Czech Republic

The Czech Insolvency Act recognises two possible insolvency resolution procedures for corporate debtors — reorganisation (reorganizace) and liquidation (konkurs). These methods are opted for after the legal entity is declared insolvent.

Reorganisation is a debtor-in-possession rescue process aimed at preserving the debtor’s business and typically enabling it to continue operating while gradually repaying debts under a court-approved reorganisation plan. The reorganisation plan can be proposed both by the debtor or any of the creditors. The plan must be approved by the creditors at the creditors’ meeting and subsequently further approved by the Insolvency Court. The plan typically includes strategic measures, such as debt restructuring via rescheduling, refinancing or partial forgiveness of debt, asset sales, equity injections, operational changes or other measures aimed at restoring solvency and repaying debts.

A pre-negotiated reorganisation plan can be submitted, together with the insolvency petition, allowing the debtor to pursue a pre-packaged reorganisation (předbalená reorganizace), facilitating a more streamlined process with the debtor approval secured in advance.

If reorganisation is not appropriate in the first place, a reorganisation plan is rejected, or an ongoing reorganisation fails, the court will typically choose liquidation as the resolution procedure. In the case of liquidation, the insolvency administrator takes control of the debtor’s assets. Inventory and valuation of the assets is conducted, which are then sold through public auctions or private sales and the proceeds are then redistributed to the creditors. During liquidation, the debtor’s business operations are typically ceased unless continuation is necessary to preserve the value of the estate. Once liquidation is finalised, the corporate debtor is dissolved and removed from the commercial register, that is, the corporation ceases to exist.

Czech law allows debtors to obtain temporary protection while pursuing restructuring in two ways.

Firstly, the Czech Insolvency Act allows a debtor with the status of entrepreneur to request the Insolvency Court to declare a moratorium. This request may be submitted both before and after an insolvency petition has been filed. The moratorium provides the debtor with temporary protection and relief time to restructure their business with the aim of averting insolvency. This is aided through effects such as temporary protection against insolvency declaration or prohibition of termination of certain types of contracts by the creditors due to non-payment, if such contracts are essential for the continuation of the debtor’s operation.

Secondly, the debtor may pursue preventive restructuring (preventivní restrukturalizace). Preventive restructuring is a comprehensive pre-insolvency debtor-in-possession process designed to help corporations avoid insolvency and continue their business operations.

As of 2024, Czech legislation introduced the process of preventive restructuring. Preventive restructuring aims for early intervention while also preserving management control of the company. Preventive restructuring is available to debtors that are not yet insolvent but face a likelihood of insolvency due to a realistic threat of not being able to meet financial obligations in the future. The process of preventive restructuring entails the debtor presenting its creditors with a preventive restructuring plan, which describes specific restructuring measures aimed at revitalising the debtor’s operation. If approved by the creditors and subsequently by the court, the preventive restructuring plan may also compromise creditors’ claims. Preventive restructuring also allows the debtor to seek declaration of a temporary general moratorium or an individual moratorium against selected key creditors.

3.1 What are the conditions to entry?

To be eligible for preventive restructuring, the debtor must be acting in good faith with a reasonable prospect of preserving or restoring business operations, while facing serious financial difficulties that could lead to insolvency without restructuring, but concurrently not yet being insolvent within the meaning of the Insolvency Act.

3.2 Can creditor claims be compromised “within a class”?

Creditor claims can be compromised within a class if certain conditions are met.

3.3 Is there a “cross-class cramdown”?

Cross-class cramdown is possible, but subject to court approval. A restructuring plan can be approved even if one or more dissenting classes vote against the plan, provided that at least one affected class (excluding shareholders) approves the plan, dissenting classes are not treated unfairly, and the plan complies with the “best interest of creditors” test, as well as other legal safeguards.

3.4 Can shareholder claims be compromised?

Shareholder claims can be compromised if the shareholders are to receive at least the same performance that they would have received in the case of the company becoming insolvent and the insolvency being resolved through liquidation.

3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?

Secured creditors’ claims can be compromised if the restructuring measures produce a fair outcome comparable to the pre-restructuring state. Deficiency claims are treated as unsecured claims.

3.6 Can creditors propose competing plans?

Only the debtor can propose a preventive restructuring plan.

3.7 What level of court or other third-party supervision is there of the process(es)?

Court approval is required for certain key steps, such as approving the restructuring plan in the case of a cross-class cramdown. Furthermore, a restructuring administrator may be appointed by the court to oversee the process.

