How to address matured bonds

What commonly happens after a bond matures – the ideal scenario

However, reality is often more complex, because while the issuer took your money, they may have fallen into secondary insolvency in the meantime. That is why it is crucial to know what to do when the maturity date arrives and the money does not. In such moments, there is no time for improvisation; you must know your options under the Czech Bond Act.

When you are certain that the issuer is truly defaulting – and what it means

The first sign of trouble is that the money does not arrive on the scheduled day. This could be a delay that the issuer will soon resolve as a short-term cash flow shortfall, or a signal of a deeper problem. In practice, we distinguish between two basic situations.

Default without insolvency means that the issuer is still solvent and has assets, but is in default. In this case, you have a relatively straightforward path where you can enforce your rights in court through a claim for performance and subsequent execution. The issuer owes you money and has the means to pay, they are just not doing so voluntarily.

Default with insolvency occurs when the issuer has multiple creditors, liabilities that are overdue for a longer period, and is unable to meet them. Here, the situation is dramatically different because individual lawsuits or executions are ineffective or prohibited by law once insolvency proceedings are initiated.

Lawyers from the Prague-based ARROWS law firm screen the issuer's situation and determine whether it makes sense to file a lawsuit or if it is necessary to react immediately to the insolvency register.

Bondholders' meeting – how and when to convene it

The Czech Bond Act anticipates default situations. If the issuer fails to meet its obligations, it is obliged in certain cases to convene a bondholders' meeting without undue delay. This meeting is a key mechanism for unifying the approach of creditors.

If you alone or in a group with other bondholders hold at least 5% of the nominal value of the unpaid part of the issue, you can request the issuer to convene a meeting. If the issuer does not convene the meeting within 15 days of receiving the request so that it takes place within 30 days, you can convene it yourself at the issuer's expense.

The meeting can approve a range of measures, such as amending the terms of the issue, a payment agreement, or a joint approach to enforcing rights. To pass key decisions, a simple majority is not enough; the Czech Bond Act requires the consent of a three-quarters majority of the votes of the bondholders present.

ARROWS law firm oversees compliance with all formal requirements when organizing meetings, such as notary records and attendance lists, to ensure that decisions are valid and enforceable.

Out-of-court debt collection – before you go to court

Before resolving the matter in court, it is standard practice to attempt an out-of-court settlement. This is the fastest and cheapest option if the issuer is communicating.

The basis is sending a so-called pre-action notice under the Czech Code of Civil Procedure, in which you clearly state the amount owed and provide an additional period for performance. This notice is procedurally key and is a prerequisite for the court to award you recovery of legal costs if you win. Ideally, the notice should be sent by your legal representative, which signals to the debtor that you are ready to go to court.

If the debtor responds, an agreement on acknowledgment of debt and a payment schedule can be negotiated. We recommend drafting the acknowledgment of debt in the form of a notarial deed with direct enforceability, so that in the event of further non-payment, you can go straight to an enforcement officer (executor).

If the debtor does not respond, the pre-action notice serves as evidence that you attempted a settlement and opens the door to filing a lawsuit.

Court enforcement – when the out-of-court path fails

If out-of-court negotiations fail, it is necessary to turn to the court. Under Czech legislation, there are two basic forms of initiating a dispute depending on the amount and complexity.

Electronic payment order

If the monetary claim does not exceed CZK 1,000,000 and the claim clearly follows from the facts stated in the lawsuit, an electronic payment order is the ideal choice. The proposal is submitted exclusively via an electronic form with a qualified signature or via a data box.

If the court finds the claim to be clear, it will issue an electronic payment order ordering the debtor to pay within 15 days of delivery.

The court fee is 4% of the claimed amount, and the order is often issued within weeks. However, you must take into account that an electronic payment order cannot be delivered by fiction (substituted service) and the debtor must physically receive it. If the debtor files an opposition, the electronic payment order is cancelled and the matter proceeds to classic court proceedings.

Classic court proceedings

For claims over CZK 1,000,000 or in more complex cases, a standard lawsuit is filed. The court usually first issues a standard payment order, and if the debtor files an opposition, the court schedules a hearing. The entire process can take 6 to 18 months.

Lawyers from the Prague-based ARROWS law firm will ensure that the lawsuit is flawless and that you carry the burden of proof.

The issuer is bankrupt – what to do in insolvency proceedings

If the insolvency court decides on the insolvency of the issuer, the situation changes fundamentally, and deadlines start running from the publication of the decision in the insolvency register. Individual enforcement through lawsuits or executions is stopped, and the only way to get your money is through insolvency proceedings under Czech legislation.

Filing a claim

In the decision on insolvency, the court sets a deadline for filing claims, which is usually two months. This is a preclusive deadline, and missing it cannot be excused.

If you do not file your claim on time, your claim will not be satisfied in the insolvency proceedings, and the possibility of recovering it virtually ceases to exist.

