Debt collection in the Czech Republic

Debt collection in the Czech Republic should begin with a legal and practical assessment of the debtor, the debt documents and the realistic prospects of recovery. For a Czech company, this assessment should include the debtor’s legal form, registered office, identification number, persons authorised to act on behalf of the company, the manner of representation, available financial and corporate history, open insolvency records, known court disputes, enforcement history and whether the debt may be challenged on contractual, delivery, limitation or set-off grounds. This preliminary review helps determine whether the creditor should first use out-of-court negotiations, apply for a payment order, file an ordinary lawsuit, rely on a foreign judgment or move directly to enforcement measures where an enforceable title already exists.

If the debtor has no visible insolvency proceedings, no serious enforcement history and continues commercial activity, it is usually reasonable to begin with out-of-court debt collection. At this stage, the creditor should not rely only on informal reminders. The demand should be supported by documents confirming the origin and amount of the debt, such as the contract, invoices, delivery notes, acceptance documents, correspondence, account statements, reconciliation acts, debt acknowledgement or other written evidence showing that the claim is due and payable.

This stage may involve negotiations with the debtor to reach an agreement on payment of the creditor’s claim or another commercially acceptable settlement, including an instalment plan, return of goods, transfer of debt to a third party, set-off, replacement performance or another form of settlement acceptable to the creditor.

Interaction with the debtor usually begins after sending a written demand by post, email or another reliable communication channel. In commercial cases, it is important to contact the persons who are authorised to make decisions for the debtor, while preserving evidence of all communications. The goal is not only to request payment, but also to identify whether the debtor admits the debt, disputes the amount, proposes a settlement, hides assets, delays payment or shows signs of insolvency.

The average time for informal out-of-court collection is up to 60 days, except where the parties agree on an instalment plan or another settlement schedule. If this stage does not bring a practical result, or if the initial assessment shows that negotiations are unlikely to be effective, the creditor should proceed to court debt collection or another formal recovery route available under Czech law.

Before initiating legal action, the creditor should assess the limitation period. The general limitation period in the Czech Republic is 3 years. The parties may agree on a shorter or longer limitation period, but it must be at least one year and not more than fifteen years. If the debtor has acknowledged the debt, the claim is generally time-barred after 10 years from the acknowledgement, or after 10 years from the last day of the payment period stated in the acknowledgement. A right awarded by a decision of a public authority is generally time-barred after 10 years from the date on which it should have been performed under that decision.

Missing the limitation period does not automatically prevent the creditor from filing a claim in court. However, if the debtor invokes limitation in the proceedings and the court accepts this objection, the claim may be dismissed. If the creditor and debtor have agreed to conduct out-of-court negotiations regarding the right or the facts giving rise to it, the limitation period may be affected during such negotiations.

The Czech Republic is also a party to the 1974 UN Convention on the Limitation Period in the International Sale of Goods. Where this Convention applies to an international sale of goods, the limitation period is 4 years. This rule should not be treated as a universal limitation period for all international debts, because its application depends on the nature of the transaction and the scope of the Convention.

A mandatory pre-trial debt collection procedure is not generally required before filing a civil monetary claim in the Czech Republic. However, a written demand for payment is important for the recovery of legal costs. A successful claimant in proceedings for the performance of an obligation is generally entitled to reimbursement of costs only if the claimant sent the debtor a demand for performance to the service address or last known address at least 7 days before filing the claim, unless the court finds special reasons to award costs despite the absence of such demand.

Depending on the nature of the debt, the amount of the claim, the available evidence, the debtor’s position and the cross-border element of the case, Czech law allows several routes for judicial debt collection.

Approval of a settlement agreement at the court stage. This option may be used if the circumstances of the case allow the dispute to be resolved by agreement between the parties. A court-approved settlement is suitable where the debtor admits the debt or is ready to accept a clear payment schedule, but the creditor needs an enforceable arrangement rather than an informal promise.

If the parties reach a settlement, the court decides whether to approve it. The court will not approve a settlement that is contrary to law. Once approved, the settlement has the effects of a final judgment.

If it is later established that the approved settlement is invalid under substantive law, an interested party may seek cancellation of the court decision approving the settlement. The application period is three years from the legal force of the decision approving the settlement.

The procedure for issuing a payment order is applicable to monetary claims that follow from the facts stated and documented by the creditor. The court may issue a payment order even without an explicit request from the creditor and without hearing the defendant. This procedure is not available if the defendant’s whereabouts are unknown or if the payment order must be served on the defendant abroad.

