General characteristics of large insolvency proceedings in the Czech Republic

This paper is focused on insolvency proceedings related to bankruptcies of extra-large enterprises. These are enterprises with turnovers for the last year before the commencement of beginning insolvency proceedings of more than 50 mil. Czech crowns and more than 50 employees. The problematic financial situation of businesses which are not able to fulfill their debts and liabilities can be solved under Act No. 182/2006 Coll. The insolvency proceedings can take place in two ways – reorganization and liquidation. The act has been effective for more than 10 years, therefore there is available data about individual cases. Results of insolvency proceedings are generalized for statistical purposes which show general consequences. The aim of this paper is about consequences and features of insolvency proceedings where the debtor is the extra-large enterprise. There are few extra-large enterprises in total in comparison with all business insolvency proposals. These insolvency proceedings are of large scale with respect to total debts, number of creditors, and number of employees. In our research, we compare results of 1,750 randomly chosen cases solved by way of liquidation with 20 cases of extra-large enterprises where insolvency and bankruptcy were solved. We compared such parameters as different groups of creditor satisfaction, number and size of receivables, speed of payment to creditors, duration and costs of insolvency proceedings using regression analysis. Our findings show that better results are obtained in the group of extra-large enterprises. Corporate bankruptcies have many consequences, including unfulfilled business goals, lost equity, unsatisfied claims of creditors, and impact on unemployment. The bankruptcy of this type of company would not only influence the above-mentioned parties, such as employees and creditors but also other parties, for example suppliers, family members of employees, government and public budget and even the whole society in the near or distant neighborhood of the enterprises' location. Although there are not many large cases, their impacts are serious because they influence many parties. Our study will show if the reorganization principle is preferred rather than liquidation. The reorganization principle is used rarely in the Czech Republic but the reasons are mostly social and not economical. In the case of large bankruptcies, the social reasons could outweigh others. The impact on employees losing jobs and on the government budget is often emphasized. It is possible that some regions have been affected more than others because some industry branches are located only in selected regions.