Debt Collection in Czech Republic

The Czech Republic is one of the most stable and economically developed country of the post-Communist states and it scored a growth of over 6% per year, before the 2008–2009 global economic crisis, which effected several companies and lead to the incapacity of payment and, implicitly, to a growth of Czech debt collection proceedings.

After the fall of communism, most economic sectors have been privatized, including banks and telecommunications. The economical development was also closely related to exports to the European Union, Germany in particular, and foreign investment, but also to the increasing domestic demand.

Since December 2007 the Czech Republic is part of the Schengen Area, leading to free borders to its neighbors: Austria, Poland, Germany and Slovakia and it has been a member of the World Trade Organization since 1995.

In Czech Republic, when a creditor is not willing to a pay a debt, the first step is trying to reach to an amicable situation between the two parts, the creditor and the debtor.  In this case there are analyzed the contracts, the invoices and the delivery notes and the two parties find a convenient rescheduling of the payment form, including interest rates which, unless the parties agreed otherwise, equal the CNB repo rate plus 8 percentage points (Government Regulation No. 351/2013 Coll.).

Counted from the invoice due date, the period of prescription is 3 years for both business-to-consumer and business-to-business claims (Section 629 of Civil Code No. 89/2012 Coll.) and stops running if the creditor begins the legal procedure of debt collection.

Before the court proceedings, the debtor can receive reminders for payment, but the law does not make these documents mandatory (but see the pre-action demand below). Despite this, the reminders are a useful instrument for collecting money in amicable way. Another measure that can be adopted between the two parties is the negotiation of an arbitration clause or a particular court’s local competence clause. When these clauses are not agreed upon, the case goes in charge of the District Court of the debtor.

When the amiable procedure fails, the creditor can ask the court for payment order. It is not necessary a court hearing for issuing this document and the payment order becomes enforceable only if the debtor does not file an objection (odpor) within 15 days of service.

The next step in the debt collection procedure, in case the debtor files an objection (which cancels the payment order), is the ordinary court procedure, in which the court calls a hearing. The judgment can be appealed within 15 days (no appeal for money claims up to CZK 10,000, excluding accessions).

The debtor should receive a pre-action payment demand at least 7 days before filing, after this period the creditor can initiate the debt collection procedure in court.  

The court fees for the debt collection procedure account for 5% of the disputed amount, the minimum fee is CZK 1,000 (claims up to CZK 20,000) and above CZK 40 million the fee is CZK 2 million plus 1% of the excess (amounts above CZK 250 million are not counted). The interest is a separate tax, perceived in additional to the court fee. The arbitration fees are another fees to be paid, these are set by a special arbitration rule. The taxes are paid by the party who loses the process and the amicable debt collection in Czech Republic is free of taxes.

When the case goes into the court procedure, the solving time can take 12 months or more, depending on the complexity of the case in the debt collection procedure.