Of interest.

What is the new draft law on preventive restructuring supposed to bring?

At the end of July 2021, the Ministry of Justice submitted for comments a draft of a completely new Act on Preventive Restructuring (the “Act“) to transpose the European Directive on Restructuring and Insolvency[1] (the “Directive“) into Czech law.


The comment procedure on the draft Act was closed on 27 August 2021, and it is expected that the Act could enter into force in the middle of this year.

The purpose of the Act is to create a legal framework regulating the intermediate stage when a company is not yet bankrupt but an agreement with all creditors is no longer possible for various reasons. Currently, entrepreneurs have the possibility to agree with their creditors informally, but only in the level of contract law, without the support of a specific institute and possible court intervention.

Nature and conditions of preventive restructuring

The measures regulating preventive restructuring will, according to the draft Act, apply only to legal entities, as it is assumed that natural persons would not be able to bear the costs that preventive restructuring will entail. At the same time, it is considered that it is more advantageous for natural persons to use the option of individual negotiations with key creditors or to apply the institution of debt restructuring, which can also be used for natural persons in business.

The basic condition for entering into preventive restructuring will be the entrepreneur’s good faith in the feasibility of the proposed restructuring plan as such. The good faith requirement should exclude from the preventive reorganisation regime cases where it is clear from the outset that the restructuring proposals of the entrepreneur are clearly unrealistic.

Furthermore, preventive restructuring is intended only for those entrepreneurs who are not insolvent in the form of bankruptcy.

At the same time, preventive restructuring should not serve entrepreneurs who have postponed the resolution of the problem over time and therefore cannot be expected to pay their liabilities as they fall due.

Preventive restructuring will also not be available to entrepreneurs: (i) who would pursue a dishonest intention through it, (ii) who are in liquidation, (iii) who have been found bankrupt by a final court decision in insolvency proceedings in the last 5 years, or (iv) whose preventive restructuring has ended in the last 5 years due to dishonest intention.

Basic principles of preventive restructuring and restructuring plan

The basic principles of preventive restructuring under the draft Act will include various measures, such as changing the structure of assets by selling part of the assets (asset restructuring), changing the structure of debts (debt restructuring), changing the structure of equity (equity restructuring), or necessary operational changes. These measures are subsequently defined in the restructuring plan, which is the result of the company’s negotiations with its creditors.

As such, the restructuring plan will be a key document in the process of preventive restructuring. A restructuring advisor, to whom the Act does not impose any special requirements, will assist the entrepreneur in drawing up the restructuring plan. This should typically be a crisis manager.

The restructuring plan will then be approved, subject to the consent of the affected creditors, who will be divided into voting groups in the plan. Any creditor´s opposition may be replaced by the court in the restructuring proceedings.

If the restructuring reaches the stage of court proceedings, the court shall appoint a professional and impartial restructuring administrator. This may only be an insolvency practitioner with a special authorisation. The creditors give their consent to the restructuring plan.

If all creditors agree to the restructuring plan, it will not even need to be approved by the court. If not, then the restructuring plan will need to be submitted to the court for confirmation. At the same time, the restructuring plan will have to be submitted to the court for confirmation if the restructuring plan: (i) reduces creditors’ claims or postpones their maturity and the affected creditors do not agree with the plan, (ii) envisages the provision of new financing, (iii) proposes the dismissal of more than 25 % of the employees.

Creditor protection and financing of preventive restructuring

At the same time, the negotiation of the restructuring plan and the subsequent successful implementation of the preventive restructuring are intended to facilitate rules that will allow the company to be protected from creditors. The draft Act preserves the so-called debtor’s disposition rights. This means that the management of the company concerned will continue to be able to dispose of the company’s assets and decide on matters related to day-to-day operations.

The draft Act also allows for the suspension of the enforcement of individual creditor claims, either in a limited form applicable to individual creditors or a certain category of creditors, or in a general form, i.e., applicable to all creditors of the company (a similar form of protection is currently offered by the moratorium under the Insolvency Act). Protection from creditors in this form will be approved by the court. The provision of creditor protection will also result in the postponement of the obligation to file an insolvency petition for the duration of the measure.

The proposal foresees a maximum duration of the general moratorium of three months, with the possibility of a subsequent extension for a further three months.


If the Directive is transposed in time and the rules are set appropriately, then preventive restructuring can become an effective tool for otherwise functioning companies to avoid bankruptcy and overcome a temporary crisis. We continue to monitor the process of transposition of the Directive and will keep you informed of the details of the Act in subsequent articles.

If you have any questions regarding this issue, please do not hesitate to contact us.


Mgr. Nikol Čišecká, junior lawyer – cisecka@plegal.cz

Mgr. Martin Heinzel, attorney-at-law – heinzel@plegal.cz




08. 02. 2022


[1] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, insolvency and bans and measures to improve the effectiveness of restructuring, insolvency and resolution procedures and amending Directive (EU) 2017/1132 (the Restructuring and Insolvency Directive).