Act on the Mitigation of the Impact of an Epidemic”).

The Act on the Mitigation of the Impact of an Epidemic contains a number of significant changes, particularly in the areas of procedural, insolvency and corporate law. The changes seek to respond to the consequences of the emergency measures taken by public authorities as a result of the Coronavirus COVID-19 (hereinafter the “Coronavirus”) epidemic (hereinafter the “Epidemic”).

The draft Lex Covid, which amends insolvency and enforcement laws and draft law on certain measures related to repayment of loans in relation to the COVID-19 pandemic, has been approved by the Czech Parliament and must now be counter-signed by the President.

The insolvency law-related measures include:

Debtor's delay in payments

The recent Amendment on the Czech Insolvency Act (the “Amendment”) enters into force on 1 July 2017.

The Amendment states that a creditor is entitled to be satisfied from its security even when its contingent or future claim (such as bank guarantee) becomes actual after the start of the security provider’s insolvency.

An extensive amendment to Act No. 182/2006 Coll., on Insolvency (the "Insolvency Act") will come into effect on 1 July 2017 (the "Amendment").

The Amendment takes into account the practical recommendations of insolvency judges and administrators as well as other legal professionals. It fundamentally changes many aspects of insolvency proceedings, from preliminary assessment of the insolvency petition, to supervision of the insolvency administrator by the Ministry of Justice and debt relief procedures.

The Amendment primarily aims to

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.

The long-discussed amendments to the Czech Insolvency Act entered into force on 1 July 2017.

These aim primarily to strengthen the transparency of insolvency proceedings; reduce paperwork in the insolvency courts; and change the system of allocation of insolvency cases in the area of debt relief.

The following highlights the most fundamental changes introduced last month.

Allocating insolvency cases

Debt relief is by far the most frequent way of resolving insolvency under Czech law. According to statistics, as many as 26,482 insolvency petitions proposing debt relief (approximately 90% of all insolvency petitions) were filed in 2016. However, with the current headcount of judicial personnel, courts are substantially loaded with the high number of debt-relief cases. In this respect, the amendment to the Insolvency Act – that came into effect on 1 July 2017 – aims, among other things, to decrease the work load of the courts.

One very serious problem associated with insolvency proceedings in the Czech Republic is submitting ‘vexatious’ insolvency petitions. In general, insolvency petitions are considered to be vexatious if they, in fact, pursue a goal other than that of resolving the debtor’s insolvency. Such petitions are often filed against financially sound entities in order to harm them in the eyes of their business partners and customers.

On 1 July 2017, a major amendment to the Czech Insolvency Act came into effect. The amendment introduces a change to the definition of insolvency – the term liquidity gap. Debtors, who are entrepreneurs and keep accounting books, will now be allowed to prove that they are able to pay their due monetary liabilities by proving the possession of a sufficient amount of available funds or by proving that they are able to obtain such funds in the near future. Thus, in simple terms, a liquidity gap means in this connection a lack of available funds for the payment of due liabilities.

The Insolvency Act has significantly strengthened the position of creditors in comparison with the former Bankruptcy and Composition Act. Nevertheless, the position of a creditor is fundamentally affected by its voting rights, by which it may influence countless decisions.

However, many disputed issues arise in practice, for example, whether a creditor with a contested claim or a creditor affiliated with a debtor may vote. In this context, the new rules regarding voting rights cannot be ignored.

New regulation of voting rights for disputed claims