Closing a Company with Debts: When Insolvency Becomes the Only Option

Discovering that your company cannot meet its financial obligations triggers strict legal duties under Czech law. For directors of an s.r.o. or a.s., understanding insolvency is an immediate necessity affecting personal liability. This article explains when insolvency becomes unavoidable, what obligations the law imposes on management, and how professional legal support protects you throughout this complex process.

When Does a Company with Debts Cross the Line into Insolvency?

Many entrepreneurs mistakenly believe that temporary cash flow difficulties do not constitute insolvency. Czech law establishes precise criteria under the Insolvency Act that determine when a company becomes legally insolvent. Understanding these tests is critical because once these conditions are met, the clock starts ticking on your personal obligation to act.

The liquidity test applies when your company has multiple creditors, monetary obligations overdue for more than 30 days, and is unable to meet them. Czech law presumes inability to pay if a company has suspended payments or has not paid debts for at least three months.

The over-indebtedness test applies specifically to legal entities and entrepreneurs when the company's liabilities exceed the value of its assets. These are not subjective assessments but objective legal standards that require immediate attention from the statutory body.

The statutory body cannot simply hope that next month's revenue will resolve the situation. Once these conditions are met, Czech law imposes immediate and non-negotiable obligations on company management. ARROWS regularly advises international clients on precisely when these thresholds are crossed.

The practical reality for many companies is that financial distress develops gradually. Management often delays confronting insolvency until the situation becomes irreversible. This delay is precisely what Czech law seeks to prevent through strict director liability rules.

Our lawyers combine in-depth knowledge of the Czech legal environment with experience in international cases. We understand the differences between Czech law and other jurisdictions. For an immediate assessment of your situation, contact us at office@arws.cz.

What Legal Obligations Do Directors Face When Insolvency Occurs?

The statutory obligation to file an insolvency petition is absolute and immediate. Under Czech law, directors must file an insolvency petition "without undue delay" after they learn of the company's insolvency, or should have learned of it had they exercised due managerial care.

Legal practice interprets "without undue delay" as immediately—not within weeks or months. This obligation exists regardless of whether directors believe they can negotiate with creditors, secure emergency financing, or restructure operations.

The law does not grant management discretion to attempt rescue efforts once the company crosses the insolvency threshold. The insolvency petition must be filed with the competent regional insolvency court, which will then assess the situation and determine the resolution method.

Failure to file the petition exposes directors to multiple forms of severe liability. Directors become personally liable to creditors for all damage caused by the delayed filing, calculated as the difference between the timely and delayed recovery amounts.

Directors can only be absolved from this liability if they prove that their breach had no impact on the amount available to satisfy creditors' claims—a virtually impossible standard to meet in practice.

Beyond civil liability, directors face potential criminal prosecution for insolvency-related offences, which can result in imprisonment for up to eight years. The court may also disqualify directors from management positions for up to three years.

Additionally, any benefits that directors received from the company during the two years preceding insolvency may be clawed back and returned to the insolvency estate. This further emphasizes the personal financial risk of delaying the filing.

ARROWS Law Firm provides legal representation to statutory bodies facing potential liability claims, defending directors in insolvency-related disputes. Our lawyers have extensive experience representing management in complex liability proceedings.

We advise on protective measures that can be taken when financial distress first becomes apparent and help demonstrate compliance with due care obligations. Contact us at office@arws.cz to discuss protective strategies before liability crystallizes.

microFAQ – Legal Tips on Director Obligations During Financial Distress

1. How quickly must I file an insolvency petition once I realize the company cannot pay its debts?

Immediately. Czech law requires filing "without undue delay," which courts interpret as requiring action within days, not weeks. Any delay increases your personal liability risk.

2. Can I try to negotiate with creditors first before filing for insolvency?

Once your company meets the legal definition of insolvency, you have no discretion to delay filing the petition while attempting negotiations. Pre-insolvency restructuring tools exist for companies that are distressed but not yet insolvent.

3. What happens if I resign as director when the company is in financial trouble?

Resignation does not eliminate liability for breaches that occurred during your tenure. Former directors can still be held liable for failure to file an insolvency petition during the period they served.

