First success out of 22 attempts. The court reports a completed restructuring proceedings. What lessons can other companies learn?

After the unsuccessful attempts at preventive restructuring of the Ostrava steelworks Liberty or TV Barrandov, the Czech Republic now has its first case of successfully completed restructuring proceedings involving a court. What decided that the proceedings ended in favor of the indebted company and its creditors, and what should companies contemplating the use of this relatively new legal instrument prepare for?

Compared to declaring bankruptcy and entering insolvency proceedings, preventive restructuring allows entrepreneurs to rid themselves of their debts in a timely, simpler manner and also without negative public publicity.

This tool has been functioning in our country for four years now, and according to data from the Ministry of Justice, regional courts have so far had to deal with 25 restructuring proceedings. Only one has reached a successful conclusion with the fulfillment of the restructuring plan, another three proceedings are still ongoing.

The first successfully completed restructuring proceedings involved the law firm Resolv together with the team of Petra Smutného from the company PwC, who were responsible for economic consulting. “This can serve as an example that this institution can be used for its intended purpose—to find a consensual solution and to prevent insolvency proceedings,” says attorney and law firm partner Resolv Petr Sprinz. “The outcome was determined by the professional approach of all participants. Without the constructive attitude of creditors and without the management's effort to address financial difficulties in time, the project would have failed,” he adds.

The preventive restructuring of the company, whose name ultimately remains hidden due to the promise of anonymity, lasted nine months, including the fulfillment of the restructuring plan. “That is a substantially shorter period than for a moderately complex reorganization,” claims Sprinz. According to him, the success was decided, among other things, by timely negotiations with key creditors.

One of the main advantages of preventive restructuring is the already mentioned anonymity of the whole process, which should motivate businesses to begin addressing their financial problems in a timely manner. “The non-public nature of a significant part of preventive restructurings is not a shortcoming of the system but an intentional feature of the legal regulation. Preventive restructuring is designed so that the entrepreneur can deal with financial difficulties primarily by negotiating with the affected creditors and without unnecessary publicity. Thanks to this, it is possible to limit the negative impact on business relations, preserve the trust of business partners, and create better conditions for successfully overcoming financial difficulties,” says the spokesperson of the Ministry of Justice, Markéta Poslušná.

A significant part of restructurings in the Czech Republic can take place without the participation of a court, so the state has no information about these cases. “Court records usually reflect mainly cases in which it is necessary to use some of the tools of judicial protection or other forms of judicial intervention anticipated by the law,” adds Poslušná.

One case of successfully completed restructuring without the participation of a court was handled by the law firm Portos. According to lead attorney Portos Petra Matějky, the key to success is a high-quality preparation of the restructuring plan, agreement with the main creditors, but also the fact that the company does not delay in dealing with its debts.

“But in practice, businesses often come only at the moment when their options are significantly limited. Management often tries to solve problems internally or expects an improvement in the situation, thereby gradually reducing the available space for restructuring. The restructuring process is also relatively complex in terms of formality, and its execution, even when there is material agreement on measures, takes a certain amount of time,” states Matějka.

What should a company clarify before entering the process, according to him? According to Matějky, the most important thing is to assess whether the company truly has a real chance of overcoming its financial problems. “The company should have a quality analysis of the causes of its problems, a realistic business plan, financial projections, and a clear idea of the restructuring measures. At the same time, it is appropriate to identify key creditors and assess in advance their willingness to support the proposed solution,” explains the attorney.

According to data from the Ministry of Justice, only two new proceedings concerning preventive restructuring have “arrived” at the courts this year so far. Thus, last year is a record—regional courts commenced a total of 14 proceedings. “Awareness of preventive restructuring is gradually increasing, although it is still not an institution widely known among entrepreneurs. If you ask businesspeople today, most do not even realize that something like preventive restructuring exists. However, in recent months we have seen increasing interest, especially among medium and larger companies,” says Matějka from the law firm Portos.

The article was published on the website hn.cz