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During the current economic downturn the number of insolvency
proceedings in the Czech Republic continuously increases. The
insolvency legislation plays a key role in insolvency
proceedings.
Given the tough conditions on the market, we are witnessing higher
numbers of bullying insolvency petitions submitted against
debtors.
Bullying behavior is a situation where a creditor
submits an unjustified insolvency petition against the debtor. The
purpose of such an unjustified petition is, in fact, not to solve
the debtor's bankruptcy but a means for creditors to get their
money back, to eliminate the debtor from the competition (e.g. a
debtor cannot participate in public tenders) or to damage the
debtor's reputation.
The current insolvency rules do not deal with bullying behavior in
insolvency, and the debtor is not protected against this behavior
by the creditors. After many cases in which bullying behavior has
been used, the insolvency rules need to be changed.
New legislation dealing with bullying behavior in
insolvency has been approved by Parliament on 13 July
2012. If this proposal is accepted by the Senate the new
rules come into effect in September 2012.
The intention of the new legislation is to strengthen the position
of the debtor against the creditors who are submitting the
unjustified insolvency petitions and to eliminate this particular
type of abuse of the insolvency law.
The most important changes are as follows:
The legislation establishes a definition of "unjustified
insolvency petition". A petition would fall within this
definition where there has been an abuse, by the creditor, of the
creditors right to submit an insolvency petition against the
debtor;
The court has a new right to dismiss an insolvency petition
which is obviously unjustified within one week of the delivery of
the insolvency petition;
The court may expressly state in its decision that the
submission of the insolvency petition was unjustified;
The court has the right to impose a fine on a creditor
who has submitted an unjustified insolvency petition; and
The court will be able to demand a guarantee (in money) from
the creditor to secure that the potential damage to the debtor,
which may be caused by the unjustified insolvency petition, will be
covered.
When the new rules come into effect, debtors in the Czech
Republic will be legally protected against creditors abusing their
right to submit an insolvency petition. In addition, creditors will
run the risk that the court will impose fines if they submit an
obviously unjustified insolvency petition against the debtor.
This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register for
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Law-Now information is for general purposes and guidance
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articles are not necessarily comprehensive and do not purport to
give professional or legal advice. All Law-Now information relates
to circumstances prevailing at the date of its original publication
and may not have been updated to reflect subsequent
developments.
The original publication date for this article was
18/07/2012.
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