In July this year, the long-awaited major amendment to the Insolvency Act was approved. The final version of the law will come into force on 01.10.2024.

The draft law ensures, among other things, compliance with European Union regulations, in particular Directive (EU) 2019/1023 of 20 June 2019 on preventive restructuring frameworks, insolvency and bans on activities and measures to increase the effectiveness of restructuring, insolvency and reorganisation procedures and amending Directive (EU) 2017/1132 (the Restructuring and Insolvency Directive).

First of all, it should be pointed out that the changes to the Insolvency Act concern mainly the debt settlement of natural persons. The legal regulation of bankruptcy and reorganisation of legal entities remains almost untouched.

In many respects, the amendment to the Insolvency Act brings a more favourable position for debtors. A fundamental change in the amended Insolvency Act is the reduction of the period of debt settlement for all natural persons to three years.

Another novelty introduced by the amendment is the abolition of the presumption that the debtor has not breached its obligation to use all efforts that could be fairly required to satisfy the claims of its creditors in full when paying at least 30% of the claims filed. That threshold is replaced by an individual rate determined by the insolvency court, always taking into account the income potential of the individual debtor.

On the other hand, the amendment to the Insolvency Act brings tightening for debtors in some respects. The insolvency court will now be able to decide on a 12-month extension of the repayment period due to a breach of material obligations on the part of the debtor. In cases of special consideration, it will then be able to extend this period by a further 6 months (i.e. up to 18 months in total). The debtor’s creditors will also be able to file a motion to extend the course of the arrangement or to cancel the approved arrangement – they will be able to file such a motion within two months from the date of publication of the insolvency administrator’s report on the implementation of the arrangement, after every 12 months of the implementation of the approved arrangement, as well as within two months after the publication of the insolvency administrator’s final report. At the same time, the insolvency court will have the possibility to examine and withdraw the debtor’s exemption, up to 3 years after its final granting.

The amendment to the Insolvency Act also introduces new obligations for insolvency administrators, including the obligation to examine in detail the debtor’s capabilities, capacities and assets Thus,

the insolvency administrator will be obliged not only to examine the debtor’s income, but in particular the income that the debtor could earn taking into account the debtor’s capabilities and capacities.

Another of the adopted proposals is also an extension of the grounds for the cancellation of the approved debt relief, for example, if the debtor is unable to repay his/her debts for more than 3 months, not only due to circumstances caused by the debtor himself/herself, but also due to the failure of a third party to provide performance (i.e. a standard gift agreement) or due to an increase in the basic amount that may not be deducted from the debtor’s monthly salary during enforcement. The purpose of extending these grounds is, in particular, to try to influence the debtor to fulfil all his obligations honestly and properly, not only to the lowest possible extent, but actually to the extent that his possibilities and abilities allow.

The period in which it is not possible to re-enter debt relief procedures has also been extended from 10 to 12 years. In the case of reinsolvency after 12 to 20 years after the debtor’s successful insolvency, the duration of the next repayment period will be 5 years.

Simultaneously with the amendment to the Insolvency Act, there is also a related amendment to the Civil Procedure Code, according to which the amount of deductions is changed for persons with multiple executions (4 or more executions), as it will now be possible to deduct up to two thirds of the net remaining wages for these persons, the same as in insolvency proceedings. The aim of this change is to motivate debtors with many foreclosures to resolve their financial situation by filing an insolvency petition.

However, only practice will show what impact the changes to the Insolvency Act will have on the insolvency proceedings themselves and the quota that will be paid to creditors during the course of the personal insolvency. If you have any questions not only on this topic, we are here for you.