Bankruptcy – liquidation process whereby the assets of the debtor are liquidated and the proceeds are distributed collectively between its creditors, proportionally between unsecured creditors or separately for secured creditors as regulated by the Act no. 7/2005 Coll. on Bankruptcy and Restructuring as amended.
The objective of BANKRUPTCY & RECOVERY SERVICE, k.s. as an insolvency trustee is to collectively consolidate proprietary matters of the debtor and to ensure maximum proportional satisfaction of the creditors.
An application to declare bankruptcy can be filed by the debtor, its creditor, a liquidator or other person as provided under the Act on Bankruptcy a Restructuring.
If the debtor becomes insolvent, it is obliged to file for bankruptcy within 30 days, since it has become aware of its insolvency or since it should have become aware of its insolvency if it acted with professional diligence. This legal obligation of the debtor applies to a statutory body or members of the statutory body of the debtor, a liquidator of the debtor and a legal guardian of the debtor. The legal obligation to file for bankruptcy arises when any of the forms of insolvency – inability to pay debts or over-indebtedness – occur.
The debtor is insolvent, when :
- it is unable to pay debts (i.e. when it has more than one creditor and is not able to pay more than one financial obligation which is at least 30 days overdue. For the purpose of evaluation of debtor’s inability to pay all obligations that originally belonged to one creditor within 90 days before filing for bankruptcy are deemed to be one obligation) or
- it is over-indebted (i.e. when it is obliged to keep accounts, it has more than one creditor and the value of its obligations overdue exceeds the value of its assets).
Liability for failure to file for bankruptcy:
Liability under the Act on Bankruptcy and Restructuring: If the person liable to file for bankruptcy on behalf of the debtor (a statutory body or a member of statutory body of the debtor, a liquidator of the debtor or a legal guardian of the debtor) fails to file for bankruptcy, it is liable for any damage incurred as a result thereof, unless it proves that it has acted with professional diligence. The obligation to file for bankruptcy is fulfilled only if the filing is not refused due to failure to meet statutory requirements (i.e. the filing may not be solely formal).
Commercial liability: If a statutory body or a member of the statutory body does not fulfil its obligation to file for bankruptcy, its actions constitute breach of its legal obligation under the Commercial Code and it is liable for damages incurred as a result thereof. The members of the board of directors of a joint stock company are liable for damages jointly and severally (if the limited liability company has two or more chief executive officers, they are liable for damages to the company jointly and severally like members of the board of directors of a joint stock company). The claims for damages against the chief executive officers or members of the board of directors can be enforced by the creditor of the company on its own behalf and own account, if it is unable to satisfy its claim from the assets of the company.
Criminal liability: Pursuant to § 242 of the Criminal Code a person obstructing the insolvency proceedings, settlement proceedings, restructuring proceedings, or debt discharge proceedings, by not fulfilling the obligation imposed by law governing such proceedings is criminally liable for Obstruction of Bankruptcy or Settlement Proceedings. According to Act no. 7/2005 Coll. on Bankruptcy and Restructuring the debtor in majority of cases is a legal person, which cannot be criminally prosecuted under the Criminal Code, in these cases the natural persons which act and enter into obligations on its behalf (statutory body) are criminally liable.
A creditor is also entitled to file for bankruptcy of its debtor, if it has a financial claim against the debtor more than 30 days overdue, provided the insolvency of the debtor can be reasonably expected.
The court issues a decision commencing the bankruptcy proceedings, which is immediately published in the Commercial bulletin; the bankruptcy proceedings is commenced upon the publication of the decision in the Commercial Bulletin. Upon commencing the proceedings, the court either declares the bankruptcy of the debtor or appoints an interim trustee, whose role is to collect information on the assets of the debtor and estimate whether the assets of the debtor will be sufficient to cover the cost of the bankruptcy proceedings (should the assets of the debtor be insufficient to cover the costs of the bankruptcy proceedings, the court terminates the bankruptcy proceedings due to insufficient assets.)
In the decision declaring bankruptcy, the court appoints an insolvency trustee and informs the creditors to lodge their claims within a statutory period; informs the creditors on the method of lodging their claims, of the consequences of not observing the statutory period, and the consequences of incorrect claim lodging. The bankruptcy is thus declared. The debtor becomes bankrupt and loses its right to dispose of its assets subject to bankruptcy in favour of the insolvency trustee.
The decision to declare bankruptcy terminates the first part of the bankruptcy proceedings and commences the following part – bankruptcy as non-adversarial proceedings, wherein the debtor’s assets are liquidated by sale and the proceeds are distributed between its creditors.