Why Voluntary Liquidation is Not an Option for Insolvent Companies

A common and dangerous misconception among foreign entrepreneurs is that voluntary liquidation (likvidace) can be used to close a company with debts. This confusion arises because voluntary liquidation is the standard procedure for closing solvent companies.

It appears simpler and less stigmatizing than insolvency proceedings. Voluntary liquidation is governed by the Czech Civil Code and the Business Corporations Act, not the Insolvency Act. It is a non-judicial process managed by a liquidator.

The liquidator winds up the company's affairs, settles all obligations, and distributes remaining assets to shareholders. The process typically takes four to six months for a straightforward solvent liquidation and involves notifying all known creditors.

The critical legal trap is that voluntary liquidation is only lawful for solvent companies that can pay all creditors in full. If a liquidator discovers insolvency during the process, they have a mandatory duty to immediately file an insolvency petition.

Failure to do so makes the liquidator personally liable for the company's debts. This creates severe risk for directors who start a liquidation knowing the company is insolvent, as they face the same liability consequences.

Individuals who accept appointment as liquidator without conducting proper due diligence expose themselves to personal liability if debts emerge later. Foreign owners often appoint an unqualified director or employee as liquidator to save costs.

Unlike some jurisdictions, Czech law allows any natural person to serve as liquidator. This flexibility creates personal risk for anyone who accepts the role without understanding that insolvency discovered during liquidation triggers immediate formal filing obligations.

ARROWS Law Firm provides legal representation to appointed liquidators throughout the entire process. This representation protects the liquidator from personal liability while ensuring creditors are treated correctly and all legal requirements are met.

Our lawyers handle hundreds of liquidations annually and can identify hidden liabilities that unqualified liquidators miss. Contact us at office@arws.cz for professional legal support throughout the liquidation process.

Risks and sanctions	How ARROWS helps (office@arws.cz)
Personal liability of liquidator for company debts: If the liquidator discovers insolvency during liquidation but fails to file an insolvency petition immediately, they become personally liable for the difference between what creditors could have received and what they actually receive.	Legal representation of the liquidator: ARROWS lawyers conduct immediate financial due diligence when appointed, monitor solvency throughout the process, and file insolvency petitions without delay if insolvency is discovered, protecting the liquidator from personal liability.
Director liability for knowingly starting inappropriate procedure: Directors who initiate voluntary liquidation knowing the company is insolvent breach their duty of care and face personal liability to creditors for damages, plus potential criminal prosecution.	Pre-liquidation solvency assessment: ARROWS provides expert legal opinions on whether voluntary liquidation is appropriate or whether insolvency proceedings must be filed, protecting directors from liability for choosing the wrong procedure.
Preferential treatment of creditors: Paying some creditors in full while leaving others unpaid during liquidation violates the equal treatment principle and can result in criminal liability for the liquidator and directors.	Creditor management and compliance: ARROWS ensures all creditors are notified properly, claims are registered correctly, and distributions follow the statutory priority order, preventing illegal preferential treatment.

What Are the Two Methods of Resolving Insolvency Under Czech Law?

Once insolvency proceedings are opened by the court, Czech law provides two fundamentally different resolution methods: bankruptcy and reorganization. Understanding which method applies to your company depends on specific eligibility criteria and creditor decisions.

Bankruptcy and reorganization methods

Bankruptcy (konkurs) is a liquidation procedure in which the company's business operations cease and an insolvency administrator is appointed by the court. The administrator takes control of the insolvency estate, and all assets are monetized through sale. The proceeds are distributed to creditors according to a strict statutory priority order.

First, claims against the insolvency estate itself are paid, including the administrator's fees and employee claims. Second, secured creditors are satisfied from the proceeds of selling specific assets. Third, unsecured creditors receive a pro-rata distribution of remaining funds. In practice, unsecured creditors often recover a small percentage or nothing at all.

Bankruptcy proceedings typically take one to two years or longer to complete, depending on the complexity of the estate and the number of creditors. At the conclusion, the company is dissolved and removed from the Commercial Register. Any unsatisfied debts theoretically continue to exist and can be enforced if assets are later discovered.

