Czech Republic introduces new Act on Preventive Restructuring

Czech Republic has recently implemented the Act on Preventive Restructuring (the Act), with effect from 23 September 2023, which offers companies in financial difficulty a chance to restructure their assets, liabilities, and capital structure.  

Initiation 

The preventive restructuring process may be initiated by a company if it:

• considers, in good faith, that the process will result in the preservation or restoration of the viability of its business
• is not already in an insolvency process
• is facing financial difficulties of such severity that it would end up in insolvency unless restructuring measures are taken.

The company draws up the restructuring plan and informs its creditors and shareholders. The creditors and shareholders, divided into groups, vote on the plan. 

Cram down power 

Even if some of the groups disagree with the plan, the court may approve it nonetheless. After the approval, the company must implement and adhere to the measures as set out in the plan. 

Restructuring administrator

The restructuring administrator, appointed by the court from a list of insolvency practitioners with special authorisation, supervises the company during the preventive restructuring process.

Moratorium 

A new general or individual moratorium protects the company from certain actions by creditors (eg court enforcement of debts). An individual moratorium can be granted in relation to up to three specific creditors. If granted, a moratorium lasts for three months and may be extended for an additional three months in certain cases.

Limited publicity 

It is a private process and there is no obligation to publish all documents and notices.

What's next 

The Act provides a promising tool for companies facing financial difficulties and offers a preferrable alternative to insolvency proceedings. Hopefully, the newly implemented measures will reduce the number of bankruptcies by keeping companies operational. 

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