Your counterparty is undergoing a merger or division.

What changed in 2024 and why it surprises creditors

The previous legislation gave creditors six months from the moment the registration of the transformation in the Commercial Register became effective against third parties. Creditors could register their unmatured claims, and if their recoverability deteriorated due to the transformation, they could demand sufficient security (Section 35(1) of the Act on Transformations, as amended from 1 January 2021 to 18 July 2024). Suppliers had grown accustomed to this period and counted on it as a generous buffer after registration.

An amendment effective from 19 July 2024 shortened this period and shifted its commencement. A creditor must assert the right to sufficient security in court within three months from the date of publication of the transformation project, otherwise it expires under Czech legislation (Section 35 of the Act on Transformations). The decisive factor is no longer the registration in the register, but the moment the project appears in the Collection of Deeds or on the customer's website. This occurs weeks or even months before the actual registration.

The difference for suppliers is fundamental. Anyone relying on the six-month period after registration may miss the deadline even before the transformation is approved by the general meeting. As a result, claims will remain unsecured, and the supplier will only learn about the change from a letter stating that the customer is newly establishing or taking over another business. For transformations initiated before the amendment, transitional provisions apply, which must be verified on a case-by-case basis.

Another change concerns the method of assertion. Previously, creditors registered their claims and requested security; now, they must file a petition with the court if they fail to reach an agreement with the customer. The deadline is met by filing the petition, not by negotiating, which is why it is necessary to plan ahead for the preparation of documents. Negotiating with the customer may only waste valuable time.

When the period begins and where to find the transformation project

An entity participating in the transformation that is registered in the Commercial Register must file the transformation project and a notice to creditors, employee representatives, and shareholders regarding their rights in the Collection of Deeds at least one month before the date on which the transformation is to be approved (Section 33 of the Act on Transformations). The publication of the project under Section 33 triggers the three-month period for asserting the right to security.

The project can also be published on the customer's website. The procedure under Section 33 does not apply if the entity participating in the transformation publishes the project and the notice on its website for a period of at least one month before approval until one month after approval or non-approval (Section 33a of the Act on Transformations). With this method, they must also ensure that information about the transformation is registered in the Commercial Register and file the notice to creditors in the Collection of Deeds.

This leads to a practical conclusion: suppliers must monitor two places—the Collection of Deeds in the Commercial Register and the websites of their major customers. Simply waiting for a notification from the customer is not enough, as the law does not require individual notification of each creditor under these provisions. The decisive moment is the publication of the transformation project under Section 33 or its publication under Section 33a, not the delivery of any notification.

If the customer does not approve the project, they will announce this on their website without undue delay, and the period for claiming security will generally become irrelevant. However, the supplier must not rely on this when filing a petition: they do not know if or when the general meeting will decide, and a petition filed in time does not prevent the registration of the transformation. The opposite approach—waiting for approval—is dangerous.

A model example shows how quickly the deadline expires. A customer files a merger project in the Collection of Deeds on 1 October, the general meeting is scheduled to approve the transformation in early November, and registration in the register is expected in December. However, the three-month period for asserting the right in court will end as early as the beginning of January, leaving the supplier with only a few weeks between publication and approval to prepare the petition. Anyone who learns about the project only after registration often has less than a month, or no time at all, because the deadline may have already passed. This gap between publication and registration is the most common reason for missing the deadline.

What you can and cannot demand

Creditors of entities participating in a transformation may demand sufficient security if, as a result of the transformation, the recoverability of their outstanding claims arising from obligations incurred before the publication of the project deteriorates; this also applies analogously to future or conditional claims (Section 35(1)). There are thus two conditions: the claim arises from an obligation incurred before the publication of the project, and the transformation deteriorates its recoverability. While this article focuses on mergers and divisions, protection under Section 35 generally applies to creditors of all entities participating in a transformation, so it can also apply to other transformations regulated by law.

If the parties do not agree, the court will establish sufficient security upon the creditor's petition. The creditor must substantiate facts indicating that the transformation will deteriorate the recoverability of their claim, and the court will decide at its reasonable discretion, taking into account the nature and amount of the claim (Section 35(2)). It is therefore not necessary to prove certain harm; it is sufficient to substantiate a reasonable concern, such as the division of the customer into an asset-holding company and a debt-holding company.

Substantiating facts does not mean lengthy evidentiary proceedings, but rather a convincing set of supporting documents. The supplier will document the existence of the claim with contracts and invoices, outline how the transformation is to take place, and describe why recoverability will deteriorate—for example, because assets are being transferred to another entity while the debt remains with the original company. A good petition consists of a few pages with attachments, not an extensive lawsuit.

The court decides on the establishment of security by a resolution, and its effects take place at the earliest on the day the registration of the transformation in the Commercial Register becomes effective against third parties (Section 35(3)). The law does not specify the type of security, which is therefore a matter of negotiation in practice: a bank guarantee, pledge, guarantee, or deposit of funds. The more specific the proposal, the simpler the decision.

Not all creditors have this right. Sufficient security cannot be demanded by creditors who have the right to preferential satisfaction of their claims in insolvency proceedings, and creditors who are considered secured for the purposes of insolvency proceedings under Czech legislation (Section 36 of the Act on Transformations). A supplier whose claim is secured by the customer's assets, for example by a pledge, cannot use this tool. A mere third-party guarantee does not place them in this group, as a secured creditor is only one whose claim is secured by the debtor's assets (Section 2(g) of the Insolvency Act).

How to proceed: five steps from publication to petition

The first step is to find out if the customer is undergoing a transformation. The supplier should review the Collection of Deeds of major customers and their websites, looking for a transformation project and a notice to creditors. For large customers, this is a matter of a few minutes a month; for medium-sized ones, a check during each major order is sufficient.

