Vol 3 (2006) - Issue 1

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Current Czech Insolvency Law Reforms: The Impact on the Czech Banks

Introduction
The transformation of the Czech economy in the early 1990s brought with it extensive structural reform in the banking sector in the second half of the decade. During the reform, a considerable number of Czech-based banks ran into financial difficulties and some, eventually, were forced to leave the market.
The rapid pace of the restructuring and consolidation of the banking sector presented a crucial test for the Czech bankruptcy regime. Both from the perspective of banking law and insolvency law, the framework for bank insolvencies in the Czech Republic has proven to be severely inadequate and numerous legislative attempts have been made since the early 1990s to make bank insolvency procedures faster, more flexible and efficient.
The Czech Republic is now facing a new wave of legislative reforms, many of which have far-reaching impacts on the bank insolvency framework. On 1 October 2005, the Act on Financial Conglomerates came into force. In addition to provisions on the supervision of financial conglomerates and financial groups, the Act on Financial Conglomerates introduced major amendments to the Bankruptcy Act that affected banks and other credit institutions (the ‘Amendment’). Furthermore, the Czech parliament is now discussing three other legislative initiatives relating to insolvency law. If any of the proposals is adopted in the parliament, the resolution of bank insolvency in the Czech Republic may again be modified to a substantial degree.
This article endeavours to provide an overview of the existing bank insolvency legislation in the Czech Republic and a summary of major changes that have occurred recently as a result of the Act on Financial Conglomerates. In addition, this article comments on continuing weaknesses of the existing bank insolvency framework and potential improvements that the new legislation might bring to the Czech bank insolvency framework.