Under Czech law, a parent company, controlling entity or influential entity may be liable for the obligations of a bankrupt corporation under its control. Respective controlling entities' liability is a frequently discussed issue and closely related to the common law doctrine known as 'piercing the corporate veil'. The judiciary and legal academic community are torn when it comes to applying particular provisions of the Corporations Act in such situations.
Frivolous insolvency petitions are typically observed in sectors which are built on repeat long-term relationships. These petitions aim to discredit and damage competitors' reputations in a particular market. In response to the rising trend of filing frivolous insolvency petitions, the Supreme Court and the legislature have taken steps to protect alleged debtors that are wrongly accused and stigmatised by others as being insolvent.
An amendment to the Insolvency Act recently took effect. Unlike other recently adopted acts, the objective of the amendment is not solely to harmonise the Insolvency Act with the new Civil Code, but also to respond to evaluation of the act's application, the practice of the courts and feedback from insolvency trustees, courts, debtors, creditors and other entities whose conduct is influenced by the act in some way.
This update looks at recent decisions reached by the Constitutional Court and the insolvency court when deciding on a nullity plea in insolvency proceedings. These decisions could have a significant effect on the overall outcome of insolvency proceedings, and the reasoning behind them could be applied in future proceedings.
In the Czech Republic, insolvency proceedings are open to misuse through objectionable and rather unethical anti-competitive means. An insolvency petition submitted at an opportune moment can have serious consequences for competitors. Therefore, the Ministry of Justice has announced plans to introduce fees for filing insolvency petitions and other measures designed to prevent anti-competitive behaviour.
The latest amendment to the Act on Court Executors and Execution Activities was necessitated by the prevailing situation regarding the enforcement of obligations and debts. The changes aim to regulate the activity of court executors and improve supervision. Most of the changes favour debtors, but creditors should also be pleased with the efforts to make the execution process more transparent.
The new Insolvency Act recently became effective in the Czech Republic. The new act recognizes the main types of creditor, which are (in order of priority): priority creditors; unsecured creditors; subordinated creditors; and creditors whose claims are excluded. This update focuses on various classes of priority creditor under the new act and their status in insolvency proceedings.
The purpose of resolving an insolvency by way of a discharge of debt is to give the debtor an opportunity for a fresh start. The new Insolvency Act seeks to achieve this by providing a legal framework for, among other things, the consolidation of all the debtor's debts and the full satisfaction of the claims of secured creditors.
From January 1 2008, for a certain period bankruptcy will be regulated by both the current Act on Bankruptcy and Composition and the new Insolvency Act. The approach to bankruptcy under the Insolvency Act is essentially based on the existing legal framework and incorporates judicial standpoints that have already been handed down by the courts.
The concept of reorganization - a new method of resolving insolvency - was introduced by the new Insolvency Act. This update focuses primarily on the motion for and approval of reorganization, the concept of the reorganization plan and the termination of the reorganization process.
The new Insolvency Act has been passed and will come into force on January 1 2008. The act was passed to replace the existing Act on Bankruptcy and Composition 1991, which has long been criticized as ineffective for various reasons, including the considerable length of typical bankruptcy proceedings and the low level of protection given to creditors' rights.
A key issue in Czech insolvency legislation is the impact of the commencement of insolvency proceedings on the debtor and its creditors, in particular secured creditors. As of July 1 2007 major changes in this area will be introduced by the new Insolvency Act, which will replace the existing Bankruptcy Act.
The new Insolvency Act, which is scheduled to come into effect on July 1 2007, amends the conditions governing how receivables are subordinated during insolvency proceedings. Under the new act, any contractual subordination of a receivable (ie, not just absolute subordination) results in the receivable being treated as subordinated in insolvency proceedings.