On 14 February 2017, the president of the Czech Republic signed a comprehensive amendment to the Czech Insolvency Act which will enter into force on 1 July 2017, and will significantly affect a vast number of insolvency institutions.
The purpose of the amendment is to lessen the administrative burden on the courts, protect against unjustified 'frivolous' insolvency petitions (literal Czech translation is bullying petitions), enhance the transparency of insolvency proceedings and regulate the advisors providing services in the area of debt relief.
Since the most criticized part of the amendment deals with changes to creditors' rights, we will address them here.
Limitation of the voting rights of creditors forming a concern with a debtor
The creditors forming a concern with the debtor will lose their ability to influence whether the debtor will undergo reorganisation or go into bankruptcy.
Auditors' / Experts' confirmations, proof of ultimate beneficial ownership
The creditors will be required to support their claims against the debtor with an expert's opinion or confirmation issued by the auditor or tax advisor, if not already having the claim acknowledged by the debtor or decided upon by the court. In cases where the creditors acquire the claim in the last six months before the commencement of the insolvency proceedings or after the commencement, they will also have to submit evidence of their ultimate beneficial owner.
Negative presumption of bankruptcy
If the amount of due debts does not exceed the amount of readily available resources by more than 10%, the debtors will be able to defy the insolvency petition filed by the creditor.
Preliminary assessment of the insolvency petition
If the insolvency court doubts the justification of an insolvency petition filed by a creditor, it can decide to postpone publishing the petition in the insolvency register. This is a main tool against the frivolous insolvency petitions.
The above changes are just a taste of what the amendment to the Czech Insolvency Act brings and only time will tell if the reservations expressed by its critics are justified.