The claim must be filed on the prescribed form, which must contain an exact specification of the claim, its amount, the reason for its origin, and all attachments. In the Czech Republic, no court fee is charged for filing a claim.

The insolvency trustee will review the claim, and if they accept it, you will be included in the distribution scheme. If they contest it as to its amount or authenticity, you must file a so-called incidental lawsuit to determine the authenticity of the claim.

Decision-making in insolvency proceedings – how the money is divided

The method of satisfaction depends on the method of resolving the insolvency, which can be bankruptcy (liquidation) or reorganization, as well as on the status of the creditor. If your bond is secured, you have the right to satisfaction directly from the proceeds of the sale of this collateral, after deducting the costs of administration and sale.

If the bond is unsecured, you fall among the standard unsecured creditors. Satisfaction takes place proportionally from what remains in the estate, which is often in the single digits or low tens of percent.

Lawyers from the Prague-based ARROWS law firm monitor not only the filing for you, but also the subsequent voting at creditors' meetings, where the method of resolving the insolvency is decided.

What risks you face and how ARROWS law firm helps you

Secured versus unsecured bonds – how it changes your position

The difference in the position of a secured and an unsecured creditor is fundamental in insolvency. A secured bond is backed by assets over which a pledge has been established, usually in favor of a so-called security agent. In insolvency, the security agent exercises rights on behalf of all bondholders, and these creditors are satisfied preferentially from the proceeds of the sale of the collateral.

An unsecured bond means that the creditor is dependent on the overall value of the issuer's assets. Creditors share the remainder of the assets with other suppliers, the state, and employees, so the recovery rate is usually significantly lower.

In practice, lawyers from the Prague-based ARROWS law firm analyze the terms of the issue and security agreements to determine real enforceability and set the strategy accordingly.

Group debt collection 

The individual approach of a small investor is costly, and their voice in insolvency proceedings is often negligible. However, when owners unite, their claims are aggregated and their position strengthens.

A group representing, for example, thirty percent of creditors has a major influence on the course of the insolvency and can block an disadvantageous reorganization or push through the dismissal of a trustee. In addition, the costs of legal representation are shared within the group, bringing economies of scale.

ARROWS law firm has extensive experience in coordinating creditor groups, including representation in creditors' bodies.

Practical steps – what to do immediately and later

• Immediately after maturity: Contact the issuer and demand an explanation.

• Within 14 days: If the money does not arrive, send a pre-action notice under Section 142a of the Czech Code of Civil Procedure, ideally through a lawyer.

• Ongoing: Monitor the insolvency register at isir.justice.cz.

• If the issuer does not pay and is not in insolvency: File a proposal for an electronic payment order or a lawsuit, followed by an execution proposal.

• If insolvency proceedings are initiated: Immediately start preparing documents for filing the claim, especially the original bond, agreements, and account statements.

• Within 14 days: If the money does not arrive, send a pre-action notice under Section 142a of the Czech Code of Civil Procedure, ideally through a lawyer.

• If insolvency proceedings are initiated: Immediately start preparing documents for filing the claim, especially the original bond, agreements, and account statements.

Do not wait for the situation to resolve itself, as deadlines run relentlessly.

Statute of limitations – a crucial deadline

The right to enforce a bond is not unlimited in time. The general limitation period is three years from the date the bond was due to be repaid. An extended period of ten years applies only to rights already granted by a court decision or rights that the debtor has acknowledged in writing as to their reason and amount.

The limitation period is interrupted by the initiation of court proceedings, execution, or filing in insolvency. It is important to remember that a mere reminder or notice does not suspend the statute of limitations.

Special situation – debt relief for individuals

If the issuer is an individual and the insolvency is resolved through debt relief (personal bankruptcy), specific rules apply. An amendment to the Czech Insolvency Act introduced a generally three-year debt relief period for all debtors. After meeting the conditions, the debtor is discharged from paying the remainder of the debts, so if you do not file your claim, its enforceability ceases entirely after the debt relief ends.

Security during insolvency proceedings – the security agent

With well-structured issues, there is a security agent, which is an entity that holds the pledge rights in favor of the bondholders. In insolvency, the security agent exercises the rights of a secured creditor, gives instructions for the sale of the collateral, and oversees the price. The proceeds are not distributed among all creditors but go primarily to the bondholders.

Conclusion

Enforcing a matured bond is a complex legal process. From out-of-court notices to electronic payment orders, complex insolvency disputes, and incidental lawsuits, each phase has its own rules and preclusive deadlines. A mistake in the process is often irreversible.

Lawyers from the Prague-based ARROWS law firm have years of experience in resolving defaulted bond issues. We know how to effectively use legal tools to maximize recovery for creditors, coordinate investor groups, and represent clients on creditors' committees.

If an issuer is not repaying your bond, do not hesitate, as time is working against you. Contact the Czech legal team at ARROWS law firm at consultation@arws.cz; we will analyze your situation and propose the optimal legal course of action.