Reorganization

Reorganization is a way of resolving the debtor’s bankruptcy, in which the debtor can continue to conduct business, but only within the limits of the so-called reorganization plan, which primarily monitors the recovery of the debtor’s business and the arrangement of mutual relations between the debtor and its creditors.

Reorganization is only possible for entrepreneurs:

  • who are not in liquidation,
  • who are not investment firms or persons authorized to trade on a commodity exchange pursuant to a special legal regulation,
  • whose total annual net turnover for the last accounting period preceding the insolvency petition reached at least fifty million crowns, or if they employ at least 50 employees.

The debtor or the creditor entered shall be entitled to file an application for a reorganization permit.

The debtor’s application for a reorganization permit must contain, in addition to the general requirements:

  • information about the capital structure and assets of the persons controlling the debtor or forming a concern with the debtor, that debtor is aware of
  • Indication of the way of proposed reorganization.

The decision to authorize the reorganization shall include:

  • statement on the authorization of the reorganization,
  • information about the insolvency administrator,
  • appeal to the debtor to submit a reorganization plan within 120 days or to notify the insolvency court without undue delay that he does not intend to submit it;
  • information on the conditions under which other persons may submit a reorganization plan;
  • statement on other measures relating to the estate and necessary to ensure the purpose of the reorganization.

During the reorganization, the debtor is a debtor with disposition rights. The legal force of the decision on the authorization of the reorganization abolishes the restriction of the debtor’s disposition rights, which occurred by law or by the decision of the insolvency court during the current insolvency proceedings. On the day before the effective date of the reorganization permit, the debtor prepares interim financial statements. The decision to authorize reorganization suspends the performance of the function of the general meeting or the member’s meeting of the debtor and the insolvency administrator decides in its competence instead of the general meeting or the member’s meeting. In reorganization proceedings, the debtors are divided into several groups, so that there are creditors with essentially the same legal status and essentially the same economic interests in each group. Reorganization plan contains the division of creditors into individual groups.

Reorganization plan

The reorganization plan defines the legal status of the persons concerned as a result of the authorized reorganization. In particular, the performance of the function of the general meeting or the members’ meeting of the cooperative shall be renewed from the effective date of the reorganization plan, the rights of all creditors towards the debtor cease to exist and the rights of third parties to assets belonging to the assets are extinguished. The effectiveness of the reorganization plan will not affect the rights of creditors against co-debtors and the debtor’s guarantors. Once the reorganization plan has been effective, enforcement of the decision or execution to enforce the debts can be ordered against the debtor.

The method of carrying out the reorganization is not binding, but it can be carried out in particular through the following measures:

  • restructuring of creditors’ claims, consisting in the waiver of part of the debtor’s debts including their accessories or postponement of their maturity;
  • the sale of all or part of the estate or the sale of the debtor’s business,
  • by issuing part of the debtor’s assets to creditors or by transferring those assets to a newly created legal entity in which the creditors have an equity interest,
  • Merger of a debtor – a legal entity with another person or the transfer of his / her assets to a partner while maintaining or changing the rights of third parties, if permitted by competition law,
  • the issue of shares or other securities by the debtor or a new legal entity,
  • ensuring the financing of the operation of the debtor’s undertaking or part thereof,
  • amendment of the memorandum or articles of association or other documents governing the debtor’s internal circumstances.

Several reorganization methods may be applied in the reorganization plan at the same time, if their nature allows it.

Termination of reorganization

Meeting the reorganization plan or its substantial parts shall be acknowledged by the insolvency court by the decision terminating the reorganization. Upon completion of the reorganization, the insolvency court shall decide on the remuneration of the insolvency administrator and its costs.

The insolvency court revokes the decision approving the reorganization plan

  • within 6 months of its effectiveness, if it finds that a particular creditor has been granted special advantages without the other creditors of the same group having agreed or that the reorganization plan has been approved fraudulently;
  • within 3 years of its effective date if the debtor, its statutory body or a member of the statutory body has been convicted of an intentional crime by which it has approved the reorganization plan or has substantially reduced the creditor.

If the insolvency court decides to cancel the reorganization plan, creditors can immediately demand the satisfaction of the claims and other rights they had before it was approved. The rights of creditors and third parties established by the reorganization plan are not affected.

The insolvency court decides to convert the reorganization into liquidation if:

  • the reorganization was authorized at the debtor’s request which proposed its conversion to liquidation after this authorization,
  • the beneficiary or the person designated by the creditors’ meeting does not draw up a reorganization plan within the prescribed period or after its eventual extension by the insolvency court, or withdraws the submitted reorganization plan and does not submit a proposal a prior right to draw up a reorganization plan, or the other person does not draw up or withdraws a reorganization plan within the prescribed period,
  • the insolvency court did not approve the reorganization plan and the beneficiaries have missed the deadline for its submission;
  • in the course of the implementation of the reorganization plan, the debtor fails to fulfill its essential obligations under the plan or if it becomes apparent that a substantial part of the plan will not be fulfilled,
  • the debtor fails to pay interest duly and on time or to a significant extent fails to meet its other repayable cash obligations;
  • the debtor has ceased to do business after approval of the reorganization plan, although it was supposed to do business under the reorganization plan,
  • Following the approval of the reorganization plan, the debtor has not settled the receivables and the receivables placed on an equal footing with them, as required by the reorganization plan or the agreement with the relevant creditor.

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