As a result of considering the application, the court may issue a payment order ordering the defendant to pay the claimed amount and procedural costs within 15 days from delivery of the order or to file an objection within the same period. If the defendant does not file an objection in time, the payment order has the effects of a final judgment.

If the debtor files an objection within the prescribed period, the payment order is set aside and the case continues in standard civil proceedings. The objection does not need to contain detailed reasons, but it must meet the general procedural requirements for a court submission.

The procedure for issuing an electronic payment order is available where the creditor files the application on the prescribed electronic form and signs it properly. The application must contain the required identification data, including the date of birth of an individual, the identification number of a legal entity or the identification number of an individual entrepreneur. The rules on ordinary payment orders apply accordingly to electronic payment orders, including the 15-day period for payment or opposition and the restrictions related to unknown whereabouts or service abroad.

Court fee planning is also important when choosing between an ordinary lawsuit and an electronic payment order. For ordinary monetary civil claims above CZK 20,000 and up to CZK 40,000,000, the court fee is generally 5% of the claimed amount. For an application for an electronic payment order above CZK 20,000, the court fee is generally 4% of the claimed amount. If the court does not issue the electronic payment order and the case continues as ordinary proceedings, the fee is adjusted to the ordinary court fee.

The European payment order procedure is applicable to uncontested monetary claims in cross-border civil and commercial matters within the European Union, except Denmark. The claim must be for a specific amount that is due at the time of filing. This procedure does not have a EUR 5,000 upper limit. To obtain a European payment order, the creditor files the standard application form with the competent court.

If the conditions are met, the court normally issues the European payment order within 30 days of filing the application. The debtor may file a statement of opposition within 30 days from service of the order. If opposition is filed, the case continues before the competent court under ordinary civil procedure, unless the claimant has requested that the proceedings be terminated in that situation.

If the debtor does not file opposition within the 30-day period, the European payment order becomes enforceable. A European payment order that has become enforceable in the Member State of origin is recognised and enforced in other EU Member States without a separate declaration of enforceability, subject to the enforcement rules of the Member State where enforcement is requested.

The European Small Claims Procedure is a separate procedure. It may be used for cross-border civil and commercial claims up to EUR 5,000. This limit belongs to the small claims procedure and should not be confused with the European payment order procedure.

A bill-of-exchange or cheque payment order may be used where the creditor’s claim is based on a bill of exchange or a cheque and the creditor submits the original instrument and the documents required to exercise the right. If the statutory requirements are met, the court may order the defendant to pay the claimed amount and costs within 15 days or to file objections within the same period. If timely objections are not filed or are withdrawn, the bill-of-exchange or cheque payment order has the effects of a final judgment.

Standard lawsuit proceedings are applicable where the debtor disputes the payment order, where the payment order is set aside after opposition, where the claim is contested from the outset, or where the procedural conditions for a payment order are not met. This process is carried out through ordinary civil proceedings, where the parties present their positions and evidence, and the court examines the contractual documents, performance, delivery, correspondence, objections, limitation issues and other relevant circumstances.

As a result of the consideration of the case, the court issues a judgment. A delivered judgment that can no longer be challenged by appeal becomes final. If the judgment imposes an obligation and does not set a longer period for performance, the obligation must generally be fulfilled within three days from the legal force of the judgment. The court may also set a longer period or allow payment in instalments.

A party that is not satisfied with the judgment of the court of first instance may file an appeal within 15 days from service of the written judgment. A final decision of the appellate court may be challenged by an extraordinary appeal to the Supreme Court within two months from service of the appellate decision, but only under the statutory conditions for such extraordinary review. In monetary claims not exceeding CZK 50,000, an extraordinary appeal is generally not admissible, except for statutory exceptions such as consumer and employment matters.

In proceedings involving a foreign claimant, Czech private international law also allows the defendant, in certain property-related disputes, to request that the claimant provide security for procedural costs. This security cannot be imposed on citizens of EU Member States or other EEA states, and it is also excluded in several situations, including where the claim is handled by a payment order.

Before starting enforcement of a foreign court decision in the Czech Republic, the creditor must determine which recognition regime applies. If the judgment was issued in another EU Member State in a civil or commercial matter, Regulation 1215/2012 generally allows recognition without any special procedure and enforcement without a declaration of enforceability. The creditor should rely on the enforceable judgment and the relevant certificate required under the Regulation.

