Insolvency, restructuring and forensic accounting
What this domain tests
The insolvency tests, the course of proceedings under Act No. 182/2006 Coll., the auditor's and administrator's duties, and the forensic techniques used when the numbers are suspected of telling a story.
Core rules
- Insolvency (úpadek) requires multiple creditors (at least two) with monetary claims more than 30 days past due, plus either inability to pay (platební neschopnost) or over-indebtedness (předlužení), the latter for legal persons and entrepreneurs.
- Proceedings: konkurs (liquidation), reorganizace (reorganisation under a court-approved plan), oddlužení (debt relief for individuals) and special modes. The insolvency administrator is appointed by the court from the Ministry of Justice register.
- Assets form the majetková podstata; the administrator may challenge ineffective acts (neúčinné právní úkony) within the statutory look-back periods and pursue directors' liability.
- The auditor's role includes assessing going concern (ISA 570), reporting to those charged with governance, and providing expert or forensic support.
Worked example
A trading a.s. shows total assets CZK 40m and liabilities CZK 55m; three of its five creditors are unpaid 40 days after the due date, totalling CZK 2.4m. As a legal person it faces both tests: over-indebtedness is met on the balance sheet, and inability to pay is met on the overdue debts. The directors must file without undue delay; continuing to trade can expose them to liability for damage. The forensic question is whether the assets are stated at recoverable amounts, because overstated receivables can conceal over-indebtedness.
Forensic techniques
Benford's law screening, net-worth and lifestyle analysis, bank-statement tracing, related-party mapping and the fraud triangle (pressure, opportunity, rationalisation) frame the work of an expert witness under Act No. 254/2019 Coll.
Traps
Applying over-indebtedness to individuals who are not entrepreneurs; ignoring the 30-day and two-creditor conditions; assuming a reorganisation plan needs only the debtor's signature; treating an administrator's report as audited financial information.