Debt Collection in Taiwan

Debt collection in Taiwan begins with a legal and financial assessment of the debtor: solvency, business activity, business history, registered or actual place of business, available assets in Taiwan, documentary evidence of the debt, pending court cases, previous enforcement proceedings, insolvency indicators and the likelihood that the debtor will dispute the claim. For an international creditor, this first review also determines whether the case should start with a written demand, court mediation, a payment order, ordinary court proceedings, recognition of a foreign judgment, or enforcement based on an already existing enforceable title.

If the debtor continues commercial activity in Taiwan, has no obvious insolvency indicators and the claim is supported by documents, it is usually reasonable to start with the out-of-court debt collection stage. At this stage, the creditor may seek voluntary payment, agree on a payment schedule, arrange the return of goods, document a debt acknowledgment, set off mutual claims, transfer the debt to a third party, exchange services or goods, or use another settlement option that can close the dispute without court proceedings.

The creditor’s communication with the debtor usually begins after sending a formal notice through available and verifiable channels, such as mail, email, telephone or business messengers. The practical purpose of this stage is to reach the person who can make a payment decision, record the debtor’s position, preserve evidence of the creditor’s demand, document any partial acknowledgment of the debt and prepare the file for court if the debtor refuses to pay.

The average time for informal out-of-court collection is up to 60 days, except in cases where a payment plan is agreed upon. If the debtor does not respond, disputes the debt without sufficient grounds, uses negotiations only to delay payment, or if the initial analysis shows that voluntary recovery is unlikely, the creditor should proceed to the appropriate court route.

Before initiating judicial collection, it is important to assess the limitation period for the specific type of claim. Under Taiwan Civil Code, the general limitation period is 15 years unless a shorter period is provided by law. Shorter periods may be decisive in commercial debt cases: claims for interest, rentals and other periodical payments falling due at intervals of one year or less are generally subject to a five-year limitation period, while certain claims, including the price of goods or products supplied by merchants, manufacturers and persons practising handmade arts, are subject to a two-year limitation period.

The limitation period may be interrupted by a demand for satisfaction of the claim, acknowledgment of the claim by the debtor, an action brought for satisfaction of the claim, an application for a payment order, an application for conciliation, submission to arbitration, representation of a claim in bankruptcy proceedings, notice of a pending action, institution of execution proceedings or an application for compulsory execution. After interruption, the limitation period begins to run anew from the legally relevant point of interruption.

If the limitation period is interrupted by making a demand and an action is not brought within six months from the date of that demand, the interruption is deemed not to have occurred. This makes the timing of a written demand important: it can support the creditor’s position, but it should be followed by the correct procedural step within the required period if the limitation period is close to expiry.

Taiwan law provides for judicial debt collection through ordinary court procedures, summary procedures, small claims procedures and demand proceedings for the issuance of a payment order.

A payment order may be used where the creditor’s claim is for payment of a certain amount of money, other replaceable things or securities. The application must identify the parties, the amount and object of the claim, the transaction or occurrence giving rise to the claim, the status of any counter-performance and the court. The court issues the payment order without examining the debtor. The debtor has 20 days from service of the payment order to file an objection in whole or in part without stating reasons. If no objection is filed within that period, the payment order becomes a writ of execution. If a lawful objection is filed, the payment order loses effect to the extent of the objection, and the creditor’s application is treated as the initiation of an action or an application for mediation.

Demand proceedings have important limits in cross-border cases. A payment order cannot be used where the creditor’s counter-performance has not yet been performed, or where the payment order must be served in a foreign country or by constructive notice. A payment order also ceases to be operative if it cannot be served on the debtor within three months after it is issued.

For certain proprietary disputes where the price or value of the object in dispute is less than NT$500,000, the claimant must apply for court mediation before initiating an action. Mediation is considered successful if the parties reach an agreement, and successful mediation has the same legal effect as a settlement agreement in a lawsuit.

This pre-action mediation requirement is subject to statutory exceptions. The court may immediately dismiss a mediation application where mediation is infeasible, plainly unnecessary or clearly has no prospect of success; where mediation by another legally authorized mediatory agency has already been sought without success; where the dispute arises from negotiable instruments; where the dispute is raised by counterclaim; where notification must be served by constructive notice or in a foreign country; or where the dispute arises from a financial institution’s claim based on a loan contract or credit card contract.

In the event of unsuccessful mediation, the plaintiff is issued a certificate of unsuccessful mediation. If the plaintiff files a claim with the court within ten days, the claim is considered filed from the moment the application for mediation was filed.

The ordinary court procedure is carried out by filing a statement of claim with the competent court. After receiving the complaint, the presiding judge designates a date for the oral-argument session, unless the action must be dismissed, transferred to another court or handled first through a preparatory proceeding by exchange of pleadings. A copy of the complaint is served on the defendant together with the summons for the oral-argument session. Except in urgent cases, there must generally be at least ten days between service of the complaint and the oral-argument session; where a preparatory proceeding has been conducted, the preparation period must be at least five days.