The second step is to calculate how much is at risk. The supplier compiles an overview of all outstanding claims from obligations incurred before the publication of the project and estimates how their recoverability will change as a result of the transformation. In a merger with a larger company, recoverability usually does not deteriorate; conversely, in a division or transfer of assets to another entity, it might. Based on this, they decide whether it is worth filing a petition.

The third step is negotiating with the customer. The supplier writes to the customer requesting sufficient security and proposing a specific form. If the customer agrees, the matter is resolved out of court. However, negotiations must not push the filing of the petition past the three-month limit. A good practice is to set a short deadline for the customer and file the petition once it expires.

The fourth step is the petition to the court, which must include substantiation of the facts showing that the transformation will deteriorate the recoverability of the claim, and a proposal for security. The fifth step is monitoring the registration: security is established at the earliest upon the effectiveness of the registration, and until then, the supplier continues to assess whether their concerns are being realized and, if necessary, adjusts delivery terms, such as shortening maturity periods.

Before filing a petition, it is worth comparing the costs with the value of the claim. A petition is reasonable for claims in the range of hundreds of thousands of CZK or more, or where the customer is dividing and there is a risk that the debt will remain in an assetless company. For small claims, it may be more advantageous to recover them through standard means, as court proceedings for security involve costs and time that could exceed the value of the claim.

A related tool is addressing non-payment in business relationships in general. The procedure for unpaid claims is discussed in the text on unpaid claims in B2B, which can help where security under the Act on Transformations is insufficient or does not apply.

Market standard: how suppliers protect themselves

Experienced suppliers monitor their customers continuously. The sales department or the CFO maintains a list of customers where exposure exceeds a set threshold, tracking their Collection of Deeds and public sources. Any change in the Commercial Register, such as a transformation project, the entry of a new shareholder, or a change in the statutory body, triggers an internal review.

The second element is contractual protection. The supplier stipulates in the framework agreement an obligation for the customer to inform them of any transformation in advance, the right to demand security or shorten payment terms, and the right to withdraw from the unperformed part of the contract. A contractual clause does not replace the statutory deadline, but it provides the supplier with timely information and grounds for negotiation. Similar situations are addressed in the text on what to do when a business or division is transferred.

A warning sign is a customer who, after a long period of silence, suddenly wants to settle or, conversely, requests longer payment terms. Another sign is a change in the company's name, registered office, or structure that the supplier did not notice, and a debt incurred before such a change. Both situations are reasons to check the Commercial Register and assess whether a deadline is running.

It also helps to set internal exposure limits. The finance department monitors how much each customer owes, and if a threshold is exceeded, increases vigilance: checking the register more frequently, shortening payment terms, or requesting an advance payment. Such a system costs a fraction of the price of a single unpaid claim while providing a basis for deciding whether to file a petition for security.

It is also useful to involve two people in monitoring deadlines. The sales representative, who knows the customer, flags changes in their behavior, while a lawyer or the finance department monitors statutory deadlines. A single person responsible for both can easily overlook a project published during holidays or closing periods. A shared calendar with a reminder after a project is published costs very little.

For major customers, it is also worthwhile to monitor published notices to creditors. They contain information on creditors' rights and can show how the customer intends to handle the transformation and whether they anticipate providing security. This provides the supplier with a basis for negotiations before deciding to file a petition in court, allowing them to use the period effectively.

A broader overview of transformations, their types, and their impact on creditors, employees, and shareholders is provided in the text on transformations of business companies. This article focuses on just one thing: the deadline that expires first for the supplier.

Typical mistakes and their cost

The first mistake is relying on the old wording of the law. The supplier assumes they have six months after registration, only to find that the three-month period from publication has already expired. The cost is the loss of the right to security, and thus the loss of the easiest way to protect the claim.

The second mistake is waiting for voluntary security. The customer promises to reach an agreement, and the supplier does not file a petition. Once the deadline passes, it turns out the customer will not provide security, and the right has expired. It helps to set a short deadline for the customer and prepare the petition in parallel so that it can be filed immediately.

The third mistake is failing to monitor customers. The supplier learns of the transformation from a letter only after registration, by which time the deadline has long passed. For major customers, monitoring should be part of risk management. The fourth mistake is confusing security under the Act on Transformations with other creditor protection tools. Each has its own conditions and deadlines and must therefore be assessed separately.

The fifth mistake is mistakenly assuming that security under the Act on Transformations replaces other tools. It serves to protect the recoverability of claims before a transformation and does not protect against other risks of the customer, such as insolvency due to other causes. Therefore, the supplier should combine statutory security with contractual tools, such as advances, shorter payment terms, or third-party guarantees.

The Prague-based Czech legal team at ARROWS monitors published transformation projects of major customers, assesses whether the recoverability of claims will deteriorate, prepares court petitions, and conducts negotiations on security. The number of days remaining before the deadline determines whether a petition must be filed immediately or if there is room for agreement.

Risks of claims against a customer undergoing transformation

Final Summary

A supplier whose customer is merging or dividing may demand sufficient security for outstanding claims, but must do so in court within three months of the publication of the project. This article has shown that the period begins before registration in the register, that it was shortened following the change in the law in 2024, and that creditors with preferential or secured status do not have this right.

For company management, this implies a clear task: monitor the published projects of major customers, have the supporting documents for a petition ready, and do not rely on negotiations that will consume the deadline. Postponing these steps leads to the expiration of the right, which otherwise provides the supplier with the easiest path to protecting their claim.

The Prague-based Czech legal team at ARROWS monitors customer transformations, assesses the impact on the recoverability of claims, conducts negotiations on security, and files petitions with the court. Write to us at consultation@arws.cz or explore our service for commercial and court disputes.