Debt collection in Mongolia

Debt collection in Mongolia should begin with a legal and financial assessment of the debtor, the basis of the claim and the documents confirming the creditor’s demand. At this stage, it is important to verify the exact name or personal details of the debtor, the debtor’s address in Mongolia, the field of activity, the existence of assets, ongoing court cases, previously initiated enforcement proceedings, signs of insolvency, and the likelihood that the debtor may challenge the debt, the amount claimed or the authority of the person who signed the contract.

For a foreign creditor, this assessment is especially important because the recovery strategy depends not only on the amount of the debt, but also on the connection of the dispute with Mongolia. Relevant factors may include the debtor’s location, the place of performance of the obligation, the existence of assets in Mongolia, the presence of a branch or representative office, the applicable law, an arbitration clause, the language of the documents and the ability to use the evidence before a Mongolian court.

Before active steps are taken, the creditor should organize the contract, invoices, delivery or performance documents, transport documents, correspondence, payment history, documents acknowledging the debt, guarantees, sureties, pledge or mortgage documents and information about the debtor’s assets. If the documents are prepared in a foreign language, an official translation into Mongolian will be required for the court stage, because evidence in a foreign language must be submitted in a form that can be used in the proceedings.

If there are no active court proceedings concerning the same debt, no outstanding court decisions and no clear signs that the debtor has ceased operations, the first practical step may be amicable debt collection. This stage includes sending a written demand to the debtor, negotiating with authorized persons, recording the debtor’s position, checking the possibility of voluntary payment, debt restructuring, return of goods, set-off of mutual claims or another commercially acceptable settlement.

Amicable communication must be lawful and properly documented. For the creditor, it is important not only to contact the debtor, but also to keep evidence of the notices sent, the content of the demands, the debtor’s response, any acknowledgment of the debt, proposals for payment by instalments and partial payments. If the debtor avoids responding, refuses to perform the obligation or the initial analysis shows that a voluntary settlement will not be effective, the creditor should proceed to court recovery.

Before preparing a claim, the creditor must check the limitation period. In Mongolia, the general limitation period is 10 years, while claims arising from failure to perform contractual obligations are subject to a special 3-year limitation period. Obligations related to immovable property are subject to a 6-year period, and claims for damage to property are subject to a 5-year period. As a rule, the period starts when the right to claim arises, that is, when the right is violated or when the creditor knew or should have known about the violation.

Mongolian civil law allows the limitation period and the method of its calculation to be changed upon a request by the parties. If the period has already expired, the court may restore it where there are grounds to protect the violated right. However, for the creditor it is safer to assess the limitation period before negotiations and before filing a claim, in order not to lose the procedural opportunity to recover the debt.

The limitation period may be interrupted if the debtor acknowledges the creditor’s claim: makes a partial payment, pays interest, provides a surety, grants another form of security or otherwise confirms the debt. Filing a claim with the court may also affect the running of the period. After interruption, the period begins to run again, but if the claim is withdrawn or left without consideration, the effect on the limitation period depends on the procedural reason for the closure of the case.

Before applying to court, it is also necessary to check whether the contract, the law or an agreement between the parties provides for a mandatory preliminary dispute settlement procedure. If the parties agreed on a claim procedure, negotiations, mediation or another preliminary method of resolving the dispute, the creditor must be able to prove compliance with that procedure: send the demand, keep evidence of its delivery and record the outcome of negotiations or the debtor’s refusal to settle.

Mongolian legislation provides several procedural options for debt recovery through the court: ordinary proceedings, simplified closure of the case and special proceedings for certain categories of claims. The choice of procedure depends on the amount of the debt, the nature of the obligation, the quality of written evidence, the debtor’s position, the existence of counterclaims and whether the dispute can be examined mainly on the basis of documents without a complex factual assessment.

In court debt recovery, the creditor must prepare the statement of claim, evidence of the origin of the debt, calculation of the amount claimed, documents confirming that demands were sent to the debtor, information about the debtor and evidence confirming the jurisdiction of the Mongolian court. If the documents are prepared in a foreign language, they must be officially translated into Mongolian. Written and electronic documents, explanations of the parties, witness testimony, expert opinions and other admissible evidence may be used in the proceedings.

In practice, it is important to correctly indicate the debtor’s address and contact details for court notices. If the defendant avoids receiving documents, is not located at the registered address or uses electronic means of communication, Mongolian procedural rules provide methods for sending court notices, including delivery to the established address and the use of electronic means in cases provided by law. This reduces the risk that the debtor will be able to delay the proceedings only by avoiding receipt of correspondence.

In ordinary proceedings, the case is examined after the civil case has been initiated. Unless the law provides another period, the court of first instance examines the case within 60 days from the date of initiation of the case. This period may be extended once for up to 30 days. The case is considered at a court hearing with the parties summoned, the evidence examined and the positions of the participants heard. If the case is returned for a new examination by the appellate or supervisory instance, special rules for calculating the time limit apply.

