With instability and uncertainty both in the political and economic spheres, the Czech Republic is preparing for a new wave of restructuring and insolvency procedures, according to Dentons Partner Jiri Tomola.
"The war near the Eastern border of Europe has created a huge amount of turmoil and has a great impact on energy markets, supplies, and prices," Tomola says. "Unlike the COVID-19 period, when the government initiated a lot of support plans and subsidies for businesses, now we are dealing with the scarcity of these funds. The government will have to prioritize its spending, for instance, by increasing support for energy subsidies, military, and social policies. Not all market players will be happy about it."
"At the moment, our team has been working to clear the backlog until the new wave starts," he points out, noting that, "recently, the Czech supreme court announced its decision on a more than half-a-decade-long restructuring case for Oleo Chemical, which will likely shape future reorganization processes, setting out rules for good faith and honest intent of a debtor seeking reorganization, as well as guidance and limits for a challenge of the reorganization by creditors."
"We have also seen an increase in financing work for energy companies in an effort to obtain liquidity to trade on energy markets. Such transactions tend to be in the hundreds of millions or even billions of euros," he notes.
"The war is yet another event coming very shortly after the pandemic when the inflation rate was already quite high and as a result, and some market players are unable to cope with it anymore," Tomola adds, noting that there are strong signals of new waves of insolvency and restructuring coming. "As for the legislation, the Czech Republic is among the few member states that have not yet implemented the EU directive on preventive restructuring. The lack of a legal framework has made restructurings in the Czech market more complex to execute," he notes. "There is an urgent need to get the legal framework in place and ready to use before the next wave of insolvencies hits."
Tomola adds that there is still an abundance of funds when it comes to the banking sector. "However, financial institutions are more careful about placing them – the funds are not available for everyone, and the interest rates have been increasing," he explains. "Nowadays, an interest rate of 7-8% is normal, imposing an increased financial cost for loans and credits, which in return puts extra pressure on the companies to cover their financial liabilities."
"We have been very busy in the banking sector. The difference is that some transactions have been reshaped, as the bond markets are virtually closed, forcing companies to return to more traditional credit or find new ways of financing," Tomola highlights.