Debt Collection in Slovakia

• Domestic companies payment behaviour is quite strong, but according to 2016 statistics, Slovakian firms or businessmen pay in 27 percent of cases after the due date.

• The legal system suffers from a chronic lack of trust concerning the rule of law whilst the legal process is too sluggish. Domestic debtors often use the scheme as much as possible to avoid litigation and prosecution efforts.

• Debt restructuring schemes can help to reclaim debts, but total recovery prospects remain extremely small when the litigation is postponed and the debtor is insolvent.

1. Summary

1.1. General financial information

1.1.1. In Slovakia, debtors are usually able to establish good credit history, enabling faster access to credit, whereas borrowers continue to have easy access to information about the financial history of a prospective debtor via credit information systems.

1.2. Key legal structures

1.2.1. Corporate debt responsibility is defined by legal structures, which are listed as follows:

• Sole proprietorship is possible for independently operated small businesses for which no contractual arrangement is needed. In this scenario, the claimant shall be held responsible for all contractual debts. Two to 50 individuals may also decide to share rights and liabilities by relationships (verejná obchodná spoločnosÿ, v.o.s.), in which case the spouses may be collectively and separately responsible for the other partners ' acts. Conversely, limited liability partnerships (komanditná spoločnosÿ, k.s) that give the partners limited liability.

• Private Limited Liability Companies (spoločnosÿ s ručením obmedzeným, s.r.o) represent the vast majority of companies in Slovakia, as they involve minimal capital assets (EUR 5,000) while the responsibility of the investors is limited to their unpaid investment. Once the investment is taken back investors will not be responsible for the company's debts. Joint investment corporations (akciová spoločnosÿ, a.s.) are used to split their money (EUR 25,000) into tradable assets on larger structures. The creditors are not responsible for the company's obligations at these bodies. The owner will, therefore, compensate for their securities, as it is not allowed to waive a shareholder's debt in order to pay the equity problem interest. There are also other forms of Joint Stock Companies that are not widely used: a) Joint Stock Company with adjustable registered capital (akciová spoločnosÿ s premenlivým základným imaním) in which the registered capital (minimum EUR 125,000) is split by a certain amount of' without par value ' securities, unless otherwise provided by law, and can only be formed for collection purposes The lender can not be held liable for the company's debts.

• Instead, foreign companies that settle in Slovakia by branch offices (podnik alebo organizačná zložka podniku zahraničnej osoby) which do not provide the foreign parent company with any liability limits. Joint Ventures can take the form of any legal structure mentioned above, but incorporation is not necessary, so a contract drawn up for this reason would be appropriate.

1.3. Regulatory framework

1.3.1. Slovakia has a civil law structure in which justice is delivered by 54 first-instance district courts, eight federal courts serving as trial courts, and a Supreme Court functioning as the final court. In other terms, the sum of the petition has no effect on the attributions of authority under Slovakia, and practically relies on the place of registry or residence of the debtor. In June 2016, the European Commission addressed a pervasive lack of confidence in the rule of law, with significant impacts on the capacity of companies to obtain fair and equitable justice.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Domestic corporations' payment behaviour is fairly good though it has deteriorated in recent times, with gaps of up to 20 days increasingly frequent. Generally, the typical payment terms appear to be between 30 and 60 days (up to 90 to 120 days in the heavy industry and building sectors), while vendors are not expected to be charged until after the due date. In fact, billing occurs frequently seven to 30 days after the original due date, with 60% to 80% of unpaid invoices actually paid within the first month following the due date.

2.2. Late interests

2.2.1. The EU Directive 2011/7/EU, which stipulates that payments must be received in the EU within 60 days, was transposed into Slovak legislation by way of Commercial Code Act No 513/1991. Business-to-business contracts will, as a general rule, be completed within 60 days, while payment terms may be expanded by default, if they do not become unjust to one side. Unless the parties agree to a higher interest rate by arrangement, the borrower shall be entitled to obtain late payment interest determined by default on the European Central Bank's base rate, raised by eight percentage points (Articles 340 and 365 of the Commercial Code). In practice, it is common to apply a 9 percent interest rate for late payment, although debtors rarely agree to pay such interest in the amicable collection phase.

2.3. Costs of debt collection

2.3.1. Since 2013 and the transposition of Recast Directive 2011/7/EU, creditors may also charge a flat collection fee of EUR 40 when late payment occurs. Transaction fees would often be expected to be reported as part of a lawsuit, while they would be considerably higher than the flat fee.

