WSEAS Transactions on Business and Economics
Print ISSN: 1109-9526, E-ISSN: 2224-2899
Volume 10, 2013
Czech Insolvency Law after Four Years
Authors: , ,
Abstract: Insolvency systems are essential characteristics of every national economy. Their performance can significantly affect the quality of the business environment and are especially important for the predictability of risk. The present study concerns the possibilities of reforming Czech insolvency law on the basis of the experience gained during the four years in which the new legislation has been in effect. After evaluating changes in the costs incurred by creditors during insolvency proceedings, the duration of insolvency proceedings and recovery rates for lenders, the following hypothesis is suggested: Further improvement of creditors’ positions and in the functioning of the insolvency system as a whole are possible only if more comprehensive legislative changes are made. An analysis of the functioning of the new law and other relevant regulations from 2008 to 2012 (the first quarter) shows that the fundamental problem in the processes of solving bankruptcies of Czech companies is the fact that insolvency proceedings are commenced late, at a time when debtors possess very few assets which are quite insufficient for satisfying the creditors, especially nonsecured creditors. Therefore, new legislative and systematic measures to remedy this unacceptable situation are proposed. Moreover, on the basis of international comparisons and their own research, the authors advise against new objectives being incorporated into the insolvency law such as preserving employment or maintaining the firm as a going concern. They conclude that such legal attempts lead to worse results, and jobs and production are maintained in a smaller number of cases than in an impartial insolvency system.