Lesson 7 – Bankruptcy and Enforcement
Introduction and Objectives of the Lesson
Lesson 3 was dedicated to business organisations and the legal framework of their operation. This lesson deals with unpleasant situations of bankruptcy and creditor/debtor relations.
At first, we will find out the difference between bankruptcy, indebtedness, or insolvency. The next chapter focuses on the Czech bankruptcy procedure, restructuring, and personal bankruptcy.
Subsequently, you will enter the world of enforcement and find out step by step how to enforce a court decision in the Czech Republic. We have paid special attention to the methods of enforcement and other examples of creditor/debtor terminology.
The topic of receivables and money in general involves numbers and calculations. Actually, even though most of lawyers didn't like Math at school, they know that figures, deadlines, or interest rates are a part of legal practice. That is why we offer a preview of phrases, terms, and intricacies of using numbers in Legal English. Yes, there is a number of things to be learnt today!
Definition of Bankruptcy
Bankruptcy refers to a legal status of a company or an individual that is not able to repay their debts. Bankruptcy also means the procedure of satisfaction of creditors of a bankrupt company. The term is used differently in the United States and in the UK, but our goal is to adjust it to Czech conditions. When we check the Czech Insolvency Act, a company is bankrupt if it is insolvent or in excessive indebtedness. An insolvent entity has more than one creditor and is unable to pay at least two financial obligations within 30 days of the due date. A debtor is considered to be in excessive indebtedness if it has more than one creditor and the value of its liabilities exceeds the value of its assets. Insolvent entities or entities in excessive indebtedness are considered bankrupt and shall undergo bankruptcy procedure.
Bankruptcy Procedure in the Czech Republic
Also called bankruptcy proceedings or insolvency procedure, the entire process starts upon filing a bankruptcy petition. It should be filed by the debtor itself without undue delay after becoming aware of its bankruptcy. A creditor may file a bankruptcy petition if it may reasonably presume that the debtor is bankrupt. The petition is filed with a relevant court and the court shall announce the commencement of bankruptcy procedure within 2 hours. One of the effects of the commencement is that the debtor is obliged to limit its activities to common and necessary activities only. A failure to do so causes the particular act to be contestable.
B. Trustee and Creditors
A trustee in bankruptcy is a legal or management professional appointed by the court to be in charge of administration and disposal of the debtor's estate. At first, the trustee or a preliminary trustee inspects whether the debtor's estate is sufficient enough to at least cover the costs of the bankruptcy procedure. A trustee manages the whole procedure, communicates with the debtor and creditors, assesses the debtor's estate and registers creditors' receivables.
In order to become participants of bankruptcy procedure, creditors are bound to register their receivables within the statutory period. Creditors' receivables may be secured or unsecured. The trustee maintains the list of receivables. Creditors act through Creditors' Committee and Creditors' Meeting. The trustee's role during the entire process is to find out what belongs to the debtor's estate and ascertain the value of the entire estate.
Seeking to satisfy the creditors, the trustee then realises the estate of the bankrupt entity. Realisation in this sense means selling the assets and satisfying creditors from…