2.4. Protecting ownership

2.4.1. Title preservation (RoT) arrangements aimed at maintaining possession of products before full payment of the relevant invoice is feasible in Slovakia, but rare. In fact, the possession restriction would most likely be limited to cases where the seller did not sell or manufacture the goods. Furthermore, the courts will tend to ask the consumer to explicitly accept that they are obliged by the contract (i.e. through a particular approval), so it is very difficult to enforce RoT agreements.

2.5. Payments

2.5.1. The most common methods of payment are as follows: bank transfers are among the most prominent means of payment for international transactions, as they are quick, protected and sponsored internationally and domestically by an increasingly integrated banking network. Export sales are usually guaranteed via an Export Credit Insurance policy, which tends to minimize the risk of immediate or accidental insolvency of customers.

2.5.2. Furthermore, Standby Letters of Credit (a bank guarantees the creditworthiness and repayment ability of the debtor) are often used for export shipping transactions because they provide secure assurances that can be enabled as a' payment of last resort' if the buyer fails to fulfill a contractual obligation. In fact, irrevocable and verified Documentary Letters of Credit (a debtor assurances that a certain amount of money will be made available to a borrower through a bank once certain terms clearly decided by the parties have been met) are gradually being dependent upon. Bank loans are costly, so in fact 30 percent of purchases have to be paid in advance, although securing down payments is highly recommended.

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3. Collecting payments

3.1. Amicable action

3.1.1. The legal procedure has long been criticized in Slovakia for its lack of speed, clarity and certainty. However, the courts are usually crowded because debtors have a wide range of possibilities to prolong the duration of the legal proceedings, beginning from lawsuits, being excluded from trials, etc. Eventually, the burden of proof, which rests on the borrower, can be overly stringent. For these purposes, the capacity of domestic courts to contribute positively to conflict resolution litigation is extremely limited and the most appropriate solution to formal legal action is amicable mediation arrangements, but in reality it is not the preferred method for debtors.

3.1.2. Evaluation of assets is also critical before beginning legal proceedings against a debtor, as it requires assurance as to whether the business is still operating and whether chances of recovery are at best. Therefore, it is important to be mindful of the solvency state of the debtor: once insolvency proceedings have been launched, the recovery of a loan through legal action will indeed become unlikely.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. If the debt is certain and undisputed, the borrower can appeal to the district courts for a restitution order (as modified, in compliance with sec. 265 et seq. of Law no. 160/2015 Coll. Civil Litigation Procedure Code). The claimant would then have to pay the debt within 15 days, or lodge a lawsuit. In this situation, or if the defendant fails to answer, the court continues with legal proceedings and demands a trial.

3.2.2. The senator had passed Act No. 307/2016 Coll by the end of 2016. On the Reminder (Act) litigation with effect from 1 February 2017, which is an even simpler and cheaper solution to imposing substantive charges relative to the payment request under the Civil Litigation Procedure Code. The new Act incorporates the following (most important) amendments: the petition for payment orders can only be submitted online using a specific form and must be signed with an approved electronic signature; the only qualified court is the Banská Bystrica District Court and the court cost for starting proceedings under the Act is half the court fee when the claimant requests the authorizing party to do so.

3.2.3. Proceedings may also start by the borrower lodging a lawsuit. The debtor is then called to carry a defence; however, usually the time required to arrange proceedings will allow the debtor ample room to vanish. Therefore, as previously mentioned, litigation would provide debtors with multiple opportunities to postpone further payment.

3.2.4. A European Payment Order mechanism enabling the restitution of undisputed debts (under Regulation EC No 1896/2006) may also be enabled where the allegation is undisputed and the delinquent entity has properties in other EU Member States. In this situation, the applicant may expect a District Court to issue an Order to Pay which will then be enforceable in all countries of the European Union (except Denmark) without exequatur.

3.2.5. Required documents. The court needs these specific records before beginning legal action: copies of the debtor's directives, confirmation that receivables are due, copies of the invoices and copies of the debtor's signed delivery notes. In Slovak or Czech, formal legal hearings must be held in domestic courts, however some versatility has been implemented in the trial format and records are now gradually being published in English or German.

3.2.6. Time limits. In addition, industrial cases must be taken before the trial within four years; additionally, lawsuits for travel must be presented within one year.

3.2.7. Provisional measures. In theory, temporary measures may help preserve the interests of the creditor pending a final court decision. The courts may, on appeal, order temporary remedies aimed at preserving the status quo or prevent irreparable damage (attachment of the debtor's properties, mandatory injunctions to do something and barring injunctions to prevent doing something, rights defense, etc.).

3.2.8. The process, however, is extremely restrictive in practice and very difficult to implement. The claimant would often find it difficult to show that the lawsuit has a good chance of success and that in the absence of precautionary steps liability alone would not satisfy. It would also be important to provide an accurate list of the debtor's properties, though extremely difficult to create.

