Reorganization as a form of bankruptcy procession in czech: Legal and accounting aspects

Reorganization is a new way of companies’ bankruptcy treatment, which is implemented within Czech legal system. According to US Bankruptcy Law (chapter 11 of USBC) the main purpose of reorganization is creditors’ satisfaction from revenues of debtors’ continued operations in case there wouldn’t be done a cash settlement of company’s assets (Baird and Rasmussen, 2002).

“The major advantage of reorganization is that involved parties can receive much more than they would receive in case of bankruptcy. However as a major disadvantage shall be mentioned that the reorganization process is very long, complicated, and costly based primarily on resolving conflicts between the interests of creditors and owners.“ (Wolters Kluwer CR, 2012)

As a research tool there is used the comparative analysis. There are compared companies that were allowed to apply reorganization method and it is also discussed under which conditions with companies that were rejected by the court decision.

The research objective was to determine how many Czech companies being permitted to reorganize submitted a proposal to allow the reorganization before bankruptcy decision and also how many companies have been permitted to reorganize simultaneously with the bankruptcy decision. The particular goal was also to determine how many companies that have been allowed reorganization had approved reorganization plan to begin the recovery business process. For the statistical research there were selected only those companies which have been permitted to resolve the bankruptcy by reorganization. This represents 33 approved reorganizations in the period 2008 – 2012.

The debtor's reorganization is the only way to address redevelopment decline which is now offered by the Czech legal system. Statistical surveys have shown how difficult (and time consuming) is negotiating the reorganization plan to compile all groups of creditors, whose number within the group might be in the tens. Results of the performed analysis provide an interesting proof that it is an important decision requiring detailed analysis of all possible alternative solutions to revive company and enable the creditors to profit much more than in bankruptcy solution.

One of the most important reasons for introducing of reorganization was to prevent social and economic problems of the population in the region. As arises from the statistics, currently there was completed only one from all allowed reorganizations, what could be considered as a proof of its time-consuming.