Reorganization (reorganizace) is a rehabilitation procedure that allows the company to continue operating under court supervision while implementing a restructuring plan. Reorganization is available only to companies that meet specific turnover or employee criteria. Alternatively, companies can access it regardless of size if a majority of creditors approve a submitted plan.

The reorganization plan is a comprehensive document that specifies how the company will restructure its debts and operations. Typical measures include deferring debt maturity, forgiving debts, or securing external financing. The debtor has the right to propose the plan within 120 days of the court's authorization, which can be extended.

Creditors are divided into classes with similar economic interests and vote on the plan. The insolvency court can approve the plan even if not all classes vote in favor, provided fairness requirements are met. The choice between bankruptcy and reorganization is made through a collaborative process between the debtor, the creditors, and the court.

ARROWS Law Firm has extensive experience representing both debtors and creditors in reorganization proceedings. For viable businesses, our lawyers prepare reorganization plans, negotiate with creditor classes, and secure court approval. We handle complex restructurings daily and understand the negotiation strategies that lead to successful outcomes.

For creditors, we register claims, represent clients in creditor bodies, and ensure the reorganization plan adequately protects our clients' interests. Our Prague-based team provides expert legal guidance to navigate these procedural requirements. Contact us at office@arws.cz to discuss whether reorganization is viable for your situation.

The court makes the final determination within three months of the insolvency declaration, considering creditor preferences and the reorganization plan. It assesses whether reorganization would result in better creditor satisfaction than bankruptcy. Professional legal representation is crucial during this phase to ensure that the most favorable resolution method is chosen.

microFAQ – Legal Tips on Bankruptcy vs. Reorganization

1. Can my small company with only 10 employees access reorganization?

Yes, if at least half of your secured creditors and half of your unsecured creditors (by claim value) approve a restructuring plan that you submit with the insolvency petition. The size thresholds (CZK 50 million revenue or 50 employees) can be bypassed through creditor approval.

2. What happens to my employees during bankruptcy proceedings?

Employee employment contracts are typically terminated, but employee claims (including severance pay) are treated as priority claims against the insolvency estate and are paid before unsecured creditors.

3. How long does reorganization take compared to bankruptcy?

Reorganization typically takes several years to implement the full restructuring plan, while bankruptcy proceedings usually conclude within one to two years. However, reorganization allows the business to continue operating and potentially preserve more value.

Is There an Alternative to Formal Insolvency for Financially Distressed Companies?

Czech law recently introduced a new tool for companies in serious financial difficulty that have not yet crossed the threshold into legal insolvency. The Act on Preventive Restructuring (Act No. 284/2023 Coll.) entered into force on September 23, 2023. It implements EU Directive 2019/1023 and provides a pre-insolvency framework for viable businesses facing temporary distress.

Preventive restructuring is available to corporate debtors facing "sufficiently serious" financial difficulties where bankruptcy could reasonably be expected. The law presumes this if revenues failed to cover debts due in the previous year. However, it is explicitly not available to companies already insolvent under the cash-flow test. The company must also act in good faith.

The preventive restructuring process is voluntary, flexible, and critically—confidential. Unlike formal insolvency proceedings, which are fully public, preventive restructuring allows the debtor to negotiate behind closed doors with selected creditors. Neither the remediation project nor the detailed restructuring plan is published, minimizing reputational damage that could otherwise be fatal to a viable business.

The key advantage of preventive restructuring is that it allows binding restructuring plans without requiring unanimous creditor consent. Under the new Act, creditors can approve the plan without court intervention if it receives support from a three-quarters majority. If consensus cannot be reached, courts can approve the plan through a "cross-class cram-down" mechanism that binds dissenting creditors.

The debtor can also request an individual or general enforcement moratorium from the court. This temporarily prevents creditors from enforcing claims while the restructuring plan is negotiated and implemented. This breathing space is critical for preventing the deterioration of the company's financial situation while restructuring negotiations are ongoing.

ARROWS Law Firm advises clients throughout the preventive restructuring process, from initial viability assessment to court approval. Our lawyers regularly handle cases with an international element and understand how to structure cross-border restructurings that satisfy various jurisdictions. This sophisticated process requires detailed financial analysis and precise legal drafting to ensure enforceability.

