Preventive restructuring in Czechia is finally taking shape

Quick read

A reworked Czech Republic bill on preventive restructuring could soon be implemented.

Act on preventive restructuring

Despite extending the deadline for implementing European Directive 2019/1023 on preventive restructuring to 17 July 2022 (the Restructuring Directive), the Czech Republic has not yet passed the Act on Preventive Restructuring and this key legal instrument is still missing from the Czech legal system. However, this could soon change as the government has submitted a reworked bill of the Act on Preventive Restructuring, due to be discussed by the Chamber of Deputies on 7 March 2023.

Due to the change of government in late 2021 as well as requests from various public bodies, the current draft has undergone a number of changes since 2021. The amended bill now includes provision for the following:

the court will reject a restructuring petition if a creditor voting against it would be in a less favourable position than in the alternative of bankruptcy proceedings
any failure to cooperate with a restructuring administrator, or transfers of the debtor's assets to trust funds, will be severely sanctioned, and
a reinforcement of employees’ rights in relation to a debtor-employer.

Next Steps

As the government has proposed that the Act will become effective the day after it is announced, the bill could become part of the law almost immediately after parliamentary approval. This means that fulfilling the obligation to implement the Restructuring Directive and easing the situation of debtors is, for the moment, purely in the hands of the legislators.