Should the court find that the assets of the debtor are insufficient to cover the claims against the bankruptcy estate, it terminates the bankruptcy proceedings due to insufficient assets on its own motion. (The claims against the bankruptcy estate are the claims, which originated after bankruptcy was declared as a result of administration and liquidation of the assets subject to bankruptcy, child alimony, insolvency trustee fee and further claims, as governed by the Act on Bankruptcy a Restructuring).
After the final schedule of the bankruptcy proceeds the court decides to terminate the bankruptcy upon the motion of the insolvency trustee. BANKRUPTCY & RECOVERY SERVICE, k.s. as an insolvency trustee closes accounts and prepares individual financial statement pursuant to applicable laws and regulations. It also submits any necessary documentation and remaining assets to the debtor, or the liquidator, and takes other measures to terminate of bankruptcy. After these activities the court removes the insolvency trustee from its office.
BANKRUPTCY & RECOVERY SERVICE, k.s. as an insolvency trustee ensures the protection of the assets of the bankruptcy estate until it is liquidated. We administer the assets of the bankruptcy estate with professional diligence and use any legal means to protect and enforce the property rights subject to bankruptcy.
BANKRUPTCY & RECOVERY SERVICE, k.s. further provides services of a company liquidator appointed by the company or the court pursuant to § 70 and following of Act no. 513/1991 Coll. Commercil Code.
Liquidation is a legally regulated process of out of court settlement of proprietary relationships of a company, which leads to the closure of business and the dissolution of the company. The purpose of liquidation is to clarify proprietary relationships of the dissolving company and settle them.
After its dissolution the company is required to be liquidated, unless the entire share capital of the company is transferred to a legal successor. The liquidator, the main person in liquidation, upon its appointment becomes the statutory body to act on behalf of the company with the sole purpose – to liquidate it. The liquidator fulfils the obligations of the company, makes claims and receives performances, represents the company before courts and other authorities, enters into settlements and agreements on modification and termination of rights and obligations.
The Commercial Code governs the appointment of a liquidator, however the dispositive provisions enable the company to govern this matter in its internal documents (such as deed of association, memorandum of association, deed of formation). If the liquidator is not determined or appointed by the Company, it is appointed by the court from the list of insolvency trustees.
BANKRUPTCY & RECOVERY SERVICE, k.s. acts as a liquidator in order to liquidate the assets of the company in a timely, effective and cost efficient manner. If over-indebtedness is detected, it immediately files for bankruptcy of the company.
BANKUPTCY & RECOVERY SERVICE, k.s. acts as a court appointed insolvency trustee in the process of debt discharge, whereby natural persons can discharge their debts after the bankruptcy proceedings are finished.
- the debtor is a natural person;
- the debt discharge was preceded by bankruptcy proceeding, which was not terminated due to insufficient to cover the claims against the bankruptcy estate;
- during the bankruptcy proceedings the debtor was duly fulfilling its obligations pursuant to Act on Bankruptcy and Restructuring;
- debt discharge proceedings are initiated by a motion – the debtor may file the motion when filing for bankruptcy or anytime during the bankruptcy proceedings, however, only prior to the termination of the bankruptcy.
The motion for debt discharge is decided after the bankruptcy is terminated. The court approves the debt discharge if the debtor – a natural person was duly fulfilling its obligations during the bankruptcy proceedings; otherwise the motion for debt discharge is dismissed.
Upon approval of debt discharge a three-year trial period is commenced. During this period the debtor must pay the court-appointed insolvency trustee the amount determined by the court. The debtor must not, however, pay the insolvency trustee more than 70 % of its net income for the previous trial year. After deducting its fees, the insolvency trustee divides these funds proportionally according to the final schedule of the bankruptcy proceeds the creditors of the debtor.
Prior to the commencement of the trial period, in its decision the court determines the legal acts of the debtor, which will be subject to approval of the insolvency trustee during the trial period. The insolvency trustee approves only those legal acts, which increase the value of the debtor’s assets.
The trial period finishes:
- upon termination – the court decides on the termination of the trial period due to repeated or serious breach of the duties and responsibilities of the debtor or if the income of the debtor is insufficient to pay the insolvency trustee fee,
- upon the decision of the court to discharge the debts – the court decides on debt discharge if the debtor was duly fulfilling its duties and obligations during the trial period. The court decision is published in the Commercial Bulletin, whereby the insolvency trustee position is terminated and the trial period of the debtor finishes. Upon publication after the termination of the bankruptcy any unsatisfied claims against the debtor become unenforceable (they do not terminate, but they are can no longer be enforced at a court of law). If such claims were secured, they can be enforced against third persons.
BANKRUPTCY & RECOVERY SERVICE, k.s. as an appointed insolvency trustee prepares restructuring opinions in the process of restructuring – the process of saving the company in state of insolvency or imminent insolvency, whereby the creditors and the debtor agree on a plan to perform restructuring and satisfy the claims of the creditors which participated in the process.
