On July 17, 2022, the new Act No. 111/2022 Coll. on dealing with imminent bankruptcy is entering into effect. This is a completely new legal regulation. It brings new possibilities and at the same time imposes new obligations on entrepreneurs.

The aim of this law is to solve the situation of entrepreneurs who are at risk of bankruptcy. The purpose of the legislation is to resolve the situation in a timely manner so that the entrepreneur can continue his business activity and avoid liquidation bankruptcy.

In the first article in a series of articles on this law, we will focus on tools for dealing with the situation of a company in difficulty, temporary protection and the debtor's obligation to file a bankruptcy petition for insolvency.

• Tools for solving the situation of a company in difficulty

The law envisages the solution of impending bankruptcy with new tools, namely (i) public preventive restructuring and (ii) non-public preventive restructuring. Restructuring according to the Bankruptcy and Restructuring Act remains in place to deal with the actual bankruptcy of the debtor.

The use of public preventive restructuring is the debtor's right and can only be started at the debtor's proposal. Non-public preventive restructuring is basically an agreement between the debtor and the bank, which is in most cases also his biggest creditor.

• Temporary protection

The court will grant protection to the entrepreneur for a maximum period of six months. The benefits of temporary protection are as follows:

1. the debtor is not obliged to file a bankruptcy petition,
2. the debtor's assets cannot be declared bankrupt, restructuring allowed or execution started, except for the execution of tax or customs receivables and receivables from subsidies provided,
3. the initiated bankruptcy & restructuring proceedings are suspended,
4. it is not possible to start enforcement of the right of pledge on property belonging to the debtor and to execute such right,
5. it is not possible to set off a related claim against the debtor's claim,
6. due to the debtor's delay, which occurred before the provision of temporary protection, the contract cannot be terminated, withdrawn from the contract, performance from the contract denied or the content of the contract changed,
7. the debtor is entitled to preferentially fulfill the new obligation before the old obligation and the unrelated obligation before the related obligation.

Temporary protection does not protect the entrepreneur from employee claims.

• Obligation of the debtor to file a bankruptcy petition for insolvency

The obligation of the debtor to file a petition for declaration of bankruptcy due to insolvency is being reinstated in the bankruptcy legislation. ATTENTION: Failure to fulfill this obligation affects the statutory representative of the company personally!

At the same time, the rules for the creditor to initiate bankruptcy proceedings in cases where the bankruptcy of the debtor can be assumed are simplified.