Filing for insolvency Once the criteria for insolvency described above have been fulfilled, the managing director or a member of the board of directors (in the case of a company), the liquidator, or a natural person who is an entrepreneur is responsible for filing an appli- cation for insolvency without undue delay. Members of the supervisory board, prokurista or other managers in an employment relationship with the indebted entity do not have such obliga- tion.
The resignation of managing directors occurs
quite often in such critical situations, but this does not entirely protect them. If they held their posi- tion one year before the opening of insolvency pro- ceedings, they are prevented from taking a similar position in another company for the duration of the proceedings and three years thereafter – unless the shareholders’ meeting of the new company decides otherwise with a qualified majority, having been made aware of the former position. The application must be well-prepared as the obligation to file for insolvency is not fulfilled if the proceedings have been discontinued or the application has been dismissed due to the appli- cant’s fault. After the application is filed and pro- ceedings have been opened, special attention must be given by the management when performing any acts that might lead to diminishing the value of assets outside the normal course of business. Late filing is not a criminal offence, but any
delay may lead to civil liability. If the application is filed by employees for their
wages or salaries, as an exception to all other appli- cants they do not have to pay the deposit for the costs of proceedings. Once the application is filed, the court has 15
days to decide whether or not to declare insolven- cy (in practice it usually takes longer).
an application for insolvency must be published immediately results in many applications being filed frivolously
“ ”
The fact that
Fraudulent or frivolous applications In the past 20 years, filing a petition for insolven- cy against a business partner who refuses to pay has often proven to be more efficient than enforcing a claim in tedious civil litigation. Nevertheless, the fact that an application for insolvency must be reg- istered immediately, without any investigation of the merits of the alleged claim, results in many applications being filed frivolously. Such applica- tions effectively blackmail the company concerned. The publication of an application for bankruptcy proceedings usually leads to a complete loss of trust and credibility by business partners, suppliers and other creditors, and will likely result in the termi- nation of contracts or exclusion from public ten- ders. The courts have recently been given the right to refuse an application filed by a creditor for obvi- ous lack of cause; nevertheless, the damage has often already been done and the penalty of CZK50,000 for a frivolous or vexatious applica- tion is payable to the state – only a small consola- tion to an honest businessman. Early attempts to claim damages against such blackmailers were not successful. Now, a deposit of CZK100,000 must be paid to the insolvency court at the time of the creditor’s application in order to cover such possible damage. In more serious cases, such deposit is of course rather symbolic; however it does amount to a certain deterrent against such creditors pursuing their claims against their busi- ness partners through insolvency, particularly when the claim is small.
Online insolvency register Czech civil procedure is known for its widespread use of electronic communication. Every Czech company has an electronic data box into which court decisions and official correspondence may be delivered – for instance, a court letter giving notice
About the author Arthur Braun studied law and political science at the University in Passau and at Charles University in Prague (where he was the first Western law student after the revolution). He has worked with international law firms (Gleiss, Noerr, Haarmann Hemmelrath) in Prague since 1994. Since 2006 he has been the managing partner of bpv Braun Partners, part of bpv LEGAL, with a focus on the entire CEE region. His main practice area is corporate law and M&A, including a triple-
digit number of cross-border transactions for international clients. His expertise includes purchases of distressed assets in several countries. From these transactions comes his deep expertise in the restructuring,
antitrust and labour law aspects of such transactions. Braun is author of various publications (including the country section for Insol on employee
Contact information
Arthur Braun Braun Partners
Ovocný trh 8 CZ-110 00 Prague 1 T: +420 224 490 000 F: +420 224 490 033 E:
prague@bpv-bp.com W:
www.bpv-bp.com www.bpv-legal.com
entitlements in insolvency, 2005) and he is often invited as a speaker at professional seminars and conferences. He is country rapporteur for the IBA Antitrust Committee. Since 1999, he has been lecturing at HAW Weiden/Amberg, and since 2001 at IPFM (FIBAA accredited MBA-programme). He speaks German, English, Czech, French and Italian.
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