The latest amendment to the Czech Insolvency Act applies a shorter debt discharge period to both entrepreneurs and non-entrepreneurial individuals.

Background

The Czech Parliament has finally approved an amendment to the Czech Insolvency Act, reducing the debt discharge period from five to three years, in line with EU Directive 2019/1023. A key point of contention that delayed the amendment was whether to apply this shortened period not only to entrepreneurs but also to non-entrepreneurial individuals, extending beyond the EU’s minimum requirements.

Concerns

The main criticism of the proposed bill was that alongside the abandonment of the minimum repayment percentage, these changes might encourage moral hazard and abuse of the debt discharge process by non-entrepreneurial individuals and lead to lower recoveries for creditors. 

Stricter conditions

To balance these concerns, lawmakers have introduced stricter conditions, including:

• Re-entry restriction: The time before a debtor can re-enter debt discharge has been extended from 10 to 12 years. 

• Income utilisation: Debtors must fully utilise their income potential and achieve a reasonable wage or other income during the repayment period.

• Employer cooperation: Cooperation between employers and loan providers is now required.

• Reporting requirements: There is increased emphasis on submitting reports on the state of insolvency proceedings and the debtor's income.

Key takeaways

The amendment aims to streamline the debt discharge process and bring it in line with EU standards. The goal is to enable individuals to escape debt more quickly and resume social and economic activities. The updated conditions for debt discharge will only apply to proceedings initiated after the amendment's effective date. The amendment is currently expected to take effect this autumn.

Find out more

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