If the defendant considers it necessary, the defendant shall submit an answer to the court, with a written copy or photocopy sent directly to the plaintiff, within ten days after receiving the complaint and no later than five days before the oral-argument session if one has been designated. The defendant’s answer should state the facts and reasons of the defence, identify the evidence and respond to the facts and evidence alleged by the plaintiff.

Before the commencement of oral arguments, the court may take measures necessary to expedite the closing of oral argument: order the parties or their statutory agents to appear in person; order the parties to produce documents and objects; notify witnesses or expert witnesses; request documents or objects; order a third party to produce documents or objects; conduct inspections; order expert testimony; request an agency or organization to conduct an investigation; or require a commissioned judge or assigned judge to take evidence.

Where a preparatory session is held and one of the parties does not appear, the preparatory proceeding may still be conducted for the appearing party, and the transcript is served on the party who failed to appear. Unless another session must be designated, the commissioned judge may conclude the preparatory proceeding.

During oral arguments, the parties present their claims, defences, facts and evidence, and must make truthful and complete statements regarding the facts they present. If one party fails to appear at the oral-argument session after legal notification, the court may, on the appearing party’s motion, enter a default judgment based on the appearing party’s arguments. If the party who failed to appear is summoned again and fails to appear again, the court may also enter a default judgment on its own initiative. The court must still take into account previous arguments, evidence-taking and preparatory pleadings submitted by the absent party, and in statutory situations the court must deny the motion for default judgment and postpone the oral-argument session.

If the case is ready for decision after the oral arguments, the court may close the oral argument and render a judgment. If further clarification, evidence-taking or examination of the parties’ arguments is required, the court may designate another session or take other procedural measures provided by law.

The summary procedure applies to actions regarding proprietary rights where the claim value is not more than NT$500,000. It may also apply to certain categories of disputes irrespective of the amount, including claims arising from negotiable instruments, certain periodic payments, lease-related disputes, possession-related disputes and other cases listed in the Code of Civil Procedure. The preparation period for the first oral argument hearing shall be at least five days, except in urgent cases. The summons for the oral argument hearing shall state that the case is being handled under the summary procedure and that the parties shall appear at the hearing with the exhibits to be produced and the witnesses to be examined.

A party shall file preparatory documents or responses before the hearing concerning any statements, alleged facts or evidence to which the opposing party cannot respond without preparation, and shall directly deliver the originals or photocopies of such documents or responses to the opposing party. In cases to which the summary procedure applies, the court shall generally conclude oral argument in one hearing and render a decision.

If a party fails to appear at the oral argument hearing, the court may, on its own initiative, render a default judgment where the procedural conditions are met.

Small claims proceedings are used to collect monetary claims, claims for other replaceable things or securities where the amount or value does not exceed NT$100,000. The parties may also agree to use the small claims procedure for claims not exceeding NT$500,000. Small claims proceedings may be held in the evening, on Sundays or other holidays, unless one of the parties objects. Where the defendant fails to appear for mediation without showing good cause after being given five days’ notice, the court may, upon motion of the plaintiff, order oral arguments to be held immediately and may, of its own motion, render a default judgment.

Where the time and expense of collecting evidence are manifestly disproportionate to the claim, the court may, taking into account all the circumstances and without collecting evidence, make a finding of the facts and render a final judgment.

A decision of the court of first instance may be appealed to the court of second instance within 20 days from the date of service of the contested decision. A decision of the court of second instance may be appealed to the court of third instance within 20 days from the date of service of the contested decision, provided that the statutory requirements for a third-instance appeal are met, including the applicable monetary threshold for proprietary rights disputes. The decision of the court of third instance is not subject to further appeal.

For international creditors, a separate route may be required where the creditor already has a final foreign court judgment against a debtor or assets in Taiwan. Recognition and enforcement of foreign judgments in Taiwan depends on the conditions set out in the Code of Civil Procedure: the foreign court must have jurisdiction under R.O.C. law, the defendant must have been properly served in default judgment situations, the judgment and procedure must not be contrary to R.O.C. public policy or morals, and mutual recognition must exist between the foreign country and the R.O.C. Compulsory enforcement based on an irrevocable foreign court judgment is permissible only after a court of the Republic of China approves enforcement by judgment. The enforcement permission action is generally filed with the court at the debtor’s domicile in Taiwan, or, if the debtor has no domicile in Taiwan, with the court where the object of enforcement is located or where enforcement is to be carried out.

After the judgment has become final and binding, the creditor may initiate compulsory enforcement based on an enforcement title. Enforcement titles in Taiwan include an irrevocable final judgment, a decision authorizing provisional seizure, provisional injunction or provisional enforcement, a settlement or mediation under the Code of Civil Procedure, a notarized document authorizing compulsory enforcement under the Notary Act, certain court rulings authorizing auction of mortgaged or pledged property, and other titles recognized by law. A final payment order may also serve as a writ of execution.

