1. What does a debt collection process in Czech Republic look like?
The first step in collecting a debt is usually to send a pre-litigation reminder. Although this step is not absolutely necessary, and if there is a risk of delay, for example in the event of impending statute of limitations, it may be completely omitted. However, if the creditor does not send a pre-litigation reminder, this will almost certainly deprive him or her of the possibility of awarded costs.
Pursuant to Section 142a of Act No. 99/1963 Coll., the Code of Civil Procedure (hereinafter also referred to as the “Civil Procedure Code”), a plaintiff who has been successful in court proceedings is entitled to reimbursement of costs against the defendant only if he has sent a pre-litigation reminder to the address for delivery or to the last known address of the defendant at least 7 days before the submission of the motion to initiate proceedings.
If the debtor does not respond to the creditor’s reminders or refuses to pay his or her debt, the debt can be enforced through the courts.
The easiest way to claim a creditor’s claim for financial payment before a competent court is to fill in an electronic form called “an application for an electronic payment order”. This form is available on the website of the Ministry of Justice of the Czech Republic with instructions for filling it out. However, this procedure may be used provided that the defendant is not required to pay in excess of CZK 1,000,000.
If the plaintiff does not want or cannot file an application for the issuance of an electronic payment order (for example, because he or she claims financial debt higher than CZK 1,000,000), it is appropriate to file a civil action.
In the event of a judgment in favor of a creditor which has not been paid by the debtor even after the judgment has become effective and enforceable, enforcement of the decision may take place. Such a judgment is an enforceable title for the subsequent enforcement of the claim in the following judicial enforcement proceedings, or execution proceedings. The creditor has two options to choose among with regard to the enforcement of the decision – judicial enforcement of the decision according to the Civil Procedure Code, or execution according to Act No. 120/2001 Coll., on Licensed Executors and Execution (the Execution Procedure Act) and Alteration of Some Other Acts. In Czech Republic in the vast majority of cases the creditor chooses the route of execution which is usually more effective.
In order for the execution to start, the creditor must file an execution proposal. The execution proposal is submitted to the executor chosen by the creditor to carry out the execution. The executor then sends the execution proposal to the competent court which entrusts him or her with the execution. It is necessary to enclose the original or a certified copy of the decision with a marked legal force clause to the execution proposal.
An enforcement action may be taken against both movable and immovable assets, entitlements and other assets, with some exceptions.
An execution imposing the payment of a financial amount can be performed through deductions from wages and other income, through seizure, the sale of movable and immovable assets, the seizure of a company enterprise, and the creation of a judicial executor’s lien on immovable assets, the administration of immovable assets, or through the suspension of a driving license.
An execution method imposing an obligation other than the payment of a financial amount depends on the nature of the imposed obligation. It can be performed through eviction, removing items, splitting common items, the completion of work and other performances.
An execution through the sale of a pledge can be performed for a seized claim through the sale of pledged movable and immovable assets.
2. Are there options to “freeze” or secure debtor’s redress objects?
A claimant may apply to the court for an interim measure to restrain the defendant from acting unlawfully and to preserve its position until the rights of the parties have been finally determined in the action. An interim measure can also be sought to restrain a defendant from removing assets from the jurisdiction or dissipating them before or during trial. The court will need to be satisfied that there is a good arguable case that the defendant has assets and that there is a real risk of their dissipation in the absence of an order being made.
An interim measure is only a temporary measure and is made at the discretion of the court. The courts are required to issue the interim measure (or decline to do so) within seven days of delivery of the application.
Article 76 of the Civil Procedure Code provides that an interim measure may order a party, for example, to pay maintenance, to lodge a sum of money with the court, to place an item in the custody of the court, not to dispose of certain items or rights, to do something, to refrain from doing something, or to allow something to be done.
Under an interim measure, a court may impose an obligation on someone other than a party to the proceedings where this can justifiably be required (e.g. if someone is buying a property in the full understanding that he or she is purchasing it from an owner who has not duly met payment obligations towards creditors).
