Debt Collection in Libya

The procedure for debt collection in Libya should begin with a combined legal, commercial and sanctions-related assessment of the debtor. At this stage, it is important to determine whether the debtor has assets, bank accounts, receivables, movable or immovable property, a registered business presence or an authorised representative in Libya, and whether the claim is supported by contracts, invoices, delivery documents, account statements, correspondence or other written evidence.

Libyan jurisdiction may be relevant where the debtor resides in Libya, has a chosen domicile or an agent entitled to appear before Libyan courts, where the claim relates to assets located in Libya, a contract concluded or performed in Libya, an event that occurred in Libya, bankruptcy opened in Libya, or proceedings already pending before a Libyan court. For a foreign creditor, this preliminary assessment is especially important because political fragmentation, institutional constraints, oil-sector dependence and currency or banking limitations may affect communication with the debtor, asset tracing, payment routes and the practical timing of enforcement.

Sanctions screening is also part of the initial assessment in Libyan matters. Current international measures related to Libya are targeted rather than a general prohibition on every commercial claim, but asset freezes, restrictions connected with designated persons or entities, and measures concerning illicit petroleum exports may delay or restrict payments, transfers of enforcement proceeds, dealings with certain assets or transactions involving sanctioned banks, vessels, oil-related counterparties or designated beneficial owners.

If the debtor has no ongoing court cases or outstanding judgments for debt collection and is actively engaged in commercial activities, the out-of-court stage may be used before court proceedings.

The out-of-court stage includes structured negotiations with the debtor in order to obtain payment, agree a repayment schedule, secure acknowledgement of the debt, arrange the return of goods, transfer the debt to a third party, offset mutual obligations or agree another lawful settlement solution.

Communication with the debtor begins after sending a written notice or demand by an appropriate channel, such as mail, email, phone or messenger, depending on the documents and previous course of dealing. The purpose of this stage is to contact authorised representatives or key decision-makers, confirm the debtor’s position, preserve evidence of communication, obtain partial payment or written acknowledgement where possible, and prepare the case for court if voluntary payment is not achieved.

In Libya-related claims, a documented formal demand is particularly important where the creditor may later rely on a payment order, because the procedure requires a prior demand giving the debtor at least three days to perform the obligation. If voluntary recovery does not produce a practical result, or if the debtor’s status, sanctions exposure, insolvency indicators or dispute position make negotiations ineffective, the next step is court recovery.

Before initiating judicial collection, it is important to assess the limitation period applicable to the claim. Under the Libyan Civil Code, the general limitation period for obligations is 15 years unless a special legal rule provides otherwise. For commercial obligations, Article 505 of Law No. 23 of 2010 on Commercial Activity provides a 10-year commercial prescription period from the date when payment becomes due, unless the law provides otherwise. Shorter limitation periods may apply to specific categories of claims, such as certain transport, negotiable instrument, service or recurring payment claims.

The consequences of the expiration of the limitation period are applied by the court only when the debtor or another entitled party relies on prescription. The limitation period may be interrupted by legal proceedings, summons, attachment, a creditor’s application for admission of the claim in bankruptcy or distribution proceedings, or by express or implied acknowledgement of the creditor’s right by the debtor. After interruption, the limitation period begins to run again; if the debt is confirmed by a final judgment, a new 15-year prescription period may apply to the judgment debt, except for future recurring obligations.

Libyan law provides for judicial debt collection through the ordinary court procedure and through a payment order for written monetary claims that meet the statutory conditions.

The ordinary court procedure begins with filing a statement of claim with the competent court. The court then delivers a copy of the claim to the bailiff for service on the defendant. The period for appearance before the court of first instance is at least eight days in civil cases and three days in commercial cases.

After the claim has been served on the defendant, the bailiff notifies the plaintiff of service, and the plaintiff must file the claim for registration in the court register no later than the day preceding the appointed hearing.

On the appointed hearing date, the parties may appear in person or through representatives or lawyers authorised by a general or special power. Libyan procedural law also allows representation by relatives or relatives by marriage up to the third degree under the procedural form recognised by law, including a statement made at the hearing or a declaration confirmed in the manner provided by the Code of Civil and Commercial Procedures.

If the defendant fails to appear at the first hearing, the court checks whether notification was properly carried out and may treat the defendant as absent and proceed without the defendant’s presence. The defendant may still participate in the case if the matter has not yet been transferred to the stage of judgment.

At the first hearing, the plaintiff must state the facts and the subject of the claim and present the relevant claims and evidence. The defendant must present objections, claims and documents before the second hearing. The court of first instance may, for good reason, allow the parties to present new objections, evidence or documents or amend claims during the proceedings.

The court of first instance may attempt reconciliation if it considers this useful and may require the parties to appear in person for that purpose. If reconciliation is reached, a record is drawn up and has enforceable effect. The court may repeat reconciliation attempts during the proceedings when appropriate.

The court must investigate the case as quickly as possible and then send the parties to a hearing on the merits. The parties must submit notes with final demands, a statement of facts and legal grounds five days before that hearing. After considering the merits, the court issues a final decision.

The procedure for issuing a payment order is used to collect a monetary debt in a clearly determined amount where the creditor’s right is confirmed by written documents and the debt is due for payment. Before applying to the court, the creditor must first send the debtor a demand for fulfilment of the obligation and provide a period of at least three days. If the debtor does not fulfil the demand within that period, the creditor may apply to the competent judge for a payment order and attach the document confirming the right and proof that the demand was made.