- the debtor is insolvent – it is unable to pay its debts or is over-indebted, or insolvency is imminent;
- the debtor or the creditor authorizes an insolvency trustee to prepare an opinion to evaluate the possibility of restructuring;
- restructuring is initiated by a motion, which must be filed in order for the proceedings to commence. The application for restructuring approval can be filed by the debtor or the creditor, if the debtor agrees with the application.
If the court finds that the application for restructuring approval meets the statutory requirements pursuant to Act on Bankruptcy and Restructuring, it decides on commencement of restructuring proceedings no later than 15 days upon filing the application, otherwise it dismisses the application to approve restructuring. Restructuring proceedings are commenced upon the publication of the decision on restructuring approval in the Commercial Bulletin and its purpose is for the court to review the opinion prepared by the insolvency trustee and decide whether to terminate the restructuring proceedings or approve restructuring.
Effects of the restructuring proceedings:
- the debtor must limit the scope of its activity to ordinary legal acts and all other legal acts of the debtor are subject to approval of the insolvency trustee which prepared the opinion;
- a claim which must be lodged within the restructuring proceedings cannot be enforced in an enforcement proceedings or execution proceedings in relation to the assets of the debtor and any enforcement or execution proceedings are suspended;
- a secured claim which must be lodged within the restructuring proceedings cannot be satisfied by enforcing the security in relation to assets of the debtor;
- the other contractual party may not terminate the contract concluded with the debtor or withdraw from it due to the debtor’s default on its obligation, which the other party became entitled to before the initiation of the restructuring proceedings. The termination or withdrawal of the contract for such reason is ineffective;
- contractual provisions enabling the other contracting party to terminate the contract with the debtor or withdraw from it due to initiation of restructuring or bankruptcy proceedings are ineffective;
- a claim which must be lodged within the restructuring proceedings cannot be set off against the debtor.
Requirement for approval of restructuring:
- the opinion complies with the statutory requirements;
- the content of the opinion is clear and understandable;
- the opinion was prepared by an insolvency trustee listed in the list of the insolvency trustees which has its office within the jurisdiction of the regional court venue;
- the opinion was not prepared more than 30 days before filing an application to approve restructuring;
- the insolvency trustee appointed to prepare the restructuring opinion has recommended restructuring;
- the opinion clearly concludes that the requirements for restructuring have been met.
If the statutory requirements are met, the court hears the insolvency trustee before the decision to approve restructuring to find whether the circumstances of the debtor have not changed significantly, whether the conclusions of the opinion are up to date and whether successful restructuring can be expected. Subsequently, no later than within 30 days from the commencement of the restructuring proceedings, the court approves restructuring, otherwise it terminates the restructuring proceedings.
The court appoints the insolvency trustee who prepared the opinion and determines the scope of legal acts which are subject to approval of the insolvency trustee.
Parties to the restructuring proceedings:
- the debtor;
- the claimant;
- the creditors who have lodged their claims as required by law (otherwise their right against the debtor becomes unenforceable upon confirmation of the restructuring plan).
If the court approved the restructuring pursuant to the restructuring proposal of the creditor, BANKRUPTCY & RECOVERY SERVICE, k.s. prepares the restructuring plan and submits it with the court. If the court approved the restructuring as proposed by the debtor, the plan is prepared and submitted to the court by the debtor.
The restructuring plan is a specific legal act between the debtor and the creditors or third parties whose rights and obligations are affected by the plan. The plan governs the creation, modification or termination of the rights and obligations of the parties to the plan, the scope and method of satisfying parties to the plan who are the creditors of the debtor or its shareholders. The plan is subject to approval of the creditors’ meeting and subsequent approval of the court. The approval of the court is effective and legally binding on all participants of the plan. If there are no reasons to dismiss the plan, the court approves the plan within 15 days of receiving the motion to approve the plan and terminates restructuring. The procedural part of restructuring is finished, however, the economical restructuring begins.
The decision to approve of the plan is published in the Commercial Bulletin. The plan is effective to all parties of the plan upon its publication:
- the plan becomes binding to all its parties;
- the claims of the creditors who did not lodge their claims in proper and timely manner as required by law become unenforceable (the claims themselves do not cease, they can, however, no longer be enforced at a court of law);
- all security rights on the assets of the debtor which were not properly and timely lodge cease.
The basic requirement for a successful restructuring is preserving the business activity to improve the performance of the company and to satisfy the creditors who have duly and timely lodged their claims. The restructuring proceedings prevent initiation or continuance of bankruptcy proceedings and if an application for bankruptcy is filed with the court during restructuring proceedings, the court dismisses such application.