Accession to a debt

What it means

Accession to a debt is an agreement by which a third party undertakes to the creditor to pay the original debtor's debt, while the original debtor does not leave the obligation. Both become jointly and severally liable, so the creditor can demand full performance from either of them. The original debtor's consent is not required.

Accession must be in writing. It is governed by the Civil Code and applies in business relationships alongside the rules of the Commercial Code. The result is a joint and several obligation in which the debtors settle between themselves what one paid for the other, as agreed or in equal shares.

Accession differs from a surety in that a surety pays only when the debtor fails to perform even after being called on, whereas the acceding party is a debtor from the outset and the creditor need not pursue the original debtor first. It differs from assumption of debt in that the original debtor is not released and remains bound.

How it works in practice

In practice accession is used as security when a creditor does not want to rely solely on a company with limited assets. Typically a bank or supplier requires the shareholder or director of a small s. r. o. personally, or the parent company, to accede to its debt. For the creditor it is a faster tool than a surety, since it can go straight to the acceding party.

Accession also appears in group restructurings, when a parent accedes to a subsidiary's debts to keep suppliers on board, or in a business sale, when the buyer accedes to some of the seller's obligations. The agreement must clearly specify which debt, in what amount, and whether accession also covers ancillary claims such as interest.

In accounting terms the acceding party has a contingent liability to disclose in the notes and, if it is probable it will have to pay, a provision. For an individual who accedes to the debt of their company, it is important to know they are liable with all their personal assets.

What to watch out for

Directors and shareholders often sign an accession to a debt without realising its effect. The limited liability of the s. r. o. practically disappears for that debt, and the creditor can pursue their personal assets directly. Before signing, consider whether other security would be more suitable, such as a bank guarantee or a charge.

Watch limitation and acknowledgement of debt. Steps taken against one joint debtor do not necessarily take effect against the other. When enforcing, a creditor should therefore act against both so that its claim against one of them does not become time-barred.