Debt Collection in Iraq

Debt collection in Iraq should begin with a legal and commercial assessment of the debtor, the origin of the debt and the evidence available to the creditor. For a business debtor, it is important to identify whether the debtor acts as a merchant, a company, a branch, an agent, a contractor, a supplier or another commercial participant, because this may affect the choice of court, the method of notification, the available enforcement route and the possibility of using bankruptcy-related measures.

The initial review should cover the debtor’s business activity in Iraq, active address, assets, bank or trade activity, current court cases, enforcement proceedings, previous payment history, possible objections to the debt and the quality of the documents proving the creditor’s claim. In cross-border matters, it is also important to check whether the contract contains a governing law clause, jurisdiction clause, arbitration clause, place of performance, payment terms and documents confirming delivery of goods or performance of services.

If the debtor continues commercial activity, has reachable communication channels, has no clear signs of insolvency and the debt is supported by proper documents, out-of-court debt collection may be a reasonable first stage. At this stage, the creditor’s objective is to obtain voluntary payment, a written acknowledgement of debt, a payment schedule, return of goods, set-off, transfer of the debt to a third party or another settlement that can be documented and later relied on if the debtor defaults again.

Communication with the debtor should begin with a clear written demand supported by the contract, invoices, delivery documents, account statements, correspondence and other evidence of the debt. Further contact by mail, email, phone or messaging channels should be recorded and focused on confirming the debtor’s position, identifying the person authorized to make a payment decision, preserving evidence of the demand and determining whether voluntary settlement is realistic.

The duration of informal extra-judicial collection depends on the debtor’s response, the amount of the claim, the quality of evidence, the existence of a realistic repayment proposal and whether the debtor acknowledges the obligation. If the debtor avoids communication, disputes the debt without sufficient grounds, refuses to provide a workable payment plan, transfers assets or uses negotiations only to delay payment, the creditor should proceed to judicial collection or another formal recovery route available under Iraqi law.

Before initiating judicial collection, it is worth paying attention to the limitation period. The general limitation period is 15 years. A limitation period of 5 years is set for claims for recurring periodic rights, such as rent, interest and income due. For debt claims, the calculation should be linked to the due date of the obligation, the maturity date under the contract, invoice, payment schedule or other document establishing when payment became due. The consequences of the expiration of the limitation period are applied in court only at the request of the debtor. The limitation period may be interrupted by a judicial claim and by direct or indirect acknowledgement of the debt by the debtor.

Iraqi law provides for judicial debt collection through the ordinary court procedure. This route is used when voluntary settlement is not achieved, when the debtor disputes the debt, when the creditor needs a court judgment for enforcement in Iraq or when the case requires formal examination of evidence.

The ordinary court procedure begins with the filing of a statement of claim with the competent court. In a debt claim, territorial jurisdiction may be connected with the defendant’s domicile, the headquarters of the debtor’s transactions, the place where the obligation was created, the place where the obligation must be performed or the place chosen by the parties for litigation. If the defendant has no domicile or residence in Iraq, the claim may be filed before the court of the plaintiff’s domicile or residence in Iraq, and if the plaintiff also has no domicile or residence in Iraq, the claim may be filed before the courts of Baghdad.

For certain commercial disputes, including disputes where one of the parties is non-Iraqi, contracting, supply and consultancy disputes involving the state, investment-related disputes and non-performing loans filed by banks, jurisdiction may fall within the Commercial Court in Baghdad. This makes the legal characterization of the claim important at the beginning of the case, especially when the creditor is a foreign company or the debt arises from an international commercial transaction.

The statement of claim should identify the court, the date of filing, the parties, their addresses, the address chosen for notification, the subject matter of the claim, the facts of the case, the evidence, the plaintiff’s demands, the legal grounds and the signature of the plaintiff or authorized representative. In commercial debt cases, the supporting documents usually include the contract, purchase order, invoices, delivery or acceptance documents, transport documents, account statements, correspondence, debt acknowledgement, payment history, calculation of principal, interest and any contractual penalties or costs.

The court then checks the statement of claim for compliance with the requirements of the law. If the claim meets the criteria for acceptance, the court registers it and issues the plaintiff a receipt indicating the parties to the case, the date of filing the claim, the first hearing date and the case registration number.

After the claim is registered, the court sets a date for the hearing and sends the defendant a copy of the statement of claim with its attachments and a notice of summons. The defendant has the right to file a written response during the period from the date of receipt of the notice until the date of the first court hearing. If the person to be notified resides outside Iraq, the head of the court requests notification through the Minister of Justice and diplomatic channels, unless an applicable international convention provides a special method of notification. In such cases, the procedural period is extended by one month for persons residing in an Arab state, Turkey or Iran, and by two months for persons residing in another country.

