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MPs kill bankruptcy amendment

Gov't says new, better law will be submitted by March

By S. Adam Cardais
 Staff Writer, The Prague Post
Feb. 24, 2005


The Chamber of Deputies rejected Feb. 18 an amendment that would have strengthened the role of creditors in insolvency proceedings, but the fight for bankruptcy reform doesn't show signs of ending.

Instead of an amendment, the government is expected to receive a new bankruptcy law in the coming weeks that could overhaul the entire system. It's uncertain how the new law will be written, but many observers say a progressive bankruptcy law would have enough support from both the business community and the government to be approved.

Milan Vladyka, from the Justice Ministry's press office, said that they intend to submit a proposal in March that will incorporate the work of other offices, in particular that of Deputy Prime Minister for the Economy Martin Jahn.

Ales Michl, spokesperson for Jahn's office, said they were expecting to submit a joint proposal.

Reform needed

Current bankruptcy legislation has been criticized for locking companies into lengthy insolvency proceedings, exposing creditors to excessive risk and not allowing for reorganization. As a result companies are often liquidated, their assets stripped, without having a chance to be turned around, which eliminates jobs and lowers investor confidence.

The amendment the chamber rejected would have protected creditors by making it possible for secured creditors, usually banks, to recoup up to 100 percent of their investment in insolvent companies instead of 70 percent, the amount outlined in the current law.

The proposal would have helped bring the country's bankruptcy law up to speed with other developed markets, said Jan Kofol, principal of BBK, a company that specializes in corporate restructuring and turnaround management.

Weston Stacey, executive director of the American Chamber of Commerce, said there isn't a strong connection between the bill's rejection and support for bankruptcy reform. "I wouldn't read too much into the two," he said. "I still think there's a strong desire for bankruptcy reform."

Currently two versions of the law exist, one drafted under Martin Jahn, the other by the Justice Ministry. Recent reports in the media have put the two camps at odds, but both sides have said they are cooperating to create a more progressive, investment-friendly law.

"For months the Justice Ministry has been cooperating with the team of Deputy Premier Martin Jahn. ... The differences in both sides' proposals, as often mentioned by the media, are in fact merely a discussion over details," the Justice Ministry said in a written response.

Jahn's draft has been lauded by both the business community and academics for giving creditors more power over bankruptcy proceedings and emphasizing restructuring over liquidation.

"This is an important law. This is no joke," Kofol said. "I don't care how they get there. But they should adopt most of the provisions Jahn's team has put together and as quickly as possible."

Stacey said there is widespread support for bankruptcy reform, and that Jahn's draft should be put forward to put the country on the right track.

"It's the first time in the process when we've really seen a comprehensive, modern law," he said. "We're hopeful that the government can put forward a version by the end of next month. If resistance continues, people could see it as political resistance to the deputy premier."

-- Petr Kaspar contributed to this report.



S. Adam Cardais can be reached at acardais@praguepost.com




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