Contact us at office@arws.cz to assess whether your company qualifies for preventive restructuring and to begin developing a plan. It is critical to understand that this is a tool for early intervention. By the time your company meets the legal definition of insolvency, it is too late—formal insolvency proceedings then become mandatory.

Management must monitor financial indicators continuously and seek professional advice at the first signs of serious difficulty. Waiting until actual insolvency occurs eliminates the option of confidential restructuring and forces the company into the public register. Early action preserves the greatest amount of business value and management control.

Risks and sanctions	How ARROWS helps (office@arws.cz)
Missing the window for preventive restructuring: Companies that delay seeking advice until they are already insolvent lose the opportunity to use confidential preventive restructuring and must enter formal public insolvency proceedings, causing reputational damage and reducing business value.	Early financial distress assessment: ARROWS conducts immediate viability assessments when financial difficulties first emerge, identifying whether the company qualifies for preventive restructuring or whether formal insolvency is already required, maximizing options available to management.
Continuing insolvency proceedings during preventive restructuring: If the company's financial situation deteriorates to cash-flow insolvency during preventive restructuring negotiations, management becomes obligated to immediately file for insolvency, terminating the preventive process and exposing directors to personal liability for delay.	Continuous solvency monitoring: ARROWS lawyers monitor the company's financial position throughout preventive restructuring negotiations and immediately advise when the insolvency threshold is crossed, ensuring compliance with filing obligations and protecting directors from liability.
Rejection of plan by creditor classes: Without professional structuring, creditor class definitions and plan terms may fail to secure the required three-quarters majority approval, wasting months of negotiations and forcing the company into insolvency.	Creditor class structuring and plan negotiation: ARROWS designs creditor class structures that group economically similar creditors appropriately, negotiates directly with key creditors to secure commitments before formal voting, and drafts plan terms that maximize approval likelihood while protecting debtor viability.

What Practical Risks Do Directors Face for Late Filing?

The theoretical legal obligations described earlier translate into severe practical consequences that foreign executives often underestimate. Czech registry courts now actively pursue dormant and financially distressed companies, imposing fines up to CZK 500,000 and ordering compulsory liquidation. The more serious risks are the personal financial liabilities that crystallize when directors delay filing insolvency petitions.

Director liability for late filing is calculated as the difference between what creditors would have received in a timely insolvency proceeding and what they actually receive after the delayed filing. In practice, every month of delay typically results in additional creditor claims, such as late payment interest, contractual penalties, and ongoing operational debts.

The result is that the insolvency estate available to satisfy creditors shrinks substantially, and directors become personally liable for this deterioration. Consider a company becoming insolvent in January with CZK 5 million in assets. If a director delays filing until June while assets shrink and debts grow, they become personally liable for the difference in creditor recovery.

Beyond civil monetary liability, directors face criminal prosecution for several insolvency-related offences under Czech criminal law, including damaging creditors or preferential treatment. Conviction can result in imprisonment for up to eight years. Criminal liability is not theoretical; Czech prosecutors actively pursue cases where directors delayed filing while extracting company benefits.

The insolvency administrator or creditors can petition the court to require directors to pay into the insolvency estate an amount up to the company's total debt shortfall. Directors also face disqualification from serving in management positions in any company for up to three years. This sanction can be professionally devastating for executives operating within the European market.

Foreign directors sometimes believe that residing outside the Czech Republic provides protection, but Czech court judgments for insolvency-related breaches are enforceable throughout the EU. Mutual recognition frameworks ensure that directors residing in other member states remain subject to enforcement. Immediate legal intervention is the only reliable way to mitigate these cross-border risks.

ARROWS Law Firm provides legal representation to directors and statutory bodies facing liability claims arising from insolvency proceedings. Our lawyers defend against claims by insolvency administrators and creditors, challenge damage calculations, and assert available defenses. We advise directors proactively when financial difficulties emerge to document compliance with due care.

ARROWS is insured for damages up to CZK 400,000,000, providing additional security for clients in high-stakes matters. We take protective steps that reduce liability risk and ensure all management actions are legally defensible if insolvency occurs. Contact us at office@arws.cz for immediate advice on protecting yourself and your assets from personal liability.

