Czech Republic has recently implemented the Act on Preventive Restructuring (the Act), with effect from 23 September 2023, which offers companies in financial difficulty a chance to restructure their assets, liabilities, and capital structure.

Initiation

The preventive restructuring process may be initiated by a company if it:

A proposed amendment to the Insolvency Act, has been approved by the government and is currently under discussion in the Czech Parliament. It is expected to significantly alleviate the situation for debtors seeking debt relief. The previous government had intended to introduce similar changes; however, the legislative process was halted by the end of its term.

Current position

Currently, debtors can achieve debt relief only after 5 years of "good conduct", unless they:

Directors resign for many reasons. For example, there may be disagreements among stakeholders about the future course of the company, they may be concerned about the risks associated with financial difficulty/insolvency, or they may just wish to retire.

While the Czech government has not yet enacted the June 2019 EU Directive on restructuring and insolvency, it has proposed another debt relief measure, the Milostivé léto or 'Debt Jubilee'. This will give debtors the opportunity to discharge debts owed to the Czech state.

Background

The measure will provide relief for debts where interest repayments substantially exceed the principal amount. The measure follows on from the previous 'Debt Jubilee' between 28 October 2021 and 28 January 2022 when 42,000 debt enforcement proceedings were cancelled.

This is one of a series of articles we at Morton Fraser are producing to guide our clients through the wholesale change proposed in Scots law in relation to security over goods, intellectual property and shares, on the one hand, and invoice finance or the purchase of receivables, on the other. For a general introduction to what the Bill covers, see here.

Background

The bill implementing the EU Preventive Restructuring Directive – a means of financial relief for entrepreneurs (companies only) – should have originally been enacted and introduced last year. As the bill has not yet been approved by the Chamber of Deputies, the deadline has been moved to July 2022.

What's new?

The new government has amended the original proposal, drafted by its predecessor.

UK Government introduces a temporary increase to minimum debt level required for a winding up petition

Restrictions have been in place since the start of the pandemic to prevent creditors taking steps to wind up debtor companies. Those restrictions are due to expire on September 30, 2021. To lessen the risk of October seeing a mass rush by creditors seeking to wind up their debtors, the UK Government has introduced a further temporary measure in connection with liquidation petitions.

In this two part article we highlight for directors some of the main ways in which the general protection of limited liability does not apply or can be lost.

Part one of this article discusses those exceptions to the principle of limited liability that arise in insolvency or distress situations. Part two deals with the provisions that have more general applicability.

Breach of duties

Limited liability is one of the fundamental concepts in our understanding of company law. Even people who know very little about the working of limited companies may know that directors and shareholders are not liable for the debts of their companies. For the last 160 years, the protection of limited liability has been a key factor in economic growth and commercial activity as it has allowed entrepreneurs to speculate and take risks that they might not have been willing to do if the risk of personal liability overshadowed their decision-making.

One of the main differences in insolvency law between Scotland and England & Wales relates to the challengeable transactions regime under the Insolvency Act 1986.

In both jurisdictions, transactions that are entered into before a formal insolvency process begins can be attacked if they are detrimental to the creditors of the insolvent company. However, although both systems use similar language and address similar concerns, the law in the two jurisdictions is different, most notably with different time periods and defences to a challenge.