In May 2015, the Czech Ministry of Justice submitted a draft amendment to the Insolvency Act to the Government (the “Amendment”).
According to the official statement of the Ministry of Justice, the Amendment shall cover the most problematic areas of the current insolvency law in the Czech Republic. Such areas include, in particular, restricted supervisory powers of the Ministry of Justice over insolvency administrators, inadequate transparency of insolvency proceeding, inadequate regulation of persons providing advice in respect of a debtor’s discharge (in Czech „oddlužení“), and inadequate protection against so-called “bullying petitions” (in Czech „šikanózní návrh“).
In this article we will focus on one of the most important aims of the Amendment, the increase in protection against bullying petitions.
According to the reasoning report to the Amendment prepared by the Ministry of Justice, approximately one per cent of all insolvency proceedings were commenced on the basis of bullying petitions. Although the percentage is not enormously high, the Ministry of Justice predicts that it will increase in upcoming years.
Currently, an insolvency proceeding is commenced upon delivery of an insolvency petition (in Czech „insolvenční návrh“) to a competent court. The court is required to publish the petition on the publicly accessible insolvency register (in Czech „insolvenční rejstřík“) within two hours of receipt.
Although publication of an insolvency petition does not mean that the debtor is actually insolvent, it may, and often does, have a very negative impact on the debtor’s reputation and business. It is a fairly common practice for participants in a public tender to file bullying petitions against their competitors in order to increase their chance of winning the public tender.
The Ministry of Justice considers the two hour deadline for the court to properly review and evaluate the insolvency petition very short. Therefore, the Amendment proposes that in the event that a court has doubts about the merits of the insolvency petition, it has one day to assess it and, if it finds the insolvency petition illegitimate, reject it. The court will not publish the receipt of the insolvency petition on the insolvency register until the one day time limit is reached.
An appeal against the decision to reject the insolvency petition, which would be delivered only to the insolvency petitioner and the debtor, could only be filed by the insolvency petitioner. The insolvency petitioner whose petition has been rejected must wait six month from the legal effectiveness of the court’s decision to file another insolvency petition against the same debtor.
If the insolvency petition is not rejected during the preliminary assessment, the court shall publish the receipt of the insolvency petition within two hours of the lapse of the one day limit.
Although the current Insolvency Act already contains a provision protecting persons against bullying petitions (which gives the court the power to issue the insolvency petitioner with a fine of up to CZK 50,000 if it rejects an insolvency petition on the basis that it is clearly without merit), the Ministry of Justice believes that the current protection is not sufficient and needs to be strengthened.
It is envisaged that the Amendment will become effective as of 1 July 2016.
As mentioned above, the Amendment has not yet been submitted to Parliament and, therefore, it is likely that its final version will differ from the current one.