Monika Randakova, Ph.D., Department of Financial Accounting and Auditing, University of Economics Prague, W. Churchill Square 4, Prague 3, 130 67, Czech Republic
Considering the development of business in the Czech Republic, it was necessary, and demanded by economic practice, to introduce to the legislation a retainable solution for crises of big companies. Taking Czech history into account, it was not possible to follow any previous legislative arrangement. The model and template for the material aspect of the new legal regulation is the legislation valid in the U.S. (Bankruptcy Law, 1978), amended by some of European regulations, mainly the German and Austrian one. Reorganization can be defined as a gradual satisfaction of liabilities to creditors, while keeping the debtor’s business
running. An approved reorganization plan presents a measure, which should lead to a recovery of the company providing the plan is well kept. The goal of this plan is to arrange mutual relations between the debtor and his creditors. The debtor has a preferential right to set up the reorganization plan. Debtors have the most information about their business, as well as they know the possibilities of recovery to render the reorganization successful to the benefit of creditors, debtor, employees etc. The going-concern presumption, which expects continuation of the business after the reorganization, is one of the key elements in negotiations for the reorganization permission and for setting the plan up. Furthermore, the financial situation should be analyzed, regarding the generation of free cash flow for paying off debt within the reorganization plan. In addition to that, the structure of creditors should be taken into account, as the reorganization plan must be to them more beneficial than bankruptcy.A specialty of the reorganization is the division of creditors into groups, regarding their legislative stance and economic interest. This group division must be included in the reorganization plan. The importance of these groups is demonstrated by the fact that each group votes for the plan separately. Reorganization of a company usually includes restructuring of liabilities and capital accounts as well as an asset revaluation. It generally applies that if the company’s yield value (revenue value) is higher than the break-up value, keeping the business operating as „going concern“ is reasonable in economic terms. The company should not go bankrupt and assets should not be liquidated. It is possible to carry out the reorganization in various ways. The reorganization plan should always include such solution, which will most efficiently lead to the corporate recovery and overcoming of the financial crisis.