Debt Collection in Bhutan

Debt collection in Bhutan begins with a legal, financial and evidentiary review of the debtor and the claim. At this stage, the creditor should identify where the Bhutanese court may have venue, whether the debtor resides, carries on business or holds property in Bhutan, whether the agreement was signed or performed in Bhutan, whether the claim is supported by contracts, invoices, delivery documents, account statements, correspondence, guarantees or security, and whether the debtor already faces pending claims, enforcement actions or signs of insolvency. This initial review determines whether the case should start with settlement negotiations, a court claim, recognition of a foreign decision, enforcement action or bankruptcy proceedings against the debtor.

If the debtor has no visible bankruptcy petition, enforcement history or serious dispute over the debt, and continues to carry on business or hold assets that can realistically be reached in Bhutan, the creditor may start with the out-of-court collection stage.

This stage may include a written demand, direct negotiations with authorized representatives, a repayment schedule, return of goods, set-off, security, transfer of the obligation to another party or another documented settlement. The creditor should preserve proof of delivery of the demand, replies from the debtor, settlement proposals, payment promises, objections and any acknowledgement of the obligation.

Communication with the debtor should focus on confirming the debtor’s position, identifying the persons with authority to approve payment, fixing the amount due and recording whether the debt is admitted or disputed. If the debtor ignores the demand, disputes the debt without supporting documents, uses negotiations to delay payment, transfers assets or shows signs of insolvency, the creditor should move to judicial debt collection in Bhutan or another formal recovery route available under Bhutanese law.

Before initiating judicial collection, the creditor should assess the limitation period and the legal nature of the debt. For claims arising from a contract for the sale of goods, the Commercial Sale of Goods Act of Bhutan provides a three-year period from accrual of the cause of action for an action for breach of any contract for sale. The parties may agree to reduce or extend the period for filing the lawsuit, and the law also preserves the possibility of an agreed tolling of the statute of limitations. For other claims, including services, loans, guarantees, security obligations, damages or claims based on a foreign judgment or award, the applicable time analysis depends on the legal basis of the claim and the documents supporting it.

Interest and security should also be reviewed before filing. Under the Moveable and Immovable Property Act, a non-financial lender may not charge interest higher than 15 percent per annum as a simple annual rate, and no interest is chargeable or recoverable if no evidence satisfactory to the court is produced as to the fixed rate of interest. Where the claim is supported by a guarantee or security, the creditor should identify the guarantor, the secured property and the enforceable amount. A specific Bhutanese rule is important for foreign creditors: immovable property may not be pledged as collateral for a loan from a non-Bhutanese person unless prior approval has been granted by the Royal Government.

Where the contract contains an arbitration or mediation clause, alternative dispute resolution may be relevant before or instead of ordinary court proceedings. Bhutan ADR Centre was established under the Bhutan ADR Act 2013 and administers arbitration and mediation for domestic and international commercial disputes. International commercial arbitration in Bhutan is limited to commercial relationships with a foreign element; insolvency, winding up, taxation and matters against public policy are outside that route. Bhutan acceded to the New York Convention on foreign arbitral awards in 2014, which is relevant when the creditor holds an arbitral award rather than an ordinary court judgment.

Bhutanese law provides for court debt collection in Bhutan through civil proceedings. A civil suit is instituted by presenting a Petition of Complaint to a court with jurisdiction, and the petition must contain sufficient information to establish the right to relief, state the basis of the court’s jurisdiction and include the relief sought. For civil suits, venue may be based on the place where the cause of action arose, where a principal plaintiff or defendant resides, where the property is situated, where an agreement was signed or entered into, or the location of the relevant Government authority in actions involving a Government agency.

After registration, the court issues service of process or summons, and the defendant must submit an answer within 21 days of service. The answer may include a challenge to the court’s jurisdiction, affirmative defence, partial affirmation, cross-claim, counterclaim, third-party claim or general denial. An allegation that is not denied, is denied improperly or is answered evasively may be deemed admitted.

Both parties may appear in court personally or through a Bhutanese Jabmi. The preliminary hearing in a civil case is used to address procedural and jurisdictional issues and clarify substantive or procedural questions. The Civil and Criminal Procedure Code refers to a preliminary hearing within 108 days of registration in civil cases. Evidence may include documents, witness testimony, expert opinion and other relevant exhibits.

Where one party does not appear, does not answer, gives an evasive reply or otherwise fails to comply with court orders in a way that seriously prejudices the court’s ability to hear the case, the court may pronounce a default judgment. If the parties appear and there is no real legal or factual dispute, a party may request summary judgment. If the facts remain disputed, the court identifies the issues, examines the evidence and decides the case on the basis of the materials presented.

In suitable cases, Bhutan’s e-litigation system may allow electronic registration, filing of documents, payment of court fees and remote hearings, which can be useful where a creditor or evidence is located outside Bhutan. The practical value of e-litigation is highest when contracts, invoices, delivery records, correspondence and authority documents are already available in electronic form.

