The Dawn of a Preventative Restructuring Process Framework in the Czech Republic

Katerina Grundmanova and Vojtech Mlynar of BADOKH examine a draft bill that aims to establish a legal framework for preventative restructuring, offering a flexible tool for financially distressed companies to avoid bankruptcy and rescue viable businesses.

Published on 17 July 2023
Katerina Grundmanova, BADOKH
Katerina Grundmanova
Vojtech Mlynar, BADOKH
Vojtech Mlynar

The Draft Bill

A draft bill regarding a specific legal framework for preventative restructuring is at an advanced stage in the Czech legislative process and is likely to be enacted within the next few months.

The bill is designed to provide financially distressed companies with a fairly flexible tool to avert impending bankruptcy and rescue their viable businesses. This tool will not be available for companies that are already considered bankrupt because they fail to meet the liquidity test. The proposed legal framework is built on the main principles outlined below.

Consensus and informality

In order for preventative restructuring to succeed, the restructured company will need to achieve the broadest possible agreement with its affected creditors on the restructuring measures set out in the restructuring plan. Consensus is best reached through private negotiations rather than on a platform of court proceedings. However, the draft bill also provides for the possibility of a cross-class cram down in the absence of 100% consensus. Early negotiations with strategic creditors will be the cornerstone for a successful preventative restructuring.


While standard insolvency proceedings are based on the opt-in principle, whereby all registered creditors have a right to participate in the proceedings, a company that undergoes preventative restructuring will be able to choose its partners (creditors) for negotiations. Broad consensus will need to be reached only with these hand-picked creditors, whereas all other creditors will be left out of the process, with their claims either unaffected or subject to a cross-class cram down. Therefore, creditors with high exposure should ensure their interests are protected from the outset of their negotiations with the restructured company.


The whole process of preventative restructuring is controlled by the restructured company and will be subject to only very limited oversight by the restructuring court and restructuring administrator. The broader the consensus between the restructured company and its affected creditors, the less interference from the restructuring court and restructuring administrator. Also, the shareholders of the restructured company need not give up their rights for the restructuring to be successful.


The restructured company will have all civil-law and corporate-law tools for its restructuring at its disposal, ranging from debt restructurings in the form of repayment schedules or conversions of short-term claims into long-term claims (in combination with their transformation into financing obligations), to equity restructuring through new money from existing shareholders, creditors or new investors. Apart from monetary claims, the draft bill currently assumes that the restructuring may also modify non-monetary claims towards the restructured company. This will enable legal and economic advisers to come up with a broad range of creative solutions.


Unlike insolvency proceedings, preventative restructuring will be based on the principle of non-publicity. With certain justified exceptions, the process of preventative restructuring will not be public and the main documents necessary for the completion of the restructuring process, such as the recovery project and the restructuring plan, are shared only among the restructured company and its affected creditors.

"The preventative restructuring framework seeks to motivate companies to act fast to increase the chances of the company’s recovery."


Thanks to the limited interference of the restructuring court and the administrator as well as the non-universality principle, the preventative restructuring may be completed within six months to a year. The preventative restructuring framework seeks to motivate companies to act fast to increase the chances of the company’s recovery.


Great emphasis is placed on the fair and honest intentions of the restructured company throughout the preventative restructuring process. The lack of such intentions will lead to the termination of the restructuring.

Preventative Restructuring

The process of preventative restructuring itself may be divided into four main stages.

First stage

The restructured company prepares a thorough recovery project, which serves as the basis for negotiations with the creditors. The principal aims of the recovery project are to:

  • describe the economic situation of the company;
  • identify the main causes of financial distress of the restructured company;
  • describe preparatory measures taken by the restructured company to enable the restructuring;
  • determine the degree of interference with the affected creditors’ rights; and
  • estimate the timing of the preventative restructuring process.

Second stage

Once the recovery project is complete, the restructured company notifies its affected creditors and invites them to engage in negotiations regarding the restructuring plan. To facilitate the preparation of the restructuring plan, standstill agreements may be concluded. Creditors not affected by the restructuring will be left out of the negotiations. At this stage, the restructured company also notifies the court that the preventative restructuring has commenced.

Third stage

The restructuring plan is finalised. Its binding parts include, in particular:

  • information regarding the affected creditors, their division into classes, and the way in which their claims will be restructured;
  • a detailed description of the restructuring measures such as restructuring of assets, obligations, equity and operational changes, including their timing; and
  • rules for overseeing the fulfillment of the restructuring plan.

The restructured company then presents the executed restructuring plan to the affected creditors for approval. If the restructuring plan is not approved by all classes of affected creditors, it may still be approved by the court (cross-class cram down).

Fourth stage

If approved, the restructured company continues its business operations in accordance with the terms and conditions set forth in the restructuring plan. Once the restructuring plan has been successfully completed (with respect to its main terms), the restructuring court will formally take note of its fulfilment whereupon the preventative restructuring is complete.

Should the preventative restructuring fail and the restructuring plan be cancelled, all benefits granted to the restructured company will cease to be effective and the rights and obligations of the restructured company as well as the affected creditors will revert to their original state prior to the adoption of the restructuring plan.


The draft bill on preventative restructuring aims to implement the Directive on Restructuring and Insolvency (EU) 2019/1023. This article is based on the draft bill dated 18 January 2023, which has not yet been enacted, and whose provisions (and therefore the terms and conditions for preventative restructuring in the Czech Republic) remain subject to further changes during the legislative process.


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