Favourable changes on the horizon for debtors in the Czech Republic

A proposed amendment to the Insolvency Act, has been approved by the government and is currently under discussion in the Czech Parliament. It is expected to significantly alleviate the situation for debtors seeking debt relief. The previous government had intended to introduce similar changes; however, the legislative process was halted by the end of its term.

Current position 

Currently, debtors can achieve debt relief only after 5 years of "good conduct", unless they:

• are old-age pensioners or other “vulnerable” persons
• manage to repay 60% of the claims of their unsecured creditors

in which case debt relief can be granted after 3 years. 

Proposals

The proposed bill would shorten the period necessary to achieve debt relief to 3 years for all debtors who can request it, ie, all natural persons and legal entities who are not entrepreneurs.

Another notable change concerns defining a debtor’s good conduct. Currently, debtors that have repaid 30% of their unsecured creditor claims are presumed to have fulfilled this requirement. The amendment stipulates that the court will determine the conditions for good conduct in decisions approving debt relief plans on an individual basis, rather than as uniformly prescribed by law.

Next steps

If both chambers of the Parliament approve the amendment as planned, the shortened debt relief period will be effective from 1 January 2024.

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & insolvency team.

Also featuring in this month's update:

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• English Court of Appeal finds bankruptcy trustees are not required to act in the interests of creditors at all costs 
  Amy Patterson examines an important judgment which affirms the courts' reluctance to interfere with officeholders' statutory discretion to decide what actions will benefit creditors of insolvent estates.
• Requirement to substantiate German debtor's illiquidity remains high 
  Dr Rembert Graf Kerssenbrock reviews a recent decision of the District Court of Hamburg on the requirements to substantiate a “third-party application” for the insolvency of the debtor on grounds of illiquidity.

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