Bankruptcy proceeding is a specific type of civil proceeding in which the creditors claim their receivables against the debtor, which is in insolvency.
According to Act No. 7/2005 Coll. on Bankruptcy and Restructuring and on amendments and supplements to some acts (“BRA”) the debtor is in insolvency, if it is cash-flow insolvent or if it suffers from over-indebtedness. BRA further defines as a cash-flow insolvent a person, which is unable to fulfil 30 days after maturity period at least two monetary obligations to more than one creditor. Over-indebted is an entrepreneur, which has more than one creditor and the value of its debts exceeds the value of its assets, while the method of determination of the value of debts and the value of assets is further specified in BRA. For the bankruptcy proceeding is essential the plurality of creditors, the law requires a minimum number of two creditors. Individual creditor is entitled to recover its receivable by action in court proceeding and in case of its award by enforceable court decision the creditor is entitled to seek fulfilment of its receivable by way of execution. Application for announcement of bankruptcy may submit debtor, creditor, liquidator of the debtor or other person, if provided by BRA. The debtor is obliged to submit application for announcement of bankruptcy within 30 days from the day when he learned or while keeping professional care could have learned of its insolvency.
Bankruptcy proceeding can be divided into the following stages:
- stage from submission of application for announcement of bankruptcy until commencement of the bankruptcy proceeding
- stage from commencement of the bankruptcy proceeding until announcement of bankruptcy
- stage from announcement of bankruptcy until first creditors’ meeting
- stage from first creditors’ meeting until termination of the bankruptcy
Not all bankruptcy proceedings will pass all stages, example is the termination of the bankruptcy proceeding due to lack of property.
The aim of the bankruptcy proceeding is the maximum possible satisfaction of creditors in the shortest time after announcement of bankruptcy on debtor’s property. The result of the bankruptcy proceeding is the monetization of entire debtor’s property and subsequent termination of the debtor in case the monetization of debtor’s property will not be realized in form of sale of the enterprise.