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3.2.9. Appeal lodging. The claimant is entitled to lodge an appeal while the records to lodge an appeal are of a very general nature. In this case, the court will delay the proceedings and set a date for a fresh trial, but it is only necessary to file an appeal on grounds of appeal which are specifically specified in the Code of Civil Procedure Litigation. It is then, once again, for the claimant to assert his claims. Consequently, the appeal process is often used as a strategy of hesitation. Second-instance rulings can not be contested.

3.2.10. Enforcing court decisions. A verdict remains enforceable for ten years as long as it becomes definitive (i.e. when all the areas of appeal have been exhausted). In fact, it is normal for the defendant to disregard the judgement, in which case it becomes necessary to ask the court to order the judgment to be imposed by a bailiff / executor. As of 1 April 2017, the Compliance Procedure Code (Act No 233/1995 Coll.) was substantially revised. The amendment mainly introduces the following two amendments: The only enforcement court with territorial jurisdiction for the entire Slovak Republic is the Banská Bystrica District Court, and the enforcement petition can only be filed electronically with an authorized electronic signature. The compliance process should be speedier and more efficient on the basis of those improvements.

3.2.11. Duration of legal action. Nevertheless, as stated above, it may take years to obtain a definitive and enforceable ruling from domestic courts for undisputed debts to be settled by courts within about 180 days. Likewise, implementing international actions can be extremely time-consuming, but can nevertheless be a tactical move.

3.2.12. Costs of legal action. Throughout legal action, and on the recommendation of the plaintiffs, the losing side will normally pay all or half of the claimant's expenses (legal costs, court fees, and bailiff costs). The complainant must incur court fees for bringing litigation amounting to 6 percent of the lawsuit (to be refunded by the losing party if the plaintiff succeeds). Mechanisms for no-win-no-fee are not used in Slovakia, where attorneys will usually charge their clients for every action taken on their behalf.

3.3. Alternatives to legal action

3.3.1. Alternative Dispute Resolution Procedures (ADR). Mediation is provided as an alternative to court proceedings under Law 420/2004, but is not widely used in Slovakia, and where parties try out-of-court settlement, negotiation is generally preferable.

3.3.2. Given the difficulty in securing a definitive and enforceable ruling from domestic courts, including an arbitration clause in contracts when doing business in Slovakia, this may be an appropriate option. In particular, where transactions are carried out on an international scale and the sums involved are significant, international arbitration can prove effective. On 1 January 2017 an update to the Arbitration Procedures Act (Act No. 244/2002 Coll. on arbitration procedures) came into force.

3.3.3. This made significant changes to the right to set up an arbitration tribunal as well as additional responsibilities for existing courts. According to the reform, a permanent arbitration court (PCA) in Slovakia can only be set up by a national sports body or a law-setting committee, such as the Slovak Bar Association or the Slovak Chamber of Commerce.

3.3.4. The law further obliges legal entities who may set up a PCA to maintain the court operating at their own cost, if this is stated in a specific clause (Act No. 492/2009 Coll. on Payment Services). Other legal persons (such as a company) are not in a position to establish a PCA. The senator clarified this as avoiding a dispute between a PCA's creator and the need to be neutral in proceedings. PCAs will no doubt have a permanent seat, as hearings will take place wherever the parties agree or where the arbitration tribunal agrees.

3.3.5. Foreign forums. Instead, parties wishing to circumvent domestic courts may choose to resolve their conflicts through an international tribunal, because Slovakia is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which stipulates that the contracting parties should, through mutual agreement, choose the law related to their contract and choose the court that will have jurisdiction Nonetheless, domestic courts will usually hold sole authority over specific legal concerns (for example, property) as well as matters considered incompatible with Slovakia's public policies.

3.3.5. Overall, while it may take years to implement international (non-EU) decisions, the procedure can reduce the risk of an unsatisfactory decision. It would be necessary that the arrangement be distinguished by an external relation (e.g. one party has chosen domicile in another country, or the place of execution is placed abroad), and that a jurisdiction provision be written specifically for this purpose. Otherwise it could be of concern to arbitrate.

3.3.6. Enforcing international awards. International rulings in Slovakia are enforceable, but as different circumstances may occur, comprehensive flexibility may be needed. On the one side, decisions made in an EU country will profit from favorable terms of compliance. Apart from EU enforcement judgments which are usually enforceable exclusively in domestic courts, the primary forms of imposing an EU judgment in Slovakia include the use of a European Compliance Order (EEO, as provided for in Regulation EC No 805/2004) where the argument is undisputed or the declaration of the judgment under the terms of Brussels I Regulation (44/2001) and, as of 10 January 2015, the use of a European Enforcement Order (EEO) where the allegation is unquestioned.