How Do Insolvency Proceedings Actually Work in Practice?

Understanding the procedural steps of insolvency helps management and creditors know what to expect once a petition is filed. Insolvency proceedings in the Czech Republic follow a structured timeline governed by the Insolvency Act, though the actual duration varies significantly based on case complexity. These steps are critical for maintaining the legality of all corporate actions during financial distress.

Initiation of insolvency and court filing

The proceedings begin when an insolvency petition is filed with the competent regional insolvency court. This can be done by the debtor, as required by law, or by a creditor claiming the debtor is insolvent. The court must publish a notice in the insolvency register within two hours of receipt, alerting all potential creditors that the process has officially commenced.

Before deciding on the petition, the court may order a deposit to cover proceeding costs. This requirement exists because estates frequently lack sufficient assets to cover administrator fees. If the estate proves sufficient, the deposit is returned; otherwise, it is used for costs. Multiple petitioners are jointly and severally liable for this advance payment.

The court assesses the debtor's financial condition to determine if insolvency exists. If confirmed, the court issues a decision declaring insolvency and appoints an administrator from a licensed list. This decision sets the deadline for creditor claim registration and the date for the review meeting, which must occur within two months after the registration deadline.

Creditor claims and resolution methods

Creditors must register their claims within the specified deadline to participate in the proceedings. Failure to register typically results in complete exclusion from recovery. The process requires detailed documentation of the claim’s legal basis. The insolvency administrator and other creditors have the right to contest any claims they believe are invalid or overstated.

Czech law imposes severe penalties on creditors who submit overstated claims. If a claim is verified at less than 50% of the submitted amount, the entire claim may be disregarded. Additionally, the court can impose financial penalties equal to the difference between the submitted and verified amounts, a rule applied even in cases involving hundreds of millions of crowns.

A creditors' meeting takes place within three months of the insolvency declaration. Here, creditors discuss and vote on the resolution method—either bankruptcy or reorganization—and elect a committee to oversee the administrator. The court makes the final determination on the method, considering creditor preferences and the feasibility of a potential business rescue.

Differences between bankruptcy and reorganization

If bankruptcy is chosen, the administrator monetizes the estate through sales, auctions, or tenders. They prepare a final report and distribution schedule for court approval. Funds are distributed according to statutory priority, starting with administrative fees and employee claims, followed by secured creditors, and finally unsecured creditors who often receive minimal amounts.

Reorganization is a more complex rehabilitation procedure allowing the company to continue operations under court supervision. The debtor or administrator prepares a restructuring plan, which creditors vote on by class. If successfully implemented over several years, remaining debts are discharged. However, failure to implement the plan can result in the court converting the case to bankruptcy.

ARROWS Law Firm provides comprehensive legal services throughout all phases of insolvency proceedings for both debtors and creditors. For debtors, we draft petitions, communicate with administrators, and prepare reorganization plans. For creditors, we register claims, contest improper filings, and represent clients in creditor committees to maximize their recovery.

Our lawyers handle hundreds of cases annually and understand the procedural nuances that affect outcomes. We are regular partners for corporate in-house lawyers handling specialized insolvency matters. Contact us at office@arws.cz for representation in any phase of the process to ensure your rights and assets are professionally protected.

Risks and sanctions	How ARROWS helps (office@arws.cz)
Missed claim registration deadline: Creditors who fail to register claims by the court-imposed deadline lose the right to participate in the insolvency proceedings and typically cannot recover any portion of their debt.	Claim registration and monitoring: ARROWS monitors insolvency register notifications for clients, registers claims with complete documentation by deadlines, and contests improper claims filed by other parties to protect our clients' recovery percentage.
Court rejection of insolvency petition: If the debtor's insolvency petition is improperly prepared or lacks required evidence, the court may reject it, exposing directors to liability for further delay while the petition is corrected and re-filed.	Expert petition drafting: ARROWS prepares technically compliant insolvency petitions with complete supporting documentation, financial statements, and legal analysis, ensuring court acceptance on first submission and eliminating delay.
Insolvency administrator challenging prior transactions: The administrator can seek to void or declare ineffective transactions made before insolvency (typically within several years prior), requiring recipients to return funds or property to the estate, creating unexpected liabilities for business partners and related parties.	Transaction review and defense: ARROWS reviews contemplated transactions during financial distress for insolvency risk, structures transactions to minimize voidability risk, and defends recipients when administrators challenge transactions, protecting transaction value.