For ordinary claims governed by the 15-year limitation period, a final judgment generally creates a new limitation period from the final judgment. Where the original limitation period was shorter than five years, the recommenced period after a final judgment or an equivalent enforcement ground is five years.

As part of enforcement proceedings in Taiwan, the creditor’s claims may be satisfied by seizure of funds in the debtor’s accounts, seizure and sale of movable and immovable property, seizure of securities, and enforcement against the debtor’s monetary claims against third parties. When enforcing against the debtor’s monetary claim against a third party, the enforcement court may issue a seizure order prohibiting the debtor from collecting or disposing of the claim and prohibiting the third party from paying the debtor. The court may also allow the creditor to collect the claim, transfer the claim to the creditor, or order the third party to pay the enforcement court for transmission to the creditor.

If the creditor does not know the debtor’s assets, the enforcement court may order the creditor to investigate and report, or conduct its own investigation. The court may investigate the debtor’s financial situation through tax authorities, other related authorities, organizations or persons knowledgeable of the debtor’s assets. If discovered assets are insufficient or cannot be located, the court may order the debtor to report property subject to enforcement within the statutory framework.

An alternative or additional route in debt collection in Taiwan may be insolvency-related recovery. This route depends on the legal status of the debtor and should be distinguished from ordinary court proceedings and compulsory enforcement. Taiwan law contains separate rules for company bankruptcy, company reorganization and consumer debt clearance.

Under the Taiwan Company Act, reorganization is available for a company that publicly issues shares or corporate bonds, has suspended business due to financial difficulty or is at risk of suspension, and still has a possibility of reconstruction or rehabilitation. A creditor may apply for reorganization if its claim is equivalent to 10 percent or more of the capital calculated from the total number of issued shares. If the court dismisses a reorganization application and the conditions for bankruptcy are met, the court may issue a bankruptcy pronouncement.

Before ruling on company reorganization, the court may order preservation of the company’s property, restrict the company’s business, restrict performance of obligations and exercise of claims against the company, suspend bankruptcy, composition, compulsory execution and other proceedings, prohibit transfer of registered share certificates, and preserve the property of responsible persons where liability for damage to the company is assessed. The validity of such a ruling may not exceed 90 days unless otherwise fixed by the court, and each extension may not exceed 90 days.

After a ruling for company reorganization is rendered, the operation of the company’s business and the power to control and dispose of its property are transferred to reorganizers under court supervision. Directors, supervisors, managerial officers or other employees of the debtor company may face imprisonment for not more than one year, detention and/or a fine not exceeding NT$60,000 if they refuse to transfer the company’s affairs, conceal, destroy or damage statements, accounting records or documents relating to the business or financial condition of the company, conceal, destroy or remove company property, dispose of company property in a manner prejudicial to creditors, refuse to answer questions without reason, fabricate debts or acknowledge untrue debts.

For limited companies, the creditor should also take into account the rule on abuse of legal personality. If a shareholder abuses the company’s status as a legal entity and thereby causes the company to bear specific debts and to be apparently unable to pay them, and the abuse is severe, the shareholder may, if necessary, be liable for the debts.

The Consumer Debt Clearance Statute applies to natural persons who have not engaged in business activities within five years or who have engaged in small business activities. A small business is one with gross income per month of less than NT$200,000. If such a debtor is unable or may be unable to repay debts, the debtor may clear debts through rehabilitation or liquidation under that statute.

In consumer debt clearance proceedings, the supervisor or administrator may revoke certain debtor transactions that prejudice creditors. Revocable acts include gratuitous acts within two years before the court’s ruling on initiation of rehabilitation or liquidation; non-gratuitous acts within two years before the ruling if the debtor knew of the prejudice and the beneficiary knew of the relevant circumstances; provision of security, debt repayment or other acts within six months before the ruling where the beneficiary knew of the prejudice; and provision of security, repayment or other acts within six months before the ruling where the act was not due or was not the debtor’s obligation. A non-gratuitous transaction between the debtor and the debtor’s spouse, lineal relative or family member involving disposal of property at a price lower than half of market price is treated as a gratuitous act.

The right of revocation in consumer debt clearance proceedings is extinguished if it is not exercised within one year from the day following the court’s ruling on initiation of rehabilitation or liquidation. After a revocable act is revoked, the beneficiary is liable for restoration to the status quo ante, subject to the statutory rules on bona fide beneficiaries and return of value. This mechanism may increase the liquidation estate and improve the practical recovery position of creditors.

If you need support with international debt collection in Taiwan, Grandliga can assist at all key stages of the recovery process: debtor and document analysis, written demands, settlement negotiations, limitation period assessment, payment order strategy, court mediation, ordinary or summary court proceedings, small claims proceedings, recognition and enforcement of foreign judgments, compulsory enforcement against assets and receivables, and insolvency-related recovery options. You may contact us to assess the documents, debtor status, available assets and the most suitable legal route for recovery in Taiwan.

# DEBT COLLECTION AGENCY TAIWAN

02.10.2024

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