The long-discussed amendments to the Czech Insolvency Act entered into force on 1 July 2017.

These aim primarily to strengthen the transparency of insolvency proceedings; reduce paperwork in the insolvency courts; and change the system of allocation of insolvency cases in the area of debt relief.

The following highlights the most fundamental changes introduced last month.

Allocating insolvency cases

In order to reduce the number of massively established branches of insolvency administrators, there has been a change in the allocation of individual cases in the area of debt relief.

Previously, insolvency administrators were appointed in the order of registration of their office or establishment in the list of administrators kept for each district court. In practice, this encouraged the establishment of numerous insolvency administrators’ offices by an individual administrator, in order to artificially increase the number of insolvency cases garnered by him.

Now, lists will be organised differently. Insolvency administrators can still set up several registered offices within one region; however, only one registered office will be listed. This move is expected to reduce the number of established (sometimes fictitious) offices and encourage a fairer distribution of insolvency cases.

Supervision of insolvency administrators

The Ministry of Justice will exercise enhanced supervision over insolvency administrators.

The Ministry may now withdraw the accreditation of an insolvency administrator if he seriously violates his obligations or fails to operate within the regulatory framework.

Regulating entities providing debt relief services

The Ministry will also grant and withdraw authorisations for debt relief service providers. This sector was previously unregulated.

Previously, insolvency courts often encountered ill-considered actions for debt relief issued by commercial debt-relief companies. Since the amendment, debt relief advice is now provided exclusively either by persons whose qualifications are not in doubt, namely a lawyer, notary, insolvency administrator, court executor or persons with appropriate accreditation; or accredited entities.

Accredited entities are no longer allowed to receive remuneration or reimbursement for costs related to the provision of debt relief services. It is thought that accreditation will be obtained primarily by non-profit organisations focused on helping debtors.

Demand for proof of due claim

A creditor, when petitioning for a debtor’s insolvency, is required to prove that he has a claim for monies due and to attach the claim to the petition.

These obligations are extended when the debtor is an individual and the petitioner is the person who keeps his accounts or tax records. In such cases, the creditor is obliged to attach the acceptance of debt with a certified signature of the debtor; an enforceable court decision; a notarial or enforceable record with permission for enforceability; or a confirmation by the auditor, court expert or tax adviser that the debt appears in the accounting records of the debtor.

Vexatious insolvency petitions

Insolvency courts have also witnessed a boom in so-called vexatious insolvency petitions that aim primarily at harming another’s good repute or credibility.

The new laws seek to curtail this abuse. A preliminary assessment of a creditor’s petition is now required. If the court concludes from the assessment that the petition may be vexatious, it can postpone the publication of the petition beyond the usual seven day period.

Furthermore, only the petitioner and the debtor will have the right to access the insolvency file. This will restrict the dissemination of unwelcome publicity.

Conclusion

According to the Explanatory Memorandum, the amendments aim at bringing the insolvency administrators’ activities closer to debtors; saving costs; and evenly allocating cases to insolvency administrators.

They respond to the current debt situation and should facilitate proceedings as well as eliminating various unfair and corrupt practices.