court decision on reorganisation are not fulfilled, reorganisation is conditionally possible if the debtor submits a reorganisation plan accepted by the creditors within the period specified by the Insolvency Act. In such a case, the insolvency court shall not automatically combine the decision on insolvency with the decision on bankruptcy, and the means of resolving the insolvency shall be subject to negotiation at a meeting of the creditors.
Following this decision, changes to the Insolvency Act were made, the purpose of which was to increase the number of companies subject to reorganisation instead of bankruptcy. The primary amendments to Insolvency Act, which came in force on 1 January 2014, are:
- a decrease of the threshold for required turnover from CZK 100 million to CZK 50 million and for the number of employees from 100 to 50;
- the insolvency court was granted the power to extend the period for submission of the reorganisation plan at the debtor’s request; and
- the creditors’ position was strengthened where the power to elect and remove the members of the debtor’s statutory body and supervisory board was vested in the creditors’ committee.