Slovakia Collection Profile

 

Slovakia
       

Slovakia

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Complexity of collecting debt:

grading
Notable High Very High Severe


Executive summary

  • The payment behavior of domestic companies is fairly good but has degraded lately despite EU standards on late payment being transposed into domestic law.
  • The legal system suffers from a persisting lack of trust in the Rule of Law, whilst the legal process is overly slow (not to mention a tendency of domestic debtors to use the system so as to delay legal proceedings and enforcement attempts as much as possible).
  • Debt restructuration mechanisms may help collecting debts, but recovery chances would overall remain extremely limited (null) when legal proceedings have been delayed and the debtor has become insolvent.
 
General Information GENERAL INFORMATION arrow-transparent
 
Collection Practices COLLECTION PRACTICES arrow-transparent
Court Proceedings Court PROCEEDINGS arrow-transparent
 
Insolvency Proceedings INSOLVENCY PROCEEDINGS arrow-transparent
 
General Information 

GENERAL INFORMATION

Days Sales Outstanding (DSO)

The payment behavior of domestic companies is fairly good but has been degrading lately and delays of up to 20 days are becoming increasingly frequent. Otherwise, the average payment terms tend to be from 30 to 60 days (up to 90/120 days in the heavy industry and construction sector) but it is the norm for suppliers not to get paid until after the due date. In practice, payment frequently occurs 7 to 30 days after the original due date, and in our experience 60 to 80% of overdue invoices are actually paid within the first month after the due date.

 

Late payment interest

The EU Directive 2011/7/EU, which stipulates that payments in the EU must be made within 60 days, was transposed into Slovak law through Act no 513/1991 of the Commercial Code..The rules in Slovakia are however stricter than the EU requirements: as a general rule, business-to-business transactions must be paid within 30 calendar days, although payment terms may be extended by contract to 60 days provided that they do not become unfair to one of the parties. Unless the parties agree on a higher interest rate by contract, the creditor is entitled to receive late payment interest calculated by default on the base rate of the European Central Bank, increased by eight percentage points (Sections 340 and 365 of the Commercial Code). In practice, applying a 9% interest rate for late payment is common, even though debtors rarely agree to pay such interest in the amicable collection phase.

Since 2013 and the transposition of the Recast Directive 2011/7/EU, creditors can furthermore charge a flat EUR 40 collection fee when late payment occurs. In practice, however, applying such fees is very rare and payment is even more seldom. Often, collection costs would rather be claimed as part of a lawsuit, but they would be significantly higher than this.

 
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collection practice 

COLLECTIONS PRACTICES

Orchestrated negotiation first

The process of law in Slovakia has long been criticized for its lack of speed, transparency and certainty. In addition, the courts are generally overloaded whilst debtors have a wide range of possibilities to extend the duration of legal proceedings, starting with placing protests, being absent at hearings, etc. Finally, the burden of proof, which lies on the creditor, may be overly constraining. For these reasons, the ability of domestic courts to positively contribute to dispute settlement proceedings is extremely limited and amicable settlement opportunities constitute the most effective alternative to formal legal proceedings. Before starting legal proceedings against a debtor, assessment of assets is also important as it allows verification as to whether the company is still active and whether recovery chances are at best. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt (see below).

 
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Court Proceeding 

COURT PROCEEDINGS

The Slovak Republic has a Civil Law system in which justice is rendered through fifty-four District Courts rendering decisions in first instance, eight Regional Courts acting as appellate courts, and a Supreme Court acting as the court of final jurisdiction. In other words, the amount of the claim has no impact on jurisdiction attributions in Slovakia, which thus essentially depend on the debtor's place of registration or residency. The European Commission emphasized in June 2013 a persisting lack of trust in the rule of law, with significant impacts on businesses' ability to access fair and equitable justice.

If the debt is certain an undisputed, the creditor may request a Payment Order from the District Courts (Pursuant to sec. 172 of Act no. 99/1963 Coll. Civil Procedure Code, as amended). The debtor would then have fifteen days to pay the debt or to file a defence. In this case or if the debtor fails to respond, it may become necessary to commence formal legal action. Proceedings may commence following the filing of a claim by the creditor. The debtor is then summoned to bring a defence; however the time necessary to organize hearings would typically give the debtor enough time to disappear. As previously mentioned, in addition, proceedings would provide debtors with multiple opportunities to further delay the payment. When the claim is undisputed and the debtor company has assets in other EU Member States, a European Payment Order procedure facilitating the recovery of undisputed debts (under Regulation EC No 1896/2006) may furthermore be triggered. In this case, the demanding party could request a District Court to issue an Order to Pay which will then be enforceable in all European Union countries (except Denmark) without exequatur proceedings.

 
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insolvency Proceeding 

INSOLVENCY PROCEEDINGS

Insolvency in Slovakia relates to cash flow insolvency (platobná neschopnos) and Balance sheet insolvency (predĺženie) alike. The Slovak insolvency law flows from the Act on Bankruptcy and Restructuring (2006) which has been amended since then. Reforms have been conducted in 2012 in order to make insolvency law more favorable to creditors (essentially through the introduction of softer conditions to begin proceedings). Only eight District Courts in Slovakia hear bankruptcy and restructuring cases. In practice, collecting money from insolvent debtors remains extremely difficult (between 3% and 25% of the debt in debt restructuration proceedings, nothing when liquidation is considered).

 
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