KEY POINTS

Reorganisation is one of the means of resolving a company’s insolvency under Czech law. In the course of reorganisation the debtor’s enterprise continues to carry out its business activity within the framework set out by the reorganisation plan. The aim of reorganisation is a recovery of the debtor’s business and settlement of the relationships between the debtor and his creditors.

Generally, the reorganisation is not available to company which is;

Since the early Nineties, Czech insolvency legislation has undergone a number of positive changes. Creditor position improved, including that of secured creditors, and the protection of both the debtor and the bankrupt has also been strengthened. Moreover, with the new Insolvency Act effective from 2008, reorganization began to be more widely used in addressing bankruptcies. In Czech insolvency procedure, however, certain problematic areas still remain. One of them involves frivolous insolvency petitions filed by both creditors and debtors themselves.

In May 2015, the Czech Ministry of Justice submitted a draft amendment to the Insolvency Act to the Government (the “Amendment”).

The Czech Supreme Court recently issued two decisions having significant impact on the position of secured creditors (i.e. generally financial institutions) within insolvency proceedings. Both decisions stem from one of the first major insolvencies conducted under the (then new) Czech Insolvency Act effective from 2008 in respect of the group of companies in a glass-making business. This article briefly reviews those decisions and points out their practical effects on the rights of secured creditors.

Security interest in rental income

(Usnesení Nejvyššího soudu ČR sp. zn. 29 NSCR 31/2013, ze dne 30. dubna 2015)

Dovolatel se obrátil na Nejvyšší soud s otázkou, zda nájemné získané v průběhu insolvenčního řízení z pronájmu zastavených nemovitostí náleží zajištěnému věřiteli.

(Beschluss des Obersten Gerichts der Tschechischen Repub-lik, Az. 29 NSCR 31/2013, vom 30. April 2015)

Der Revisionsführer hat das Oberste Gericht mit der Frage angerufen, ob der im Verlauf des Insolvenzverfahrens eingenommene Mietzins aus der Vermietung verpfändeter Immo- bilien dem gesicherten Gläubiger obliegt.

(Czech Supreme Court Resolution No. 29 NSCR 31/2013 of30th  April 2015)

The applicant for an appellate review turned to the Supreme Court with the question of whether a secured creditor is entitled to rent obtained during insolvency proceedings from the leasing of mortgaged real estate.

Background

By way of introduction it should be stated that under Czech law, certain legal acts (voidable transactions) can be opposed pursuant to the Civil Code as well as the Insolvency Act. There are therefore two kinds of opposition rights: general (i.e. outside of insolvency) and insolvency right to oppose, whereby the latter can be generally applied during insolvency proceedings, while the former cannot.

The decision

Key points

Yet another major amendment to the Insolvency Act has been recently approved by the Czech government and passed to the Chamber of Deputies. The amendment is expected to become legally binding at the beginning of 2017. However, this timing does not allow for any potential obstacles or prolonged proceedings, which are common features of the Czech Parliamentary process.

Revising existing methods for the allocation of insolvency cases