If the judgment was issued outside the EU regime or outside another applicable international instrument, Czech private international law applies. A foreign decision in private-law matters has effect in the Czech Republic if it is final according to confirmation from the competent foreign authority and is recognised by Czech public authorities. Recognition may be refused, in particular, where the matter falls within the exclusive jurisdiction of Czech courts, where earlier Czech or recognised foreign proceedings prevent recognition, where the party against whom the judgment is invoked was deprived of a proper opportunity to participate in the foreign proceedings, where recognition would be contrary to public order, or where reciprocity is not guaranteed in cases where reciprocity is required.

In property matters, recognition of a foreign decision is not always declared by a separate operative ruling. The Czech authority may take the foreign decision into account as if it were a Czech decision, provided the statutory conditions for recognition are met. A foreign decision that satisfies the conditions for recognition may then serve as a basis for enforcement in the Czech Republic by a decision of a Czech court.

After receiving a final and enforceable Czech court decision, a court-approved settlement, an enforceable payment order, a European payment order or a recognised foreign decision, the creditor may proceed to enforcement if the debtor does not comply voluntarily. In civil and commercial matters, enforcement may be initiated through the court or through a court bailiff. The application must identify the creditor, the debtor, the enforceable title, the obligation to be enforced and the extent to which the debtor has failed to comply.

For execution through a court bailiff, the creditor indicates the bailiff in the execution application. The original or a certified copy of the enforceable title with confirmation of enforceability must be attached, unless the enforceable title was issued by the execution court. The bailiff may begin identifying and securing the debtor’s assets only after the court grants authorisation and orders execution.

As part of enforcement proceedings, the creditor’s claims may be satisfied by deductions from wages and other income, seizure of receivables, seizure of bank accounts, sale of movable and immovable assets, sale or seizure of a manufacturing plant, administration of immovable assets or creation of a bailiff’s lien over immovable property. After the initiation of execution, the debtor may be restricted from disposing of assets, except for normal business and operating activity, basic maintenance needs and the management of assets allowed by law.

If enforcement does not lead to recovery and the debtor shows signs of insolvency, the creditor may consider initiating insolvency proceedings. A debtor is generally insolvent if it has multiple creditors, monetary debts more than 30 days overdue and is unable to pay those debts. Inability to pay may be indicated, in particular, where the debtor has stopped paying a substantial part of its monetary obligations, has not paid overdue monetary obligations for more than three months, or where a due monetary claim cannot be satisfied by enforcement or execution.

Insolvency proceedings are not a substitute for ordinary enforcement. Their purpose is collective treatment of the debtor’s insolvency and, as far as possible, proportionate satisfaction of creditors. For a corporate debtor, the relevant insolvency solution may include bankruptcy or reorganisation, depending on the debtor’s situation and the decision of the insolvency court. A creditor that wants to participate in the insolvency estate must lodge its claim in the insolvency proceedings in the required procedural form and within the applicable deadline set in the insolvency case.

Czech law also provides specific routes for liability of persons connected with the debtor company, but this is not automatic liability for every unpaid company debt. If a member of the statutory body contributed to the company’s insolvency by breaching duties, and the method of resolving the company’s insolvency has already been decided, the insolvency court may, on the insolvency administrator’s motion, order that person to return benefits received from the company for a period of up to two years before the opening of insolvency proceedings. If bankruptcy has been declared, the court may also order contribution to the insolvency estate up to the difference between the company’s debts and the value of its assets, taking into account the extent to which the breach contributed to the insufficiency of the estate.

A separate liability route may apply to an influencing person. A person that decisively and significantly influences the conduct of a business corporation to its detriment must compensate the harm caused, unless that person proves that the influence was exercised in good faith, on an informed basis and in the defensible interest of the influenced company. If the harm is not compensated, the influencing person may be liable to the creditors of the influenced company for those debts that the company cannot satisfy as a result of the influence.

If you need assistance with debt collection in the Czech Republic, Grand Liga can review the debt documents, assess the debtor’s status, determine the most suitable recovery strategy and organize out-of-court negotiations, court proceedings, recognition of foreign judgments, enforcement or insolvency-related actions. Please contact us to receive a preliminary assessment of your case and practical recommendations for further recovery steps.

# DEBT COLLECTION AGENCY CZECH REPUBLIC

24.07.2024

1912