Insolvency & Restructuring

Czech Republic: Insolvency filings in case law

The case law sets very high requirements for insolvency filings made by creditors. Creditors must pay extra attention, as the consequence of an insolvency filing is that other creditors and debtors may claim damages that occurred in connection with an insolvency filing that was refused for its incompleteness or other deficiencies.

Requirements of a creditor insolvency filing

A person is insolvent if he has (i) at least two creditors; (ii) at least two mature financial liabilities for more than 30 days overdue; and (iii) he is not able to fulfil such liabilities. A debtor who is a legal entity or a natural person (entrepreneur) is considered insolvent also in the case that he has several creditors and the total of his liabilities exceeds the value of his property.

The Czech Insolvency Act stipulates that a creditor may file an insolvency filing against an insolvent debtor.

Among general requirements (eg, indication of petitioner and debtor) the insolvency petition of a creditor must also include (i) the facts that certify the insolvency of the debtor and (ii) a description of the open mature claim of the creditor against the debtor. The signature of the creditor on the insolvency filing has to be certified and he must enclose his application on lodgement of this receivable to the petition.

The insolvency court opens the insolvency proceeding within two hours after receipt of the insolvency filing. The commencement of the insolvency proceedings has a serious impact on the business activities of the debtors.1

Additional requirements set by case law

According to the recent case law2, the insolvency filing of a creditor must include details on a due monetary receivable of another creditor against the debtor. These details of the receivables of another creditor have to include the legal grounds of the receivable, its due amount and its due date. If the insolvency filing does not include these details, the insolvency court is entitled to refuse such a filing as incomplete. This places an additional burden on the creditor, who has the duty not only to indicate another creditor with a due receivable, but also provide detailed information about the receivables of at least one other creditor, which are usually not easily obtainable.

Right to claim incurred damage or other loss

If the creditor’s insolvency filing was refused or dismissed due to the fault of the insolvency petitioner, then the person who incurred damage or other loss due to the commencement of the insolvency proceedings and due to measures taken in the course of the insolvency proceedings shall have the right to compensation for such damage or other loss against the insolvency petitioner.

Furthermore, if the insolvency petitioner is a legal entity, the members of its statutory body shall guarantee the performance of damages or compensation jointly and severally.

The debtor must file the indictment no later than within six months from the date when he was served the decision by which the proceedings on the insolvency petition are terminated, and other persons must file it no later than within six months after the publication of this decision in the Insolvency Register.

This means that if the creditor’s insolvency filing is refused due to formal shortcomings or failure to prove the insolvency of the debtor, there is a high risk of damage claims of the debtor and other creditors.

Therefore, when preparing the creditor insolvency filing, it is recommended to include the detailed information of at least one claim of another creditor against the debtor.

Creditors Insolvency filings have to be prepared with extra care, because if the Insolvency Court refuses the filing, the debtor and other creditors may claim damages.

1
Sec. 111 of the Czech Insolvency Act.
2
Decision of the Czech Supreme Court, file number 29 NSČR 14/2011 dated 21 December 2011.