On 5 March 2013, the Government submitted a groundbreaking bill amending Act No. 182/2006 Coll. on bankruptcy and settlement (the Insolvency Act) and Act No. 312/2006 Coll. on insolvency administrators to the Chamber of Deputies of Czech Parliament, which approved the bill on 8 August 2013.
The objective of the proposed legislation is not only to reflect changes arising from private law recodification, but also to comprehensively revise proablem areas in existing insolvency proceedings legislation.
A key change introduced by the amendment is a clear definition of the problematic relationship between insolvency proceedings and enforcement or execution proceedings. Under current law, after an insolvency proceeding has begun the enforcement of a decision or execution against a debtor’s property may still be ordered, but not carried out. This rule remains in effect, but with the qualification that execution or enforcement of a decision cannot be ordered or initiated as of the moment bankruptcy is declared by a court. This increases debtor protection somewhat and strengthens the principle that receivables of all creditors should be proportionally satisfied in insolvency proceedings. Linked to this is the principle that a bankruptcy ruling interrupts all legal and arbitration proceedings concerning receivables associated with a bankrupt’s estate and now, too, receivables not satisfied in insolvency proceedings.
A second major change is in the insolvency administrator appointment method. Instead of the nomination system, a rotation system will be used. Thus, the administrator will be chosen in order according to a list maintained by the court over which the court will have no influence. This change should contribute to greater transparency of administrator appointments and prevent corrupt practices among insolvency administrators and administration court chairs.
The amendment includes a new institute of joint spousal debt relief, which should ease the situation for many underwater households. Each spouse will be able to achieve exemption from having to pay the other’s debts, though they must file a joint petition seeking permission for debt relief. This petition will contain an explicit declaration from both spouses that they agree to all their property being deemed communal property for the purposes of approval for debt relief through the monetisation of their estate. If only one of the spouses were to file a petition for debt relief, then only that spouse’s liabilities would be discharged.
Other areas of change that the bill introduces pertain, among others, to the issue of creditors bodies and the procedural position of certain creditors.
The amendment should enter into force on 1 January 2014.