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28 December 2020
newsletter
czech republic

The second Covid-related package changes insolvency law. What will it bring to corporate debtors and their creditors?

The new coronavirus package introduces measures in the field of insolvency law, some of which were already implemented during the spring wave of the pandemic. The so-called Lex Covid II re-introduces a couple of temporary changes to insolvency law, aiming to help businesses overcome the temporary economic difficulties caused by the restrictions that have been put in place to contain the second wave of the pandemic.

This article points out two key changes introduced by the amendment.

The first is the suspension of the debtor's duty to file an insolvency petition without undue delay after discovering the insolvency until 30 June 2021. This measure only relates to those whose insolvency was caused by the pandemic. The idea is to allow businesses to focus on recovery rather than mitigating the negative impact of insolvency proceedings.

The second is the extension of the possibility to use the extraordinary moratorium. This new preventive tool seeks to temporarily protect otherwise competitive companies in times of crisis and to enable them to overcome financial shortfalls. It is also intended to create leeway for the debtor to negotiate with creditors. Debtors may apply for the moratorium until 30 June 2021 and it will last for three months, with the possibility of extension. Unlike regular moratoria, the extraordinary moratorium does not require the preliminary consent of majority creditors or the filing of an insolvency petition.

Lex Covid II restores the possibility of using some instruments of insolvency law in the second wave of the pandemic and thus represents an opportunity to address the resultant economic difficulties. At the same time, however, it is a significant interference with creditors' rights.

author: Natálie Rosová

Natálie
Rosová

Attorney at Law

czech republic