Insolvency procedure after 1 Januar 2014

Czech Republic: Concurrence of debt enforcement and insolvency proceedings

An amendment to the Insolvency Act has come into force as at 1 January 2014 which represents a sweeping revision of the provisions of the Insolvency Act. In the present article, we shall focus on the consequences associated with the opening of insolvency proceedings and with the decision on insolvency/overindebtedness, with a particular view to the concurrence of debt enforcement and insolvency proceedings.

The essence of insolvency proceedings is to temporarily suspend the individual settlement of creditors’ claims (by way of e.g. foreclosure or judicial enforcement) and to replace it with a collective settlement procedure within the context of an insolvency procedure. The effects of opening an insolvency procedure or deciding on insolvency/overindebtedness have been redefined with a particular view to the question of how to handle the parallel execution of an ordered judicial enforcement or foreclosure (hereinafter for the ease of discussion collectively referred to as “foreclosure”), on the one hand, and a pending insolvency procedure on the other hand.

 

After an insolvency procedure has been opened, the foreclosure of the debtor’s assets may still be ordered but no longer be implemented. A practical example would be the garnishment of wages: deductions from the debtor’s wage by way of attachment may still be made during insolvency, but the funds thus withheld may no longer be paid out to the beneficiary, as of the moment in which the insolvency procedure was opened. In this respect, and in line with previous case law, the amendment to the Insolvency Act gives a broader and more precise definition of what acts and measures exactly should be understood to “order foreclosure”, and what acts and measures qualify as “carrying out foreclosure”. The amendment also authorizes the insolvency courts to suspend the enforceability of decisions or measures which were taken during debt enforcement in conflict with the above-mentioned restriction, or to prohibit such decisions and measures outright.  


Also, the range of consequences of a decision on insolvency/overindebtedness is now (as of 1 January 2014) much broader. Essentially, the effects of the bankruptcy declaration have been linked to this earlier date. With respect to foreclosure, this means that debt enforcement procedures may no longer be even initiated, as soon as the decision on insolvency/overindebtedness becomes final, instead of merely prohibiting the implementation of such procedures.

Tereza Chalupová, Lawyer

 

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