Insolvency – what it is and what the options are

Insolvency is a situation where a person or company does not have sufficient funds to meet its obligations towards creditors and is therefore unable to satisfy their demands. There are two types of insolvency: bankruptcy (úpadek) and winding-up (zkrachování). In the case of bankruptcy, the outstanding claims are distributed among the creditors in order of priority, whereas in the case of winding-up the insolvent person or company is removed from the Commercial Register (obchodní rejstřík) and all its obligations are cancelled.

Duration of insolvency

The duration of insolvency can vary depending on the situation and the type of insolvency. Generally speaking, bankruptcy proceedings last between 6 and 12 months, whereas a winding-up lasts between 12 and 18 months.

Conditions under which insolvency can be terminated

Insolvency can be terminated if the following conditions are met:

1. Agreement with creditors – the insolvent person or company must reach an agreement with the creditors and draw up a plan to meet the obligations.
2. Meeting the obligations – the insolvent person or company must meet its obligations according to the agreed plan.
3. Court approval – once all obligations have been met, the insolvency must be approved by the court.

Insolvency does not necessarily mean the end for a person or company. If steps to resolve it are taken in time, it can be approved and the person or company can continue in business.