The Development of Insolvency Proposals in the Czech Republic

By Pasekova, Marie | International Advances in Economic Research, May 2013 | Go to article overview

The Development of Insolvency Proposals in the Czech Republic


Pasekova, Marie, International Advances in Economic Research


Published online: 12 February 2013

[C] International Atlantic Economic Society 2013

This paper concerns the development of insolvency proposals in the Czech Republic in the period 2008-2011, with reference to the issue of solvency representatives of small and medium business. The aim is to analyse the number of insolvency proposals and to conduct a survey among leading representatives of the business environment. Since 2008, a number of problems have emerged, including decreasing demand and a number of fiscal measures (intended to stabilize public budgets, for example) that have been put into effect. One of the above mentioned problems is the growing number of insolvency proposals related not only to business units, but also to their customers, suppliers, and non-enterprising individuals.

From a macroeconomic perspective, Korol and Korodi (2010) considered insolvency a positive sign of a free market, but from a microeconomic point of view, we can say that this is a negative attribute affecting both economic and social life (eg., a growing rate of unemployment). The success or downfall of the small and medium-sized business sector is affected by numerous factors that can be divided into two groups: endogenous factors (such as adequate or inadequate financial structure, appropriate or inappropriate composition of assets and liabilities) and exogenous factors (such as fiscal policy, monetary whey, and general economic conditions).

Smrcka (2011a) proved that the state influences the growth of general indebtedness in various ways. Firstly, the governments' relaxed response to the increase of indebtedness has created an atmosphere where debt is perceived as a standard solution to a lack of financial means. Moreover, the impacts can be detected in the policy of cheap money, which is aimed at supporting loans, investment, and boosting growth. As a result of these mechanisms, a period of constant and relatively dynamic growth in most developed economies did indeed come, but this was accompanied by several substantial price and investment bubbles, namely in the housing and stock markets. Smrcka (2011b) has claimed that a substantial amount of evidence exists supporting the assertion that the change in the behaviour of modern families stems not only from the increased focus of banks on retail clients but also from the notion that indebtedness is an acceptable and natural model of behaviour, with modern states leading by their example.

Research was based on an analysis of trends in the number of insolvency proposals filed since the new insolvency act took effect in the Czech Republic and on a questionnaire survey specifically focused on the area of insolvency proposals among small and medium-sized enterprises. The largest increase of insolvency proceedings was recorded immediately after the outbreak of the global economic crisis in 20082009. In subsequent periods, the total number of insolvency petitions in the business sector has continued to grow, albeit not to a significant extent. In 2010-2011 there were even some quarters of decline in the number of insolvency proposals. …

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