3.3.7. If the judgement applies as an uncontested allegation, it should be applied immediately (i.e. without registration) through the use of an EEO, given the claimant has defined the country's properties. Similarly, a European Small Claims Process (as provided for in Regulation EC 861/2007) aimed at removing intermediate steps can be counted on while applying judgments of up to EUR 2000.

3.3.8. The process for filing an EU decision with domestic courts should be relatively simple, if the argument is contested. To order for the judgment to be recognized, the judgment holder will appeal to the court involved and provide the court with, among other records, an approved copy of the judgment, a validated transcript and, if interest is asserted, a letter stating the amount and interest rate at the time of the application and forwards. Once the judgment has been published, it can be applied as if it were given by domestic courts (such an exequatur process is no longer required from January 2015, according to Recast Regulation EC 1215/2012).

3.3.9. On the other hand, judgments rendered outside the EU in foreign countries would normally be recognized and enforced on a reciprocal basis, provided that the issuing country is a party to a bilateral or multilateral agreement with Slovakia drafted for this purpose. Slovakia is a signatory to the 1958 New York Convention on the Recognition and Compliance of International Arbitral Awards and its domestic courts should therefore accept and execute awards given by international arbitration hearings.

4. Managing insolvent debtors

4.1. Insolvency in Slovakia

4.1.1. In Slovakia, insolvency relates to cash flow insolvency (platobná neschopnosÿ) and insolvency in the balance sheet (predžženie). The Slovak insolvency legislation derives from the Bankruptcy and Restructuring Act (which has been revised since then. Reforms were carried out in 2012 to render insolvency law more beneficial to investors (essentially by adding stricter requirements for the initiation of proceedings). Recently amended Act No. 7/2005 Coll. Many substantive changes have been enacted on Bankruptcy and Restructuring with effect from 1 January to 1 March 2017.

4.1.2. One of the major changes are introduced in accordance with the settlement process–according to Art. 154 sec. 1 letter g) effective 1 January 2017 all unsecured creditors must be compensated by at least 50 percent of their claims.

4.1.3. This applies, with small exceptions, to proceedings commenced after 1 January 2017. The other significant change occurs in private debt relief (i.e. personal bankruptcy). The reforms resolve practical needs, which allow debtors more open to personal bankruptcy. In Slovakia , eight district courts hear cases of debt and dissolution (except appeals). In reality it is still highly difficult to collect capital from insolvent debtors.

4.2. Insolvency proceedings

4.2.1. Out-of-Court proceedings. No specifically designed out-of-court proceedings are provided for by law.

4.2.2. Debt restructuring. The legal framework includes two independent cases which gives priority to debt restructuring (reštrukturalizácia). Once the restructuring proceedings are launched (the debtor's consent is mandatory), the creditor asks a trustee of their choosing to prepare a restructuring report on the grounds of which the court can determine whether to begin a complete prosecution or not. The investors will file a claim within 30 days after the court has approved the settlement. When they skip this date their claim against the claimant can no longer be followed.

4.2.3. Accordingly, the creditors' statements are reported and a creditors' committee is set up to represent all creditors. The trustee instead submits the restructuring plan to the Creditors' Committee for approval. The agreement is binding after final court acceptance on all of its members. Debt restructuring strategies are becoming ever more common among Slovak debtors.

4.2.4. Winding up proceedings. Bankruptcy proceedings (konkurz) aim to obtain from the debtor's assets proceeds an optimum realization of the creditors ' interests. After either the debtor or his creditors have filed a bankruptcy petition–if the court launches bankruptcy proceedings and then declares bankruptcy on the debtor's assets–the creditors are then obliged to file their claims within 45 days.

4.2.5. The trustee appointed by the court (selected by a random computer generator) has full management power over the estate. We are responsible for selling the properties and transferring the money to the creditors. In order to be considered by the judiciary, international investors will assign a service agent residing to Slovakia. Liquidation is a summary of the contractual action usually carried out when the debtor decides to close his company without actually being insolvent.

4.2.6. Priority Rules. The rules of priority normally apply when distributing the proceeds to secured creditors (separate portion of the debtor's assets). The creditors ' committee is always comprised of three or five representatives, with the first being chosen at the first meeting of creditors. Unsecured creditors and secured creditors can be members of the creditors ' committee only to a certain extent. As already stated, it is extremely difficult to cause protection of title protections because, in fact, the debtors often have no items left to return.

4.2.7. Duration of insolvency process. Insolvency cases will take years to last.

4.2.8. Required documents. Copies of debtor's invoices, letters, initial order(s). The creditor has the right to refuse the petition owing to procedural irregularities, or if liability is not entered into debtor's accounting books. Then we need legal proceedings.