Debt Collection in Czech Republic

In the Czech Republic, there is no minimum amount required in order to initiate debt recovery court proceedings.

The client will have to decide if trying to recover the debt is cost-effective in relation to the size of the claim.

The court fee is 5% of the total amount under dispute, or 4% for smaller cases, if filled electronically.

In most cases, the compensation for judicial costs is adjudicated in favour of the party that wins the case. The compensation consists of the paid court fee to the plaintiff, and the costs of legal representation by an attorney. The legal fee component of the compensation is calculated based on the amount under dispute, in accordance with the decree No. 177/1966 Sb. (Advocate´s Tariff), depending on number of necessary legal actions in the proceedings.

For example, if the amount under dispute was EUR 10000, the total costs for acceptance of the case, filing of the action to the court, and appearance before the court, including court fees would amount to about EUR 1821. In case of higher amounts subject to a dispute, the total costs would be more cost-effective. In case of lower amounts, the total costs are less cost-effective.

The amount due does not determine the Court before which proceedings should be initiated:

Disputes over pecuniary performance are generally decided by district courts (Okresní soud), unless the dispute concerns a specific legal issue stipulated by law (e.g. disputes regarding internal relations of business companies, disputes from commodity exchange, disputes regarding securities etc.). Such specific disputes are to be decided by the regional courts (Krajský soud), as is stipulated by law.

Local jurisdiction - the general court of a person is the district court of the district he/ she resides in.. However, if the dispute concerns a right to an immovable property, the court where the immovable property is located will be the competent court. Other specific local competence rules are stated by the procedural law.

Irrespective of the amount due, a creditor can initiate an Order for Payment Procedure (“návrh na platební rozkaz”) or Electronic Payment Procedure before the competent district court. This is a fast and automatic procedure without a hearing.

To initiate the procedure, the creditor must demonstrate:

• that the debt has not been contested by the debtor, and
• in case the contract required a return service by the creditor, such service has been performed by the creditor.

 Choosing the Order for Payment Procedure makes sense in cases where the creditor seeks a fast result without oral proceedings.

Sufficient evidentiary documents such as invoices, contracts, or delivery notes, must be provided – there must be enough evidence for the judge to enable them to issue a payment order. The creditor, or their lawyer, is required to submit a standard application form mentioning the name of the creditor and their legal representative, the type and amount of debt, the due date, the beginning date and rate of interest to be paid, and any costs, including legal fees, incurred.

The following steps are foreseen by law:

• The district court will send the debtor a payment order (platební rozkaz) by registered mail with a request to either pay or contest the creditor’s claim by filing objections (odpor) within 15 days from receipt of the order. 
• If the debtor does not pay and does not contest the order within that time limit by filing objections (odpor), the payment order becomes enforceable. This enforceable payment order can be challenged by an appeal on very limited procedural grounds (e.g. the payment order wasn´t delivered to own hands of the debtor etc.).
• If the debtor does not pay but files an objection (odpor), the payment order shall be automatically cancelled and standard court proceedings shall begin, where the creditor must support their claim with respective documentary evidence and/or witnesses. If a judgment is issued in favour of the creditor, the debtor has the right to appeal against the judgment under the normal appeals procedure within 15 days, and within the full scope of legal grounds.
• Once the judgment comes into legal effect, the creditor may ask a bailiff (exekutor) to commence the enforcement proceeding against the debtor.
  

The Czech Procedural Law requires the creditors to send a Warning Letter to the debtor´s address for service or to the last known address, at least 7 days before the submission of a legal action. Otherwise, the court would not award costs of the debt collection to the plaintiff. In exceptional circumstances, the court may award costs to the plaintiff in whole or in part, even if the plaintiff did not send the warning letter to the defendant as aforementioned.

Therefore, from practical point of view,it is mandatory to send a warning letter before initiating proceedings.

The lawyer`s warning letter should be short, and it should state the amount due, the reason for the debt, the time limit within which the debtor must pay, any interest accumulated to date, and the bank account details where the debtor should transfer the money. The debtor should also be warned that should the time limit expire without payment, the creditor will take further legal steps, creating additional costs and an increase in the amount due.

The Order for Payment Procedure can be taken as a second step after the warning letter has been sent, or the proceedings can be initiated directly, as preferred by the creditor.

How to proceed is something to be decided carefully, taking into account legal and Court costs, the timeline, the liquidity situation of the debtor, and realistic prospects of recovery.

It is advisable to document and archive all important elements of a business relationship from the outset.

Specifically: 

• Retain copies of all documents such as contracts, emails, hard-copy correspondence, written records of telephone conversations with the other party or third parties, contact details of witnesses (also former employees), delivery notes, etc.
  
• Take care that the contract contains a clause that all amendments of the contract will be in writing, and that this clause can also only be amended in writing.
• In case of objections regarding failure to perform, or defective or inadequate delivered goods, it is important to comply with Czech commercial law procedures and requirements for filing an immediate objection in order not to lose respective rights. 
• When starting a business relationship, it is advisable to ensure, as far as possible, the contracting party’s liquidity, especially in relation to the value of the business venture in question. Obtain a current excerpt from the Company Register, and a current credit-worthiness report for the respective company as applicable. A best practice is to require a bank guarantee from the contracting business partner.
• Throughout the business relationship, be sure to keep a record of the other party’s assets and related documentation including bank accounts, immovable property, movable property, and competent tax authority. These will be needed in case of enforcement of a future verdict.