Clawback claims may be pursued during insolvency proceedings by the insolvency administrator. Certain actions made by the debtor that give unfair benefit to certain creditors or diminish the value of the insolvency estate may be challenged and reversed.

4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?

The legal framework for clawback claims and antecedent transaction claims is set by the Czech Insolvency Act, which allows (and where relevant also obligates) the insolvency administrator to investigate and, if needed, challenge the transactions.

4.2 What are the relevant “look-back” periods for claims?

Look-back periods vary depending on the specific type of transaction, with the general period being one year. This period is extended to three years in cases where the recipient is a person with a close relationship to the debtor (e.g. relatives of shareholders, members of the statutory body or persons able to exert influence over the company) or forms a corporate group with the debtor, or is extended to five years in the case of transactions that purposefully diminish the satisfaction of creditors’ claims.

The insolvency administrator can file the action within one year of the debtor being declared insolvent by the Insolvency Court.

4.3 Who can pursue the claims?

After the commencement of insolvency proceedings, only the insolvency administrator may pursue clawback claims under the framework of the Insolvency Act. Before the commencement of insolvency proceedings, any debtor whose ability to satisfy their claim is harmed by a debtor’s act can challenge such acts through Actio Pauliana.

4.4 What remedies are available and how do they operate in practice?

The insolvency administrator can petition the court to declare a prohibited transaction ineffective (void) in relation to the creditors. Where successful, the third party that received the benefit from such transaction must return the funds or property in question to the insolvency estate, or, in the case of pledge establishments, for example, such pledges will too be declared ineffective in relation to the creditors.

4.5 What defences are available?

Defences vary depending on the specific type of transaction. The third party in question may defend themselves against the action by, for example, proving that the debtor was not materially insolvent at the time of the transaction or that the transaction was conducted in good faith and without knowledge of the debtor’s insolvency and that adequate consideration was provided in return.

4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?

The Czech Civil Code allows individual creditors to pursue claims through Actio Pauliana before insolvency proceedings are commenced. However, after the commencement of insolvency proceedings, transactions may be challenged only by the insolvency administrator.

4.7 Who can pursue the claims?

Any creditor whose ability to satisfy their claim is harmed by a debtor’s act can pursue the claims.

4.8 What remedies are available and how do they operate in practice?

In the case of success of the action, the court declares the transaction ineffective in relation to the individual creditor. The creditor may then seek repayment from the third party as if the funds or items in question still belonged to the debtor. In the case of pledge establishments, for example, such pledges will too be declared ineffective towards the individual creditor.

4.9 What defences are available?

A third party benefitting from such transaction may defend themselves by either proving that adequate consideration was provided in return, or that the funds or items in question were received in good faith without the intention of harming the debtor’s ability to satisfy their claim.

The statutory body of a legal entity (e.g. the executive director of a limited liability company or the board of directors of a joint-stock company) is obligated to exercise its duties with due managerial care. The statutory body must act in good faith and in the best interests of the company, with the knowledge and diligence of a prudent businessperson. If the company becomes insolvent due to the statutory body’s breach of these duties, the statutory body may be found liable for damage caused by such breach.

5.1 What are the duties of directors and managers?

Apart from the general duty of due managerial care, the debtor and thus its statutory body is obligated to refrain from disposing of the debtor’s assets after the commencement of insolvency proceedings, if such actions result in significant changes to their composition, use or purpose, or in a non-negligible reduction of their value. Monetary obligations may only be fulfilled to the extent and under specific conditions set out in the Insolvency Act, which forbids preferential payments to selected creditors or concealing of assets.

The statutory body as well as the employees of the debtor are also required to provide general cooperation to the insolvency administrator, which may include providing necessary information or access to the company premises.

5.2 What claims can be brought against directors and managers arising from breaches of those duties?

The statutory body may be held personally responsible for the damages caused to the creditors by breaches of the duties described above. This liability may include the obligation to compensate such damages, as well as the obligation to return benefits received from the company or, under specific circumstances, personal liability for outstanding debts.

5.3 Who can pursue the claims?

The insolvency administrator, or in some cases creditors, may pursue these claims.

5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?

Debtors who are either a legal entity or a natural person with the status of an entrepreneur are obligated to file an insolvency petition without undue delay as soon as the debtor learns or, with due diligence, should have learned of its insolvency.

5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?

If the duty of timely submission of the insolvency petition is breached, the statutory body may be found liable for damage or other harm caused by such breach. The damage is calculated as the difference between the amount of the claim registered by the creditor (in the true amount later determined in the insolvency proceedings) and the amount that the creditor received in the insolvency proceedings to satisfy this claim.

5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?

