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Fighting late payment in the Czech Republic

Fighting late payment in the Czech Republic

The Czech parliament only recently approved a novelization of the Commercial Code that transposes into Czech legal order the EU Directive 2011/7/EU dated 16th February 2011 on fighting late payment in commercial transactions. The Czech Chamber of Commerce (an entity representing the entrepreneurial public in the Czech Republic) has been struggling for this novelization since 2004. The novelization was published in the Collection of laws and became effective from 1 July 2013.

The main aim of the novelization is to create conditions for improving payment morals and for higher protection of suppliers of goods and services. The effect of late payments on a business cannot be underestimated; it can lead to a number of business crippling situations and cause liquidity problems such as having a lack of funds available for investment, not having the funds available to pay suppliers on time or even being unable to pay wages. All the above-mentioned effects can lead to secondary payment insufficiency. To minimise late payments and their detrimental impact on a business the novelization sets down stricter regulations for the payment period.

Directory payment period for delivery of goods or service shall be 30 days unless parties agree otherwise (i.e. longer payment period), nevertheless any payment period exceeding 60 days may be agreed upon only if it is not grossly unfair to the creditor within the meaning of the respective provisions of the directive. When delivering goods and services to public entities, a payment period of 60 days is set down as maximum.

Agreed period for acceptance and verification of the delivered goods and services may not exceed 30 days. Parties may expressly agree otherwise in very exceptional circumstances (e.g. an extremely complicated contract) and if it is not grossly unfair to the creditor within the meaning of the respective provisions of the directive.

The term „grossly unfair“ must be interpreted in relation to  the specific circumstances of the business transaction. According to the novelization, as grossly unfair shall be considered a contractual clause excluding claim for default interest or for recovery costs. Agreement on payment period that will is not in accordance with the new expected novelization, or agreement on default interest rate that is grossly unfair will be considered null and void. Simultaneously with the proposed novelization of the Commercial Code, the novelization of the government regulation No. 142/1994 Coll. and the increase of the rate of the default interests set out in this regulation, is proposed. The new statutory default interest rate for all contractual undertakings will be increased to 8 percentage points above the rate set out by the Czech National Bank. Parties are not allowed to fix a default interest rate for late payment below the statutory default interest rate. The New Civil Code, effective from 1st January 2014, already includes the rules set out in the directive.

Enterprises will automatically be entitled to claim interest for late payment and will also be able to obtain a minimum fixed amount of CZK 1200 as compensation for recovery costs. They can claim compensation for all remaining reasonable recovery costs.

 

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