Debt collection in Azerbaijan

Debt collection in Azerbaijan begins with verification of the debtor’s legal status, business activity, tax registration, registered address, possible changes in the state register, available assets, bank accounts, pending disputes and enforcement proceedings already initiated. For a foreign creditor, it is especially important to determine whether the debtor operates as a registered legal entity or individual entrepreneur, who is authorized to sign documents on its behalf, where the debtor’s assets are located and whether a court decision can be effectively enforced in Azerbaijan.

Based on this analysis, a practical recovery strategy is selected: out-of-court negotiations, formal demand notices, mediation, writ proceedings, ordinary lawsuit proceedings, simplified proceedings for small claims, recognition of a foreign court judgment or arbitral award, enforcement proceedings or initiation of bankruptcy proceedings. When choosing the strategy, it is necessary to consider not only the amount of debt and the creditor’s documents, but also jurisdiction, the language of documents, the possibility of using electronic court tools, the debtor’s assets and the risk that the dispute will be treated as a commercial dispute.

If the debtor continues business activity, is not clearly in liquidation or insolvency, has reachable representatives and does not avoid communication about the debt, the first stage may be out-of-court debt collection. This approach is especially relevant when the debt arises from a contract, supply of goods, services, loan, unpaid invoice or reconciliation document, and the creditor wants to try voluntary settlement before court proceedings.

At the out-of-court stage, the creditor sends the debtor a formal notice or demand letter, proposes voluntary repayment of the debt and records the debtor’s position. Possible settlement options may include full payment, an instalment payment schedule, return of goods, set-off of mutual claims, transfer of the obligation to a third party where there are legal grounds, or signing an agreement on the repayment of the debt.

Communication with the debtor may be conducted by post, email, telephone, messengers and other channels that make it possible to confirm the fact of sending the notice and the content of the creditor’s position. The main purpose of this stage is to establish contact with persons authorized to make decisions on behalf of the debtor, obtain a written response to the claim, record recognition or dispute of the debt and prepare the evidentiary basis for possible court proceedings.

The duration of out-of-court debt collection depends on the debtor’s conduct, the quality of documents, the amount of debt, whether the obligation is disputed and the parties’ willingness to negotiate. If the debtor does not respond to notices, denies the debt, delays negotiations, transfers assets or it becomes clear that voluntary settlement will not bring results, the creditor should proceed to judicial debt collection.

Limitation periods in Azerbaijan are important when choosing a debt recovery strategy. The general limitation period is ten years; contractual claims are subject to a three-year limitation period; contractual claims related to immovable property are subject to a six-year limitation period; and claims arising from periodically performed obligations are subject to a three-year limitation period. The court accepts the claim even if the limitation period has expired, but applies the consequences of limitation only upon the request of a party to the dispute made before the court decision on the merits.

If the debtor performs actions indicating recognition of the debt, the running of the limitation period may be interrupted, and a new period starts to run. In practice, written acknowledgment of the debt, partial payment, approval of a repayment schedule, signing of a reconciliation document or other documents showing that the debtor recognizes the obligation to the creditor may be important.

If the law, the contract, a mediation clause or another document between the parties provides for a mandatory out-of-court procedure or participation in mediation before going to court, the creditor must comply with that procedure before filing a claim. For debt collection, this means that the demand letter, formal notice, settlement proposal or participation in the preliminary mediation stage must be documented in a way that allows the creditor to prove compliance with the mandatory procedure in court.

During mediation, the parties may sign an agreement setting out the amount of debt, payment procedure, deadlines for performance, consequences of non-performance and allocation of costs. If the debtor does not voluntarily perform such an agreement, its enforcement is carried out in the manner provided by the legislation of Azerbaijan, including confirmation of the agreement by the competent court or notary where permitted by law.

Depending on the nature of the claim, whether the debt is disputed, the available evidence and the value of the claim, Azerbaijani legislation provides for several types of judicial debt collection: writ proceedings, ordinary lawsuit proceedings and simplified proceedings for small claims.

Judicial debt collection in Azerbaijan requires proper determination of the competent court, preparation of documents in the language of the proceedings and consideration of electronic document flow in court proceedings. Civil and commercial cases involving foreign persons may be considered by Azerbaijani courts under the jurisdiction rules established by civil procedure legislation, unless otherwise provided by an international treaty or an agreement between the parties. In commercial disputes, contractual jurisdiction, the debtor’s place of registration, the location of the debtor’s assets and the possibility of filing documents through the electronic court system may also be important.

Writ proceedings are applicable where the creditor’s claim is undisputed and is based on a documented obligation of the debtor. Usually, such claims are based on a written agreement or documents that sufficiently confirm the existence of the obligation. To use this procedure, the creditor submits an application to the court for the issuance of a court order.

Within three days from the date of filing the application, the court may issue a court order without summoning the parties and without hearing their explanations. The court order is then sent to the debtor, who may file objections within ten days. If the debtor objects, the court cancels the order and the debt recovery continues under ordinary lawsuit proceedings. If the debtor does not object, the court order enters into force and is not subject to appeal.

Simplified proceedings for small claims apply to civil cases where the value of the claim is less than 2,000 manats and to commercial disputes where the value of the claim is less than 10,000 manats. After the application is filed, the court notifies the debtor and gives the debtor a period to file objections. Such cases are considered in written proceedings without summoning the parties and without hearing their explanations, unless the court decides that the case should be transferred to ordinary lawsuit proceedings because of the complexity of the dispute, insufficiency of documents or the need to hear the parties.