If the defendant fails to appear on the day of the hearing, despite having been duly notified, the trial is held in his absence and the court makes a decision on the case if all the material circumstances of the case are clear to the court. If the case is not ready for a decision, it is postponed until the claims in the statement of claim have been properly and fully proven.

If the defendant appears, the court hears the parties’ positions. The court may also request clarification from the parties on matters that the court considers ambiguous or where the requested clarification would contribute to the decision of the case.

The court may not adjourn the hearing except for good cause and not more than once for each cause, unless the court considers another adjournment necessary for the proper administration of justice. An adjournment is allowed for a period not exceeding 20 days, except where a longer period is necessary, including for obtaining documents or records from official agencies.

The court, on its own initiative or at the request of any of the parties, may decide to carry out investigative measures necessary for the proper examination of the evidence presented by the parties. The facts to be established must be relevant, productive and admissible.

After establishing the essential facts and circumstances of the case, the court concludes the trial and issues a decision on the same day or sets a date for issuing the decision not exceeding 15 days from the date of the determination to conclude the case.

The decision of the court of first instance may be appealed to the appellate court, provided that the amount of the claim exceeds 1,000.00 dinars. The period for filing an appeal is 15 days from the date of the decision. The decision of the appellate court may be challenged before the Court of Cassation within 30 days from the date of the contested decision.

In cross-border debt recovery, the creditor should also determine whether recovery in Iraq is based on an Iraqi court judgment, a foreign court judgment or a foreign arbitral award. Recognition and enforcement of foreign judicial decisions in Iraq is a separate route because foreign judgments are enforceable only if they are considered enforceable under the Foreign Judgments Law or an international treaty applicable in Iraq. The practical assessment should cover the competent foreign court, proper notification of the debtor, the final and enforceable nature of the judgment, the monetary character of the claim, public order issues and the location of the debtor’s assets in Iraq.

Foreign arbitral awards are assessed separately from foreign court judgments. Iraq acceded to the New York Convention, which entered into force for Iraq on 9 February 2022. Iraq applies the Convention with reservations: it does not apply to arbitral awards made before the Convention entered into force for Iraq, it applies on the basis of reciprocity to awards made in the territory of another Contracting State, and it applies to disputes arising from contractual legal relations considered commercial under Iraqi law.

Once a court decision or another enforceable document can be executed in Iraq, the creditor must initiate enforcement proceedings through the Execution Directorate. Iraqi enforcement law applies to domestic judgments, executable documents and foreign judgments that are enforceable in Iraq under the Foreign Judgments Law or applicable international agreements.

Execution may proceed through voluntary execution or forced execution. After the execution notice is served, the debtor has 7 days from the day following notification to perform voluntarily. If the debtor does not comply, forced execution may be used. Depending on the assets and the enforceable document, the creditor’s claims may be satisfied by seizure and collection of funds, seizure and sale of movable or immovable property, seizure of securities, seizure of company shares and other enforcement measures allowed by law.

Some documents may be enforceable without first obtaining a full court judgment, including negotiable commercial papers, instruments containing acknowledgement of debt, instruments establishing personal rights and other documents to which the law gives executory force. If the debtor objects to the debt or denies it in whole or in part, the creditor may need to refer the disputed amount to the competent court and prove the claim through judicial proceedings.

An alternative option for collecting a debt from a company or an individual merchant is the bankruptcy of the commercial debtor. In Iraq, bankruptcy-related recovery is connected with commercial debts and the debtor’s inability to continue paying commercial obligations. For a creditor, this route is most relevant where the debtor is a merchant or commercial entity, has stopped making payments, has several creditors, is disposing of assets or where ordinary enforcement against individual assets is unlikely to provide effective recovery.

After a commercial debtor is declared bankrupt, individual recovery actions are generally replaced by a collective framework administered under court supervision. The creditor’s practical objective is to secure recognition of the claim in the bankruptcy process, preserve evidence of the debt, identify the debtor’s assets and review transactions that may have reduced the estate available to creditors.

In cases involving a company, the bankruptcy analysis should also cover the legal form of the debtor, the role of shareholders, partners, directors, managers and persons who signed guarantees, debt acknowledgements or other security documents. If the debtor’s assets were reduced through suspicious transfers, preferential payments, asset withdrawals, transactions with related parties or conduct that harmed creditors, these circumstances may become relevant for challenging transactions, assessing liability risks and increasing the prospects of recovery from the debtor’s estate.

If you need support with debt collection in Iraq, Grandliga can assist at all key stages of the recovery process: assessment of the debtor and evidence, preparation of a written demand, out-of-court negotiations, court strategy, proceedings before the competent Iraqi court, recognition and enforcement of foreign judgments and arbitral awards, enforcement proceedings and bankruptcy-related recovery options for commercial debtors.

# DEBT COLLECTION AGENCY IRAQ

24.10.2024

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