In the past two years, the Czech Republic has undergone the most significant transformation of its insolvency and restructuring framework since 2006. The recent changes fundamentally alter options for businesses, individuals, and creditors on how to navigate financial distress to align with EU requirements, prioritizing preventive solutions as well as practical market needs; in particular, as a reaction to the increasing number of individuals falling into a debt spiral.
The most dramatic change in personal insolvencies came into effect on October 1, 2024, when Amendment 252/2024 to the Czech Insolvency Act shortened the personal bankruptcy debt relief period, reduced debt satisfaction thresholds, and introduced a number of other changes. This represents a philosophical shift toward faster debt relief, aligning Czech insolvency law with general trends favoring debtor rehabilitation.
Previously, Czech law distinguished between (i) a standard five-year debt relief period and (ii) an exceptional three-year period only available under specific conditions. The new framework eliminated these exceptions and created a uniform three-year debt relief period in combination with more flexible minimum debt repayment requirements now set by insolvency courts rather than fixed by law. The changes also added new information duties for debtors.
Significant changes were also introduced regarding corporate distress, particularly the Czech Republic’s adoption of the Preventive Restructuring Act (effective September 23, 2023). Unlike formal insolvency proceedings that are public and often stigmatizing, preventive restructuring prioritizes private negotiation between debtors (entrepreneurs) and their key creditors. The aim is to help entrepreneurs preserve their business and avoid insolvency without harming their business relationships and reputation.
To access preventive restructuring, entrepreneurs must demonstrate a good-faith belief in their ability to revive their business upon implementing the agreed restructuring measures. On the other hand, preventive restructuring is not available to entrepreneurs who are already insolvent, which underlines the preventive nature of this process.
While the legislation offers new options for dealing with financial distress, challenges persist, in particular in the tax treatment of certain preventive restructuring measures. Unlike formal insolvency proceedings, debt relief in preventive restructuring could result in taxable income for debtors. The logic behind this tax treatment was to ensure that the institution of preventive restructuring is not abused. However, it also creates a significant tax obstacle that may undermine the future use of preventive restructuring tools in practice.
In addition, the anticipated public restructuring registry remains non-functional, requiring practitioners to search individual court records for case information.
Market data suggests the aforementioned legislative changes address real needs in the Czech economy and have already affected the number of insolvency proceedings. The recent statistics published by InsolCentrum, a company analyzing insolvency data in the Czech Republic, show significant growth across all types of insolvency proceedings.
During the first quarter of 2025, insolvency filings in general jumped up by 11.85% year on year, while the number of individuals receiving debt relief increased by 11.6% to 12,049. However, experts had expected a massive influx into the new three-year debt relief proceedings, and the actual increase has been more moderate than anticipated. Corporate bankruptcies also rose to 368 cases, representing an 11.85% increase compared with the first quarter of 2024.
Sector analysis further reveals that retail, manufacturing, and construction faced the greatest pressure, while the education, healthcare, and personal services sectors remained relatively stable.
These patterns reflect not only the above-described legislative changes, but also broader economic challenges such as corporate lending growth and increased default rates on existing loans.
Looking forward, the success of the recent reforms will depend not only on the quality of the relevant legislation, but also on the cultural acceptance of the new rules. The shortened personal debt relief periods create a more socially conscious approach to cases where individuals come into financial distress. While supporters argue that faster economic reintegration of debtors benefits society overall, critics worry that easier debt relief might encourage a “moral hazard.”
The preventive restructuring framework similarly attempts to balance the needs of debtors with creditor protection through a flexible and less formal process with limited court oversight. However, the efficient use of preventive restructuring anticipates proactive management and early intervention, and Czech businesses are traditionally very passive when facing financial difficulties. The reluctance to adopt early restructuring measures then often leads to situations where insolvency becomes inevitable. A significant shift in general business culture will therefore be required to fully benefit from the new legal framework.
By Jan Varecha, Associate Partner, PRK Partners
This article was originally published in Issue 12.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