General lawsuit proceedings are applicable to all cases that do not relate to writ or summary proceedings. To use this stage, a statement of lawsuit must be filed with the court, which is considered through a trial by summoning the parties and hearing their explanations and positions. The period for consideration of a case in a lawsuit proceeding is three months from the date of filing the lawsuit in court.

As a result of consideration of the case by way of lawsuit or simplified proceedings, the court makes a decision that comes into force within a month from the date of its adoption, provided that it is not appealed.

An appeal against a decision of the court of first instance can be filed within a month from the date of its official delivery. The appellate court considers the complaint within three months from the date of its acceptance. The decision of the court of appeal comes into force within two months from the date of its delivery to the participants in the case, provided that they do not appeal it.

A cassation appeal against a decision of an appellate court may be filed within two months from the date of official delivery of the appealed court decision. Civil cases with a lawsuit price of up to 2,000.00 manats (about 1,100.00 euros) and commercial cases with a lawsuit price of up to 10,000.00 manats (about 5,500.00 euros) cannot be appealed in cassation. The cassation appeal is considered within two months from the date of its acceptance. As a result of consideration of the complaint, the Supreme Court of the Azerbaijan Republic makes a decision, which comes into force from the moment of its announcement.

If the creditor already has a judgment of a foreign court or an international arbitral award, debt recovery in Azerbaijan usually requires recognition and commencement of enforcement under the applicable procedural rules. Azerbaijani procedural legislation distinguishes between recognition of foreign decisions that do not require compulsory enforcement and recognition of decisions that must be enforced. A foreign judgment may be recognized and enforced in Azerbaijan in cases provided by law, an international treaty binding on Azerbaijan or on the basis of reciprocity. The court also examines whether there are grounds for refusal, including the existence of a final Azerbaijani court decision or previously initiated proceedings between the same parties, on the same subject matter and on the same grounds.

After a court decision or court order enters into force, enforcement proceedings begin. For this purpose, an enforcement document is issued and forwarded to the bailiff for the commencement of enforcement. Recovery may be directed against the debtor’s money, bank accounts, movable property, immovable property and other assets within the limits stated in the enforcement document.

The period for sending for enforcement a writ of execution issued on the basis of a decision of an Azerbaijani court, as well as a court order, is one month. Writs of execution issued on the basis of decisions of international arbitrations, arbitral tribunals, foreign courts and foreign arbitrations must be sent for enforcement within three years. For a court order, the period starts after ten days from its issuance; for enforcement documents based on court decisions, the period starts from the moment the court decision enters into force or from the expiry of a deferral or instalment period for enforcement.

The bailiff must perform enforcement actions and ensure execution of the requirements stated in the enforcement document within two months from the date of receipt of the enforcement document. This period relates to the bailiff’s work within the enforcement proceedings; the creditor’s actual receipt of money may depend on the availability of funds in the debtor’s accounts, the existence of enforceable assets, the need to identify assets, impose attachments, conduct valuation, sell assets or perform additional enforcement actions.

Azerbaijani enforcement legislation provides for a special mechanism for recovery of money through banks, other credit institutions and electronic money institutions. If the bailiff has information about the debtor’s accounts and the funds on those accounts, the bailiff sends a certified copy of the enforcement document to the relevant bank. The bank servicing the debtor’s accounts must execute the monetary recovery request within seven days from receipt of the enforcement document from the bailiff, or make a note of full or partial non-execution due to the absence or insufficiency of funds in the debtor’s accounts.

If a bank, another credit institution or an electronic money institution fails to comply with the duties provided by the enforcement procedure, the issue of liability is resolved under enforcement legislation and administrative liability rules.

Bankruptcy or debt restructuring in Azerbaijan may be used when there are signs of the debtor’s insolvency, and not as an ordinary recovery tool for every overdue debt. Bankruptcy proceedings may be initiated upon the application of the debtor, creditor or authorized person if the debtor acknowledges its insolvency, or if non-performance of obligations is proven by the creditor or established by the court. The law also distinguishes specific situations of non-performance, including certain categories of claims not satisfied within two months, non-payment of taxes and other mandatory payments within ten months and failure to perform obligations to other creditors within the prescribed period.

If the total amount of creditors’ claims is less than ten percent of the company’s authorized capital, property claims against the debtor are considered under ordinary court procedure. For this reason, bankruptcy is mainly relevant where there are signs of persistent insolvency, several creditors, a risk of dissipation of assets or a need to control the debtor’s property in the interests of creditors.

If the person managing the debtor enterprise fails to initiate bankruptcy proceedings when the statutory signs of insolvency are present, this may have additional consequences within the bankruptcy proceedings. In this situation, the creditor may, through the administrator of the debtor’s property, raise before the court the issue of reimbursement of additional costs caused by breach of that duty. If the court establishes the relevant grounds, the person who managed the debtor may be required to contribute personal property to the debtor’s estate within the amount necessary to cover such additional costs of the creditor.

Alternative recovery tools may include the use of criminal law mechanisms only in exceptional cases where there is a court act that has entered into force and the conduct of the debtor or responsible persons shows signs of malicious non-compliance with the court decision or obstruction of its enforcement. This measure does not replace civil or enforcement proceedings and is not an ordinary tool for recovery of a commercial debt, but it may become relevant after a court decision has been obtained if the debtor deliberately avoids enforcement.

If you need to recover a debt from a debtor in Azerbaijan, it is important to assess the available documents, limitation periods, applicable procedure, debtor’s assets, prospects of judicial recovery and the possibility of subsequent enforcement of the decision in advance. Our company can assist with analysis of the situation, preparation of the recovery strategy, out-of-court settlement, judicial debt collection, recognition of foreign decisions and enforcement in Azerbaijan.

# DEBT COLLECTION AGENCY AZERBAIJAN

06.02.2022

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