As of July 17, 2022, the legal definition of a “company in crisis” will change. More importantly, the general obligation of the statutory body to overcome the crisis will be lifted. On the other hand, some new obligations for the company/its statutory body will be introduced.
According to the latest amendment to the Commercial Code, a company is in crisis if
(1) the ratio of its equity to its liabilities is less than 8 to 100
(2) it is threatened with insolvency or
(3) it is insolvent.
If a company is in crisis only due to fulfilment of the first condition, the major consequence is a ban on repayment of so-called equity replacing resources. In other words, equity replacing resources (together with accessories and contractual penalties) cannot be reimbursed if a company is in crisis or would get into crisis as a result. But the statutory body is no longer bound to the obligation to take all appropriate measures to overcome the crisis.
However, if the company is in crisis due to fulfilment of the second or third condition, additional rules apply.
A company threatened with insolvency (in particular when it can be reasonably assumed that during the upcoming 12 months the company will become illiquid) is legally obliged to prevent insolvency. It must constantly review its financial situation and take appropriate and proportionate measures to avert insolvency. Concrete measures depend on the actual circumstances (e.g., enforcing its own receivables, increasing the equity). It can also ask for authorization for so-called preventive reorganization.
If the company is insolvent (i.e., illiquid or overindebted), the statutory body is obliged, in particular, to file for bankruptcy within 30 days from the date on which it/they became aware or could have become aware of the company’s insolvency. As of July 17, 2022, this obligation applies not only to illiquidity but also to over-indebtedness.
Should you need tailor-made information to find out if your company is in crisis and what practical steps to take, do not hesitate to contact us.
- Act No. 513/1991 Coll., Commerical Code