Creditors may claim damages directly from the statutory body in the case of damages caused by breach of duty of timely submission of the insolvency petition, as described above. Further circumstances of direct management liability can occur in cases of tortious conduct or fraud or other breaches of duty directly harming creditors.

6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

The statutory body as well as the employees of the debtor are also required to provide general cooperation to the insolvency administrator, which may include providing necessary information, documents, or access to the company premises.

Public authorities as well as certain persons listed in the Insolvency Act, such as financial institutions or insurers, must cooperate with the insolvency administrator by providing relevant information about the debtor’s property and affairs. Such information may include, for example, details about the debtor’s property, bank accounts and their balance, loan and insurance agreements concluded by the debtor, and so on.

6.2 How is that information obtained in practice?

In practice, the insolvency administrator may personally access the company premises to obtain the necessary information and/or documents.

The insolvency administrator may also reach out to public authorities or institutions in question with a written request to be provided with relevant information or documents pertaining to the debtor’s property and affairs.

6.3 Can the court assist in obtaining that information and how does that work in practice?

The insolvency administrator has the authority to request such cooperation by themselves. The duty of such cooperation is enforced through both civil and criminal liability. The insolvency administrator typically does not require assistance from the court in such matters, although the court may impose a fine in cases of non-compliance with the insolvency administrator’s requests.

7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted?

The UNCITRAL Model Law is not adopted in the Czech Republic.

7.2 Is it possible to recognise office holders from other jurisdictions?

It is possible to recognise foreign European Union (EU)-based office holders in cases of cross-border insolvency proceedings under EU Directive 2015/848, which regulates cooperation, communication and coordination between multiple office holders from different EU countries.

The recognition of non-EU foreign office holders is not specifically regulated by Czech law. The relevant framework for recognition may stem from the general provisions of the Czech Act on Private International Law, the application of which may vary from case to case, or international agreements with individual foreign countries regulating international judicial cooperation. Therefore, while recognition is possible to some extent, conditions will depend on the specific case and cannot be generally defined.

7.3 What is the process and what are the conditions for recognition?

The Czech Act on Private International Law allows recognition of foreign decisions in insolvency matters under the condition of reciprocity; however, the framework may vary depending on the foreign country in question and on international agreements concluded with such country.

7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

Czech courts and other authorities may provide assistance to foreign office holders in some cases; however, the framework may vary depending on the foreign country in question. Insolvency proceedings in the Czech Republic are public, and relevant documents are published and freely accessible online in the official Insolvency Register at www.isir.justice.cz/.

7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?

The Czech Act on Private International Law generally allows the turnover of assets of a debtor who is subject to insolvency proceedings in a foreign country, provided that the rights applied to the assets by the creditors locally have been ascertained in advance. The framework may vary depending on the foreign country in question.

7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?

After the commencement of insolvency proceedings, clawback claims or fraudulent transaction claims may be brought only by a local insolvency administrator. However, the specifics of this process may depend on the relevant legal framework set by the international agreements concluded with the foreign country in question.

Under Czech law, the insolvency administrator is either a natural person or a general partnership tasked with the management of the insolvency estate and its subsequent liquidation or restructuring. The administrator is appointed by the Insolvency Court from the official list of insolvency administrators maintained by the Czech Ministry of Justice.

8.1 Can a foreign office holder take appointments?

Foreign office holders from EU and European Economic Area Member States, as well as from the Swiss Confederation, may apply for a permit to hold the office of a guest insolvency administrator in the Czech Republic, conducting their activity temporarily or occasionally. Certain conditions apply.

Office holders from other countries not listed above are not able to take appointments in the Czech Republic. To do so, the office holder would have to be based in the Czech Republic and fulfil the same conditions as Czech insolvency administrators (see below).

8.2 What are the conditions for becoming an office holder?

To become an insolvency administrator, the applicant must possess an official permit issued by the Czech Ministry of Justice and subsequently be entered into the official list of insolvency administrators. The candidate is required to pass an official examination and to meet certain requirements in terms of education, professional experience, liability insurance, personnel and material equipment, financial integrity, as well as to possess a clean criminal record.

The office may also be carried out through a general partnership, provided that its partners each possess the insolvency administrator’s permit individually.

8.3 What are the main rules of professional conduct?

Insolvency administrators are obliged to act conscientiously and with professional care in the performance of their duties. They are obliged to make every effort that can be fairly demanded of them to ensure that the creditors’ claims are satisfied to the greatest extent possible. In the performance of their duties, they are obliged to give priority to the common interest of the creditors over their own interests and the interests of other persons.