On 23 September 2023, the new Act on Preventive Restructuring (284/2003 Coll.) entered into effect in the Czech Republic (the “Czech Preventive Restructuring Act”), incorporating the EU Directive 2019/1023 on preventive restructuring frameworks in the Czech legal environment.
This quick guide summarises the duties that directors of companies incorporated in the Czech Republic are subject to, and how those duties change when the company is insolvent or at risk of being insolvent.
It also gives an overview of the personal risk to directors when the company is in financial difficulty.
With respect to the dynamic course of events regarding the coronavirus disease 2019 (COVID-19) commonly known as the "coronavirus" we address the threat of insolvency and related liability of the statutory bodies (Directors), and provide a list of practical mitigating steps.
Test the Liquidity of Your Company
The company is insolvent in a form of illiquidity (in Czech: padek) if (a) it has several creditors; (b) due and payable debts for more than 30 days; and (c) it is not able to fulfil them. Therefore, keep up-todate records about due payments and remaining periods.
On 1 July 2017 a new amendment to the Czech Insolvency Act came into force. One of the most significant changes introduced by the amendment relates to the assessment of insolvency of the debtor, performed by means of the cash-flow insolvency test.
Under Czech law, the debtor is insolvent if it has several creditors, due and payable debts for more than 30 days, and it is not able to fulfill them.
A significant amendment to the Czech Insolvency Act will take effect on 1 July 2017. It has been stated that the main aim of the amendment is to introduce measures against so called “insolvency mafia” and regulate consultancy services providers in connection with solving personal debts. The amendment brings changes to rules for personal bankruptcies, which are to be solved through a discharge from debts.
On September 9, 2016, Citibank’s London Branch filed a claim as collateral agent for the bondholders of New World Resources (NWR) with the High Court in Ostrava in the insolvency proceedings of OKD. OKD owns seven coal mines in the Czech Republic, employing over 13000 people. The low cost of coal and the refusal of the Czech Government to bail it out led to OKD filing for a Czech restructuring process in May 2016.
In the current climate, the demand for jobs substantially exceeds the supply. Even so, for employers it can still be difficult to find a quality employee who meets the specific requirements for the given job. Once a suitable employee is found for the vacant position, they complete the usual formalities – submitting documents on their education, health and evidence of criminal records, agree with the employer on wages and other conditions of the employment and sign the labor contract.