A party applying for an interim measure is required to remit a deposit amounting to CZK 10 000 (or CZK 50 000 in commercial disputes) on the potential compensation of damages caused by the interim measure. If the court concludes that the deposit lodged is obviously insufficient to secure compensation for the damage or other harm which would result from the interim measure, or that it is a re-application for the interim measure concerning the same parties and similar reasons which requires the same or similar temporary resolution of the issue, it shall immediately request the claimant to lodge, within 3 days, a supplement to the deposit in the amount determined by taking into account the circumstances of the case. Applications are exempt from the requirement to remit a deposit if they concern social welfare issues (e.g. maintenance, employment, or compensation for personal injury).
The deposit serves as security for a claim to compensation for damage or other loss which may be incurred by the parties or by third parties (i.e. persons not party to the interim measure proceedings) if an interim measure is ordered.
A party may apply for an interim measure before the final judgment is issued. An application may also be made before the legal action is filed but the judge may require that the claimant files the legal action within a specified period of time.
The court order ordering the interim measure is enforceable from the moment of promulgation. The parties may appeal against the interim measure but a pending appeal does not affect its enforceability. Transactions carried out in breach of an interim measure are invalid.
3. Do you need to be assisted by an attorney at law?
It is not mandatory, but debt collection through an attorney at law is usually more effective.
4. What are the costs of the procedure and are they eligible for reimbursement?
A cost of filing a civil action the subject of which is financial payment (court fee)
- up to the amount of CZK 20,000 – CZK 1,000
- in an amount higher than CZK 20,000 to CZK 40,000,000 – 5% of this amount
- in an amount exceeding CZK 40,000,000 – CZK 2,000,000 and 1% of the amount exceeding CZK 40,000,000; an amount over CZK 250,000,000 is not included.
A cost of application for electronic payment order the subject of which is financial payment (court fee)
- up to and including CZK 10,000 – CZK 400
- in an amount higher than CZK 10,000 to 20,000 CZK inclusive – 800 CZK
- in an amount higher than CZK 20,000 – 4% of this amount.
In addition to the mentioned court fee, there are following types of costs in civil proceedings: cash outlays (e.g. travel, board and lodging), the legal representation fee, compensation for loss of time of parties and their legal representatives etc. This list is not exhaustive; other expenses may also be considered costs provided that they are incurred in connection with the proceedings.
In principle, legal representation fee for the provision of legal services is subject to the agreement on provision of legal services concluded between the lawyer and the client (contractual fee). The lawyer and client may also agree on contingency fee if the fee is reasonable. (A reasonable fee is considered up to the maximum of 25% of a case result value). If no contractual fee is set, remuneration is determined in accordance with the Attorney’s Tariff. VAT is applicable on legal representation fee provided that the lawyer is VAT registered. VAT rate is 21 %.
In principle, the court fee and other expenses are reimbursed to the winning party by the losing party.
Concerning execution proceedings, its costs are in principle paid by the debtor. Execution costs consist of the judicial executor’s fee, reimbursement of cash expenses, compensation for loss of time, compensation for delivery of documents, remuneration and compensation of the company enterprise manager, in case of execution by sale of the company enterprise. If the judicial executor or the company enterprise manager pays value added tax, the relevant value added tax is also to be paid as the cost of execution.
Remuneration of a judicial executor for execution imposing financial payment is following:
- up to CZK 3,000,000 – 15%
- from the remaining amount up to 40,000,000 CZK – 10%
- from the remaining amount up to 50,000,000 CZK – 5%
- from the remaining amount up to CZK 250,000,000 – 1%.
In any case, remuneration of a judicial executor should be amounting at least CZK 2,000.
If the creditor is represented in the enforcement proceedings by a lawyer, the creditor has the right to reimbursement of costs expediently incurred to enforce the claim. These costs are also covered by the debtor.
5. What is the term of the procedure?
As of 2019, the average length of proceedings before district courts in civil matters was 263 days.
An execution proceedings might take from several weeks to several years depending on the debtor’s amount of assets and other factors.