What Role Does International Experience Play in Czech Insolvency Cases?

ARROWS Law Firm is a leading Czech law firm based in Prague, European Union, which has long represented foreign clients operating in the Czech Republic. Our lawyers combine in-depth knowledge of the Czech legal environment with experience in international cases. We understand the differences between Czech law and foreign legal systems, which is vital for matters involving foreign ownership or cross-border assets.

International experience in Czech insolvency

Many companies we represent are subsidiaries of multinational corporations or have significant business relationships spanning multiple EU member states. These cross-border elements create complexity because insolvency may involve parallel proceedings in other jurisdictions or claims governed by foreign law. ARROWS handles these international cases daily thanks to our specialized network built up over ten years.

This network allows us to coordinate with counsel in other jurisdictions, ensuring that insolvency strategies are aligned across borders. We ensure that Czech proceedings are properly integrated with parallel proceedings elsewhere to protect the company's global interests. This coordination is essential for maintaining operational stability and maximizing the efficiency of the restructuring or liquidation process.

The EU Insolvency Regulation establishes rules for coordinating proceedings across member states based on the debtor's "centre of main interests" (COMI). For Czech companies, COMI is typically the registered office in the Czech Republic, giving local courts main jurisdiction. However, secondary proceedings can be opened where the debtor has other establishments, requiring expert management.

ARROWS lawyers have practical experience managing these complex cross-border proceedings and ensuring our clients' interests are protected in all relevant jurisdictions. Foreign executives often find Czech insolvency unfamiliar because rules and administrator powers differ from Anglo-American frameworks. We provide clear explanations in English to help foreign clients understand their specific rights.

We handle all communications with Czech courts and administrators in the local language while keeping international clients informed in English. This bilingual capability, combined with our Prague location, makes us the natural choice for international investors. We bridge the gap between local procedural requirements and the expectations of global management teams.

Our portfolio includes over 150 joint-stock companies and 250 limited liability companies, reflecting the trust placed in our firm. We pride ourselves on speed and quality, which is crucial in insolvency matters where timing affects liability. If you are seeking a business partner or acquisition opportunities in distressed businesses, we can connect you with relevant opportunities.

Contact ARROWS Law Firm at office@arws.cz to discuss your international insolvency matter with experienced lawyers. We understand both Czech law and cross-border business realities, providing the strategic guidance needed for complex international cases. Our team is ready to help you navigate the legal challenges of closing or restructuring a company with an international footprint.

Executive Summary for Management

Directors of Czech companies must file an insolvency petition immediately upon learning the company is insolvent (multiple creditors, debts 30+ days overdue, unable to pay); delay creates personal liability for directors measurable in millions of crowns, potential criminal prosecution up to 8 years imprisonment, and disqualification from management for up to 3 years.

Voluntary liquidation is only lawful for solvent companies; attempting liquidation when the company is insolvent triggers mandatory conversion to insolvency proceedings and exposes both directors and liquidators to severe personal liability for the company's debts—professional legal representation throughout liquidation protects against this risk.

Insolvency proceedings are complex, time-intensive (1-2+ years for bankruptcy), and require specialized expertise in claim registration, creditor negotiations, reorganization plan drafting, and defense against transaction challenges; attempting self-management wastes management time, increases costs, and risks procedural errors that reduce creditor recovery or increase director liability.

Preventive restructuring (available only before insolvency occurs) provides confidential debt restructuring without public stigma, but requires sophisticated creditor class structuring and plan negotiation; missing this window by delaying until actual insolvency forces public proceedings and eliminates valuable strategic options.

Personal liability exposure, criminal prosecution risk, and the complexity of Czech insolvency procedures mean that engaging specialized insolvency counsel immediately when financial distress emerges is not a discretionary expense—it is essential protection that reduces director risk, maximizes available options, preserves business value, and ensures compliance with strict statutory obligations that non-specialists cannot navigate safely.

