Executive Summary

The latest amendment to the Czech Insolvency Act applies a shorter debt discharge period to both entrepreneurs and non-entrepreneurial individuals.

Background

The Czech Parliament has finally approved an amendment to the Czech Insolvency Act, reducing the debt discharge period from five to three years, in line with EU Directive 2019/1023. A key point of contention that delayed the amendment was whether to apply this shortened period not only to entrepreneurs but also to non-entrepreneurial individuals, extending beyond the EU’s minimum requirements.

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:

Over the past several years, unitranche facilities have become increasingly prevalent. This growth has been driven by the ever-growing class of private credit and direct lenders who initially developed the unitranche facility structure, along with traditional bank lenders now joining this market. The unitranche structure has several advantages, including typically quicker execution for the parties involved and in some cases a lower cost of capital to the borrower.

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:

Bed Bath & Beyond, the home goods retailer, has filed bankruptcy under Chapter 11 and plans to conduct liquidation sales and close all of its brick-and-mortar stores by June 30, as reported by The New York Times. The retailer points to an inability to adjust to the growth of online shopping as a reason for its downfall.

A reworked Czech Republic bill on preventive restructuring could soon be implemented.

Act on preventive restructuring

On February 13, 2023, Ultra Petroleum Corporation (“Ultra”) filed a petition for a writ of certiorari with the US Supreme Court seeking review of the Fifth Circuit’s October 2022 ruling that, in solvent-debtor cases, debtors must pay unsecured creditors applicable contractual make-whole premiums and postpetition interest at contractual default rates in order for such unsecured creditors to be considered unimpaired.

What’s an ABC? If you ask ChatGPT, “ABC” is an acronym that can have multiple meanings, depending on the context—for example, referring to the alphabet. But here we are talking about a type of business liquidation process in the United States known as an Assignment for the Benefit of Creditors (“ABC”). An ABC is governed by state law and has long been viewed as an alternative to a liquidation under Chapter 7 of the US Bankruptcy Code.

In a decision likely to have significant impact on certain types of bankruptcy filings going forward, this morning, the Third Circuit Court of Appeals ordered the dismissal of the Chapter 11 bankruptcy case filed by Johnson & Johnson affiliate LTL Management LLC.