The application must state the amount to be paid, including the principal debt, interest and costs where applicable. If the judge cannot satisfy all the creditor’s requests, the judge does not issue the order and schedules a hearing so that the case can proceed before the court.

The payment order must be served on the debtor at the debtor’s domicile within six months from the date of issuance; otherwise, it loses its force. The notice must inform the debtor that, if no grievance is filed within eight days from service, the order becomes equivalent to a final enforceable judgment. The debtor challenges the payment order by summoning the creditor before the competent court. The bailiff’s office then registers the grievance case, and the court considers it in an expedited manner and issues a final decision.

The decision of the court of first instance may be appealed to the court of appeal within 30 days from notification of the judgment, unless a special rule applies. The decision of the appellate court may be challenged before the Supreme Court of Libya by cassation within 30 days from notification of the judgment. The decision of the Supreme Court is final and cannot be challenged further.

If the creditor already has a foreign court judgment or order against a Libyan debtor or against a debtor with assets in Libya, a separate route may be recognition and enforcement of foreign court judgments in Libya. Libyan procedural law allows foreign judgments and orders to be enforced on the basis of reciprocity, under conditions similar to those applied in the foreign state to Libyan judgments and orders.

The enforcement request is submitted in the ordinary form before the Court of First Instance within the district where enforcement is sought. The court must verify that the foreign judgment or order was issued by a competent judicial authority under the law of the issuing state, has become final there, that the parties were duly summoned and properly represented, that the foreign judgment does not conflict with an earlier Libyan judgment or order, and that it does not violate public order or morality in Libya.

For business disputes based on an arbitration agreement, enforcement may also depend on the rules governing foreign arbitral awards. Under Law No. 10 of 2023 on Libyan Commercial Arbitration, a foreign arbitral award is enforced in Libya on the basis of reciprocity by a written request to the President of the Court of Appeal. The application is accompanied by the original award and arbitration agreement, with an official Arabic translation where necessary.

After the court decision enters into legal force, the creditor should initiate enforcement proceedings. Where a debt is confirmed by a final judgment, the Libyan Civil Code provides for a new 15-year prescription period for the judgment debt, except for future recurring obligations.

As part of enforcement, the creditor’s claims may be satisfied by seizure and write-off of funds from the debtor’s accounts, seizure and sale of the debtor’s movable and immovable property, seizure of securities, and seizure of property or money held by third parties. If enforcement is directed against performance by a third party, the debtor must be notified of the intended enforcement at least eight days before it takes place.

Practical enforcement planning in Libya should include asset tracing, identification of bank accounts and receivables, review of third-party assets, and assessment of property that may be exempt from seizure. Libyan procedural law limits enforcement against certain essential personal items, specified professional or household assets, and wages or salaries, where attachment is generally limited to one quarter. Enforcement disputes are considered urgently, which can affect the timing of recovery when the debtor challenges the enforcement route.

In cross-border cases, the enforcement stage may also be affected by sanctions and banking compliance. Targeted Libya-related sanctions, asset-freeze rules and restrictions connected with designated persons, entities, vessels, banks or oil-related transactions may require additional screening before payments are processed, assets are released or enforcement proceeds are transferred to a foreign creditor. These restrictions usually add a compliance layer to recovery rather than replacing the civil enforcement procedure itself.

An alternative option for collecting a debt from a company, merchant or entrepreneur is bankruptcy of the debtor. Under Law No. 23 of 2010 on Commercial Activity, bankruptcy may be declared for a merchant, whether a natural person or a legal entity, and for a civil company if the debtor suspends payment of its debts. Suspension of payment is established when non-payment appears or external circumstances indicate the debtor’s inability to perform obligations regularly. Bankruptcy may be requested by the debtor, by one or more creditors, by the public prosecution or by the competent authority.

The Court of First Instance has jurisdiction to declare bankruptcy where the debtor’s main place of business falls within its territorial jurisdiction. The creditor may use this route where ordinary enforcement is unlikely to satisfy the claim, where the debtor has stopped payments, where assets have been dissipated, or where the debtor’s conduct indicates insolvency-related risk.

If the debtor’s assets are insufficient to satisfy creditors, bankruptcy may become important not only as a liquidation route but also as a mechanism for challenging transactions harmful to creditors. Disposals free of charge made within two years before bankruptcy are not effective against creditors, except ordinary gifts and acts fulfilling a moral duty or public benefit when proportionate to the debtor’s economic position. Payments of debts that became payable on or after the bankruptcy declaration, and payments made within two years before the declaration in the circumstances specified by law, may also be ineffective against creditors.

The receiver may seek cancellation of dispositions made by the debtor to harm creditors under the Civil Law rules. Certain compensated transactions, unusual payments, pledges, mortgages or other preferential security arrangements may also be ineffective against creditors if they fall within the statutory look-back periods and the required knowledge of the debtor’s inability to pay is established or not disproved, depending on the category of transaction. These rules can help return value to the bankruptcy estate and increase the assets available for creditor distribution and bankruptcy costs.

If you need support with international debt collection in Libya, Grandliga can assist throughout the full recovery cycle: debtor and sanctions-related assessment, review of documents and limitation periods, out-of-court negotiations, formal demands, court recovery, payment order applications, recognition and enforcement of foreign judgments or arbitral awards, enforcement planning and bankruptcy-related recovery. The strategy is selected according to the debtor’s status, available evidence, assets, sanctions exposure, banking route and the procedural stage of the claim.

# DEBT COLLECTION AGENCY LIBIYA

19.11.2024

492