Conclusion of the Article

Closing a company with debts in the Czech Republic is not a matter of business strategy or timing preference—it is a strict legal obligation that triggers the moment your company becomes insolvent. The liquidity and over-indebtedness tests establish objective thresholds that require immediate action by statutory bodies, regardless of hope for business recovery.

Directors who understand these legal realities and act swiftly protect themselves from devastating personal liability while preserving maximum value for creditors and potentially saving viable businesses through reorganization or preventive restructuring. The critical insight for management is that insolvency law operates on compressed timelines measured in days, not months.

Once your company meets the legal definition of insolvency, the obligation to file a petition arises immediately. Every day of delay compounds liability exposure, reduces available strategic options, and increases the likelihood of criminal prosecution. Directors cannot rely on intuition or hope—they must obtain a professional assessment.

The lawyers at ARROWS Law Firm have long been involved in insolvency and restructuring matters and regularly deal with these issues in practice. We have represented statutory bodies, liquidators, and creditors in hundreds of proceedings, and we understand the defensive techniques that protect our clients throughout these complex matters.

ARROWS Law Firm is a leading Czech law firm based in Prague with extensive experience representing international clients and handling cross-border insolvency cases through our international network. We combine deep knowledge of Czech insolvency law with a practical understanding of international business realities to provide effective representation.

If you are facing financial difficulties, do not risk errors that create personal liability or reduce business value. The complexity of Czech insolvency law and the severe consequences of procedural mistakes mean that professional legal representation is essential. We provide the expertise needed to navigate these strict statutory obligations.

ARROWS Law Firm is insured for damages up to CZK 400,000,000, providing additional security when you entrust us with your most critical matters. Contact us at office@arws.cz to discuss your situation with specialists who understand both the legal requirements and practical realities of closing a company with debts.

FAQ – Frequently Asked Legal Questions About Closing a Company with Debts

1. How do I know if my company is legally insolvent? 

Insolvency occurs if you have multiple creditors, debts overdue by 30+ days, and an inability to pay (presumed after 3 months of non-payment). For legal entities, insolvency also exists if liabilities exceed assets. If these conditions apply, you must file a petition immediately. 

2. Can I close my Czech company through voluntary liquidation if it has some unpaid debts? 

Only if the company can pay all creditor claims in full. Voluntary liquidation is for solvent companies only; if insolvency is discovered during the process, the liquidator must immediately file an insolvency petition or face personal liability. ARROWS lawyers assess solvency before liquidation begins and provide representation throughout the process; contact us at office@arws.cz.

3. What happens to me personally if I delay filing an insolvency petition? 

You become personally liable for the difference in creditor recovery caused by the delay. You also face potential criminal prosecution (up to 8 years), disqualification from management for 3 years, and court-ordered contributions to the insolvency estate. 

4. Is there any way to restructure debts without formal insolvency proceedings? 

Yes, via preventive restructuring under Act No. 284/2023 Coll., provided you are not yet legally insolvent. This confidential process allows for negotiated plans without public stigma, but timing is critical as it is unavailable once insolvency occurs. ARROWS Law Firm assesses eligibility and negotiates these restructuring plans; contact us at office@arws.cz.

5. What is the difference between bankruptcy and reorganization in insolvency proceedings?

Bankruptcy is liquidation where operations cease and assets are sold to pay creditors. Reorganization is rehabilitation allowing the company to continue under a restructuring plan, subject to size thresholds or creditor approval. ARROWS lawyers prepare reorganization plans for viable businesses and represent creditors in evaluating proposals; contact us at office@arws.cz.

6. How long do insolvency proceedings take in the Czech Republic? 

Bankruptcy typically takes one to two years depending on asset complexity and creditor numbers. Reorganization is a multi-year process to implement the full restructuring plan and involves mandatory waiting periods. ARROWS Law Firm manages proceedings efficiently to ensure all procedural deadlines are met without delay; contact us at office@arws.cz.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly (office@arws.cz). We accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailor-made solution, so please do not hesitate to contact us.