A final judgment of a subordinate court may be challenged through appeal proceedings in Bhutan. A judgment of a Dzongkhag Court may be appealed to the High Court, and a judgment of the High Court may be appealed further to the Supreme Court of Bhutan. Under the Guideline on Appeal 2022, a party aggrieved by a court decision may appeal to a higher court within 10 working days, excluding the day of judgment. The Civil and Criminal Procedure Code also provides that an appeal must be preferred within ten days of the judgment and that, if no appeal is recorded within ten days from registration of the judgment in the court record, the judgment is enforced.

The appellate court reviews the challenged part of the judgment on the preserved court record. The appeal must identify the part of the judgment being challenged and the grounds of appeal, such as an alleged factual error, error of law or improper admission or exclusion of evidence. The appellate court may dismiss the appeal, reverse all or part of the judgment, remand the case to the lower court with instructions, order a new proceeding in extraordinary circumstances or assign appeal costs. The Supreme Court of Bhutan is the highest appellate court, and its appellate review is the final judicial stage in the ordinary court hierarchy.

Where the creditor already has a foreign court judgment, recognition and enforcement of foreign court judgments in Bhutan should be separated from enforcement of a domestic Bhutanese judgment. Bhutanese courts apply international conventions, covenants, treaties and protocols that have been duly acceded to and ratified by Bhutan; the High Court also has original jurisdiction over cases arising out of or under international treaties, conventions and covenants. If the creditor holds a foreign arbitral award, the New York Convention route may be relevant because Bhutan acceded to that Convention in 2014. For an ordinary foreign court judgment in a commercial debt case, the creditor should prepare the judgment, proof of finality, service documents, contract and evidence of the underlying debt so that the Bhutanese court can assess the claim and the basis for relief under Bhutanese procedural rules.

Once a judgment becomes enforceable, the creditor may proceed to enforcement proceedings through the court. Under the Civil and Criminal Procedure Code, if a judgment debtor is unable to pay the judgment debt, the court may sell the judgment debtor’s property at a judicial sale and apply the proceeds to repayment. The judgment creditor may request the court to summon a relevant person to testify about the debtor’s property. If designated property is not found, the court may levy on other real or personal property within its jurisdiction; if the property is located in another jurisdiction within Bhutan, the court may issue an order to the court having jurisdiction over that property. Where several creditors seek execution against the same judgment debtor, available property may be distributed pro rata after realization costs.

Another way to collect debt in Bhutan is to initiate bankruptcy proceedings against the debtor. A creditor may file a bankruptcy petition when the creditor’s claim, or the aggregate claims of several petitioning creditors, exceeds Nu. 10,000 and the act of bankruptcy relied on occurred within one year before the petition. The petition is filed with the court in the Dzongkhag where the debtor ordinarily resides, carries on business or is employed. A creditor’s petition must identify the act of bankruptcy, the date of its commission and the amount and particulars of the claim. If the petitioning creditor is a secured creditor, the creditor must either be willing to relinquish the security if the debtor is adjudged bankrupt or estimate the value of the security and participate for the unsecured balance.

Under the Bankruptcy Act, a debtor commits an act of bankruptcy where, among other grounds, the debtor transfers all or substantially all property for the benefit of creditors generally; transfers property with intent to defeat or delay creditors; departs from the usual place of abode or business, remains abroad or secludes himself with intent to defeat or delay creditors; files a bankruptcy petition; notifies a creditor that payment of debts has been suspended or will be suspended, unless the debts are subject to a bona fide dispute; or fails to pay a final decree or order for payment of money after a creditor’s notice, where the notice period is not less than one month after service.

Once a bankruptcy petition is admitted, the court may appoint an interim receiver, order attachment of non-exempt property and require the debtor to produce books of account, lists of claims, property schedules and information about creditors. If the debtor is a business entity, it must state whether it will seek to reorganize through a composition or scheme of arrangement. After an Order of Adjudication, pending proceedings against the debtor or the debtor’s property may be stayed or allowed to continue on terms decided by the court.

A creditor participating in bankruptcy must prove the claim by affidavit or by oral statement before a court officer. If the claim or security interest is based on a written document, the original or a duplicate must be submitted with the proof of claim; if the document is lost or destroyed, the circumstances must be stated. Mutual dealings between the debtor and creditor may be set off so that only the balance is claimed or paid.

Bankruptcy can also affect earlier transactions. Any transfer of property, except a transfer made in good faith and for valuable consideration, may be annulled if the debtor is adjudged bankrupt on a petition filed within six months of the transfer. A transfer of property, payment or obligation incurred by a person unable to pay debts as they come due may also be treated as fraudulent and void against the receiver if the bankruptcy petition is filed within six months and the transaction preferred one creditor over other creditors. These rules can be important where the debtor moves assets, pays selected creditors or restructures property shortly before bankruptcy.

If you need assistance with debt collection in Bhutan, Grandliga can review the debt documents, assess the debtor’s assets and procedural position, prepare a pre-court strategy, organize settlement negotiations, coordinate court proceedings, analyze recognition of a foreign judgment or arbitral award, and support enforcement or bankruptcy-related steps. Contact us for a preliminary assessment of your case and practical recommendations for further recovery.

# DEBT COLLECTION AGENCY BHUTAN

17.10.2024

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