In brief

• A draft amendment in the Czech Republic aims to limit penalties and interest charged to businesses that are late with repayment.
• When a lender demands immediate repayment, it could claim only the unpaid principal, without interest for the entire period.
• The Ministry of Finance gives an example: instead of 150,000 crowns, the lender could demand 100,000 crowns immediately.
• The draft has passed the comment stage, and the changes are to take effect next year.

What the draft changes

The new rules will limit penalties and interest in situations where a business falls behind with repayment. The draft also provides for a better position for debtors when notarial deeds are drawn up. The draft has already passed the comment stage, and the planned entry into force is next year (Konec smrtících úroků. Půjčky pro podnikatele dostanou nová pravidla – Novinky.cz).

How the debt will be calculated

If a business falls into arrears and the lender demands immediate repayment of the entire loan, it will be able to claim only the unpaid principal, not interest for the entire remaining period of the contract. Interest will accrue gradually until the principal is repaid. It will not be possible to demand it in advance or to charge default interest on it.

The Ministry of Finance gave an example: with 100,000 crowns of principal remaining to be repaid and interest amounting to a further 50,000 crowns, the lender can today demand 150,000 crowns immediately. After the change, it could demand only 100,000 crowns immediately.

Context

The draft is meant to address the problem of businesses that, under high interest rates, lose their property and sometimes their homes. According to the information provided, current conditions mean that some people running businesses lose their apartments and houses. In the Czech Republic there is also an ongoing discussion about a statutory cap on loan interest rates, which has been covered separately.