Careful collection and retention of such records may also be useful in any future summary procedure for a claim arising out of a bill of exchange (“směnečné řízení”). This summary procedure gives the claimant/creditor the opportunity to receive a fast track enforceable title. This involves a temporary restriction on the presentation of evidence, as all facts constituting the claim have to be proved solely by documents.

Legal representation by an attorney at law in proceedings for pecuniary fulfilment is not mandatory. However, given the detailed requirements, the automatic nature of this procedure, and the need for the application to be written in Czech, it is advisable for foreign entities or individuals to have the help of a lawyer.

For power of attorney holders, the same rules apply as for Czech nationals. For court cases, a power of attorney in original bearing the signature of the legal or natural person granting the power and, in the case of an entity, the signature of the statutory body, will be sufficient. Alternately, a PDF signed by electronic signature compliant to eIDAS Regulation is sufficient.

The same applies to the warning letters sent by a lawyer. In case the plaintiff is a foreign company, the power of attorney must be accompanied by a translated and notarized extract from the company´s commercial register, proving the company´s existence and who acts legally on behalf of the company.

For the purposes of the creditor sending the debtor a warning letter, no evidence needs to be presented.

If, however, the creditor chooses to initiate court proceedings against the debtor, the creditor is required to provide evidentiary proof, for e.g., of a written contract, services or goods provided, invoice(s) issued, delivery notes, et al.

If the debtor, in their defence, cites the absence of a contract or order placed, non-receipt of goods or services, or damaged or faulty goods received, the creditor must present all evidence to support their claim.

Evidence admitted by the courts includes documents, witness testimony, on-the-spot inspections (physical and testimonial evidence), as well as statements given by parties or expert witnesses.

In debt collection cases, the Czech courts typically prefer documentary evidence over witness testimony. Careful and thorough filing of all documentation relevant to a business relationship is, therefore, essential for succeeding in any eventual debt collection case.

Both the creditor and the opposing party may submit evidence to the Court at any point, from the filing of the case, up to the court hearing itself.

In this way, the creditor may issue the writ while stating that all evidence will be submitted in due course. This provides the creditor with valuable time to complete their discovery.

Claims not supported by adequate evidence will not succeed.

If the debtor is willing to pay but does not have the required liquidity, it is advisable to move to conclude a written acknowledgment of the debt, and an instalment agreement, with specific payment dates that the debtor will have to follow.

The agreement should include provisions for direct enforcement against the debtor in case of non-compliance with the payment schedule, and should be signed by both parties before a notary public.

In this way, the notarial act constitutes an enforceable order that can be used by the creditor for direct collection of the debt, without the need to file a further lawsuit.

In cases where the debtor refuses to pay after receiving the first demand of payment, the creditor may resort to an Order for Payment Procedure as an alternative to initiating court proceedings. Full details of this procedure are given in the Answer to Question a) above.

Preliminary injunctions can be taken under certain circumstances, and according to strict prerequisites.

A preliminary injunction (“předběžné opatření”) is intended to help improve the legal position of the creditor in case there are serious reasons to believe that the enforcement of the debt will be endangered.

According to the Czech Civil Procedure, a court may order interim measure(s) before the commencement of the proceedings, if:

a) the circumstances of the parties need to be adjusted temporarily, or

b) there is a concern that the enforcement of the judgment would be jeopardized.

The right to an interim injunction must be supported by a valid reason, namely, an evident risk to the claim, or a concern that the enforcement will be endangered in case of an already enforceable claim.

In order to secure compensation for damages or other harm that would result from a preliminary injunction, the plaintiff is obliged to lodge a security in the amount of CZK 10,000 (approx. EUR 378), and in the amount of CZK 50,000 (approx. 1883 EUR) for matters relating to relations between entrepreneurs arising from business activities,.

In particular, a preliminary injunction may order a participant to:

(a) deposit the sum of money, or the matter, with a court;

(b) not deal with certain things or rights;

(e) do something, refrain from something, or tolerate something.

For a seizure order against the debtor's assets (movable or immovable), there must be evidence of likelihood that enforcement will be considerably more difficult or face more obstacles without a seizure being ordered, for e.g., concrete indications that the debtor will withdraw their assets from the creditor's and the Court’s access.

Worsening of the debtor's economic situation and competition from other creditors are not by themselves sufficient grounds for seizure.

The claim and grounds for seizure must be supported by credible evidence and additional affidavits.

Clearly, the use of preliminary injunction needs to be made after thorough preparation, but it also must be made quickly to ensure the best prospect for interim relief and a successful final verdict.

In the Czech Republic, the creditor must log the debt in their accounts as irrecoverable/uncollectible, and provide proof of the same. Where the debtor is insolvent, this can easily be demonstrated with a copy of the respective court decision. Otherwise, the lawyer entrusted with the collection of the debt can confirm, in a respective written statement, that the debt is irrecoverable.