Under Czech Act No. 182/2006, the Insolvency Act, as amended (the “Czech Insolvency Act”), a company is required to apply for insolvency without undue delay after they have learnt or with due diligence ought to have learnt about their insolvency.

In case of an imminent insolvency of a company (i.e. it can be assumed under given circumstances that a debtor will not be able to meet substantial part of its financial obligations), it has a right (not an obligation) to file an insolvency petition. Insolvency proceedings may also be initiated by a creditor’s insolvency petition.

A company’s insolvency exists, when a company is financially insolvent or over-indebted. A company is insolvent when it is not able to meet its financial obligations that are more than 30 days overdue towards several creditors (as these conditions are further specified in the Czech Insolvency Act). Over-indebted is a company that has several creditors and its total liabilities, both due and undue, exceed its total assets, taking into account a going concern principle – future management of its assets and operation of its enterprise.

Under a new law adopted in connection with COVID-19 pandemic, certain exceptions to the above rules have been introduced:

> Obligation of companies to file an insolvency petition is deferred for a period of up to 6 months after the end of extraordinary measures introduced by the Government and other public authorities in relation to the pandemic, however not later than until December 31, 2020, if their insolvency was predominantly caused by circumstances connected with those extraordinary measures. The companies that had become insolvent prior to the adoption of those extraordinary measures cannot benefit from this specific relief.

> A creditor’s insolvency petition filed prior to August 31, 2020 will be disregarded, which gives companies more time to resolve their situation caused by the COVID-19 crisis.

A new institute of an extraordinary moratorium was introduced in reaction to the COVID-19 crisis. Under recent amendment to the Czech Insolvency Act, a company may until 31 August 2020 file for this newly introduced extraordinary moratorium even without commencing insolvency proceedings and without approval of its creditors, provided that the company had not been insolvent as of 12 March 2020 and has its centre of main interest and its general court in the Czech Republic. An extraordinary moratorium may be issued for a period of 3 months and may be extended with the consent of creditors by another 3 months. During the extraordinary moratorium the company may, as priority, pay all its obligations immediately connected to ensuring the continuance of their business operation.

Disclaimer: The information contained in this summary does not constitute legal advice. PRK Partners and individuals involved in the preparation of this summary are not responsible for the consequences of actions taken based on the information contained herein, which may not be accurate or comprehensive to a particular situation. We are available to provide you with a tailor-made legal advice upon your request.