Liquidation

Liquidation is a way of solving bankruptcy by virtue of the fact that, based on the liquidation decision, the established creditors’ claims are in principle relatively satisfied from the proceeds of the liquidation of the assets and that the unsatisfied claims or their parts do not disappear.

The insolvency court decides to declare liquidation either by a separate decision or merges this decision with a bankruptcy decision, provided that the debtor is a person whose possibility of reorganization or debt relief is excluded. The effects of bankruptcy declarations occur when the decision on liquidation declaration is published in the insolvency register.

In particular, the liquidation declaration has the following effects:

  • the liquidation of the legal entity is interrupted, the administration is terminated and, unless the insolvency court decides otherwise, the interim injunction ceases if it has been ordered;
  • the insolvency trustee passes the authority to dispose of the assets, as well as the exercise of rights and fulfillment of obligations that the debtor is entitled to if they are related to the assets,
  • if the debtor disposed of the assets after the transfer of this right to the insolvency administrator, these legal acts against the creditors are ineffective,
  • outstanding receivables from the debtor with a liquidation declaration shall be considered to be payable, unless otherwise provided by law,
  • all unilateral legal acts of the debtor (bankrupt) relating to the assets (such as orders, mandates, powers of attorney, procuration) cease to exist; this does not apply to powers of attorney granted for insolvency proceedings,
  • all proposals for the conclusion of the contract made by the debtor that have not yet been accepted are terminated;
  • if there is a mutual performance contract (most of the contracts) where neither the debtor nor the other party has yet fully fulfilled the contract, the insolvency administrator may perform the contract in place of the debtor and claim consideration, or may refuse to perform;
  • if the other party to the contract is obliged to perform the first of this contract, it is entitled to refuse such performance until the mutual performance is provided or ensured,
  • if the debtor has entered into a loan agreement, the insolvency trustee is entitled, after the liquidation has been declared, to request the return of the thing even before the expiry of the specified loan period;
  • in the case of a lease agreement, the insolvency trustee is entitled to terminate such a contract within the period stipulated by law or by the contract even if the contract was concluded for a definite period of time, but the notice period may not exceed 3 months; this does not affect the provisions of the Civil Code for the protection of tenants of flats,
  • the insolvency administrator will investigate the possibility of continuing the operation of the debtor’s business.

The declaration of liquidation shall suspend legal and arbitration proceedings concerning the estate or to be satisfied from the estate in which the debtor participates, unless the law provides otherwise.

Acts of the insolvency administrator

By declaring liquidation the insolvency trustee passes on the authorization to dispose of the assets, as well as the exercise of rights and fulfillment of obligations that the debtor is entitled to if they are related to the assets. In particular, the insolvency administrator that exercises shareholder’s rights associated with the shares included in the assets, decides on business secrets and other confidentiality, acts as an employer towards the debtor’s employees, ensures the operation of the debtor’s business, maintains accounting and fulfills tax obligations. In particular, the Insolvency Trustee carries out his activities to list and establish the claims filed, to prepare review proceedings and to prepare creditors’ meetings. He shall also draw up interim financial statements at the day preceding the date on which the bankruptcy declaration takes effect and shall also draw up a report on the debtor’s economic situation at the date of the bankruptcy declaration.

Monetization of assets

Monetization of assets is the transfer of all estate belonging to it to money in order to satisfy creditors. Since the purpose of the bankruptcy is to satisfy the creditors ‘established receivables fairly and because this creditors’ satisfaction is carried out in cash, the transfer of the assets constituting the assets to money is a precondition which must necessarily precede the satisfaction of the creditors. The insolvency trustee monetizes the estate, but it can only be accessed after the decision on liquidation has become final and after the first creditors’ meeting. Exceptions are those directly threatened by destruction or degradation; the insolvency court may also grant an exception for other reasons. Unless the law provides otherwise, the effects of a judgment or execution order and other defects relating to the monetized assets cease to be monetized.

The assets can be monetized by

  • public auction,
  • the sale of movable property and immovable property under the provisions of the Code of Civil Procedure on enforcement;
  • selling off-auction property.

Satisfaction of claims

After the decision approving the final report comes into force, the insolvency trustee shall submit to the insolvency court a proposal for a timetable resolution stating how much should be paid for each receivable included in the modified list of registered receivables. On this basis, the insolvency court issues a timetable order specifying the amounts to be paid to the creditors. All creditors included in the schedule are satisfied in proportion to the amount of their claim as established. Unpaid receivables which are settled at any time during the liquidation proceedings shall be settled before the schedule

  • receivables from assets – cash expenses and remuneration of the insolvency administrator, costs related to maintenance and administration of the debtor’s assets, taxes, fees, duties, social security contributions, contributions to the state employment policy, public health insurance, etc.,
  • equivalence claims – labor claims of debtor’s employees, claims of creditors for damages to health, claims of the state, etc.,
  • secured receivables.

Cancellation of liquidation

The insolvency court decides to cancel the liquidation in the following cases:

  • if it finds that the debtor’s bankruptcy has not been additionally certified; this shall not apply if a substantial part of the assets has already been monetized,
  • if it finds out that there is no creditor entered in and that all receivables and assets are equally satisfied,
  • upon receipt of the insolvency trustee’s report on compliance with the schedule resolution
  • if it finds that the debtor’s assets are totally inadequate to satisfy creditors; in doing so, no account shall be taken of property, rights and other property values ​​excluded from the estate,
  • on the debtor’s proposal, if the debtor has attached to this proposal a document for which all creditors and the insolvency trustee have agreed to cancel the bankruptcy.

Slight liquidation

Slight liquidation is designed to deal with smaller liquidation according to the extent of assets and number of creditors (the total turnover of the debtor in the last accounting period preceding liquidation declaration exceeding two million crowns was not established and the debtor has no more than 50 creditors) or non-business. Therefore, a slight liquidation will always be with a natural person – non-business person (consumer), regardless of the number of creditors or the amount of debts). For other debtors (legal entities and natural persons – entrepreneurs), it will be necessary to assess the number of creditors applied for and the amount of turnover for the last accounting period before the declaration of liquidation.

It is an efficient and quick solution of liquidation through a simplified procedural procedure with deviations from classical bankruptcy. The insolvency court may issue a ruling that it is a slight liquidation of its own motion and associate it with the declaration of liquidation or at any time during the insolvency proceedings after the declaration of liquidation.

The above text is drawn from the official website on insolvency law http://insolvencni-zakon.justice.cz/