Financial difficulties - Czech Republic

Updated 10/2010

Legal requirements

Measures on the avoidance of bankruptcy are set out in a number regulations covering corporate and accounting law. These mainly involve obligations arising from the Act on Insolvency, the Commercial Code, the Act on Accounting and others.

Commercial Code
Act on Accounting
Act on Insolvency

Stabilising a business

A company may encounter financial difficulties for a number of reasons. Bad management, failed business plan, lack of finance and the economic crisis are among the most frequent. It is important to develop an effective risk policy in order to prevent financial difficulties.

Protection against risk means:
defining risk boundaries - limits - best and worst situations,
dividing risk,
diversification of risk (e.g. have more suppliers),
transferring risk to other entities (e.g. insurance),
creating reserves.

An ability to identify and manage risk at an early stage is an integral component of strategic management for businesses. The principles of risk management are as follows:

risk analysis,
selection of counter-measures,
cost-benefit analysis,
implementation of counter-measures and
verification of counter-measures.

Effective risk management can be achieved only if there is a clearly defined business strategy, a functioning and comprehensive risk management process supported by an appropriate information system, sufficient emphasis placed by managers on risk management with clear lines of responsibility for managing risk and an internal culture and capacity in respect of developing and adapting to the challenges of new risks.

Risk and uncertainty in strategic decision-making
Effectiveness of risk management systems
Risk management

Reorganisation

This is a method of handling bankruptcy that consists of satisfying the claims of creditors while at the same time saving the business of the debtor. Reorganisation is a form of bankruptcy resolution that involves rescue (or recovery).

Reorganisation is allowed:

only for entrepreneurs, and only where the debtor has achieved a turnover of CZK 100 million in the previous accounting period, or employs at least 100 people.
If this is not the case reorganisation will be allowed only if the debtor submits to the court, together with the insolvency proposal, a reorganisation plan, which has been approved by at least half of the creditors.
The reorganisation plan is usually produced by the debtor but it can be produced by a third party. It is a plan that will lead to the restructuring of the debtor's business. The adoption of the reorganisation plan is voted on at a meeting of creditors.

Further details are available at:

Reorganisation

Access to different sources of finance can help overcome financial difficulties.

Access to finance — Czech Republic

When filing for bankruptcy is the only option left for a business owner, it pays to cut your losses, initiate proceedings sooner rather than later, and move on to a new project.