A party that disagrees with the decision of the court of first instance has the right to appeal. The appeal is examined by a panel of judges, and the period for consideration of the case in the appellate instance is 30 days from the moment the court receives the case file. The appellate court may leave the decision unchanged, amend it, cancel it in whole or in part, or return the case for a new examination if there were substantial violations of the law or of the procedural rights of the participants.

Further review of a judicial act is possible only in a limited procedure where the grounds provided by procedural law exist. Such review is not a second ordinary examination of the dispute on the merits and is mainly connected with the correct application of law, substantial procedural violations or legal issues important for the uniformity of judicial practice. In the supervisory instance, the case is examined by a panel of judges of the Supreme Court, and the ruling is issued within the procedural time limits.

Simplified closure of the case is possible after the civil case has been initiated and before the court hearing, if the claimant withdraws the claim, the defendant recognizes the claim, the parties reach a settlement or the defendant voluntarily satisfies the claims. In such a case, the court approves the relevant procedural act. If the defendant does not voluntarily perform the approved obligations, that judicial act may be submitted for forced execution under the rules applicable to court decisions.

Special proceedings apply to certain categories of cases. In particular, a single judge may examine monetary claims arising from contracts where the amount does not exceed twenty times the minimum monthly wage. Special proceedings may also apply to certain claims concerning expenses for common property, wages, compensation for damage to property or health, and certain claims related to the enforcement of court decisions and recovery against secured property.

In special proceedings, the case is normally examined in one court hearing on the basis of written and electronic documents. The period for examination is 45 days from the date of initiation of the civil case, and if the case is returned by the appellate instance for a new examination, 14 days from the moment the judge receives the case file. This period may be extended once for up to 14 days. Claims arising from the same legal dispute may not be artificially divided into several claims in order to fall within the special procedure.

If, during special proceedings, it becomes clear that the case does not meet the conditions of this procedure or has legal significance requiring ordinary examination, the court may continue the case under the ordinary rules. Therefore, special proceedings may be useful for documented monetary claims, but they do not replace ordinary litigation in complex disputes where the debtor raises detailed objections, counterclaims or challenges the very basis of the debt.

If the creditor already has a foreign court decision or a foreign arbitral award, the recovery strategy in Mongolia differs from filing an initial claim for recovery of the debt. Recognition and enforcement of foreign court decisions is carried out under Mongolian law and the international treaties applicable to Mongolia. Foreign arbitral awards are considered separately from foreign court decisions and may be enforced under international rules on recognition and enforcement of arbitral awards, provided that the dispute and the award meet the applicable conditions.

After a decision of a Mongolian court has entered into legal force, if the debtor does not comply with it voluntarily, the creditor must obtain an enforcement document and submit it to the bailiff. For civil decisions of Mongolian courts, the period for submission for enforcement is 4 years from the date on which the decision entered into legal force. For foreign court decisions, a separate 3-year period applies, unless an international treaty applicable to the specific decision provides a different rule.

Enforcement proceedings in Mongolia are aimed at the actual satisfaction of the creditor’s claims through the debtor’s money and assets. Within compulsory enforcement, measures may include recovery from funds, seizure of property, forced sale of the debtor’s property and transfer of property to the creditor in cases provided by law. The practical effectiveness of enforcement depends on whether it is possible to identify the debtor’s assets, bank accounts, property, receivables from third parties or other sources of repayment.

An additional recovery tool may be the bankruptcy of the debtor. Under Mongolian law, a debtor is considered insolvent if the debtor is unable to perform obligations in an amount equal to or exceeding 10 percent of the debtor’s equity within the period established by law or by contract. A creditor entitled to demand performance of the obligation may apply to the court to initiate bankruptcy proceedings if there are confirmed grounds and evidence of the amount of the debt.

After the application is accepted, the court assesses whether there are signs of insolvency. Bankruptcy proceedings may involve issues of restoring solvency, liquidation of the debtor, formation of the list of creditors, appointment of an administrator and distribution of assets. For the creditor, bankruptcy may be useful where the debtor has assets but systematically avoids payments, transfers property or gives preference to certain creditors.

Within bankruptcy proceedings, transactions of the debtor aimed at withdrawing assets or reducing the property from which creditors’ claims could have been satisfied may be challenged. At the same time, bankruptcy is a collective procedure: the creditor must take into account competition with other creditors, the order of satisfaction of claims, the existence of secured claims and the real value of the debtor’s assets.

It is also necessary to take into account the rules of Mongolian company law. A company is liable for its obligations with all property belonging to it, while a shareholder or participant, as a rule, is not liable for the company’s debts beyond the value of the shares or participation interest held. Therefore, the mere existence of a company debt does not automatically create personal liability of its owner.

At the same time, liability of controlling persons may arise where specific grounds provided by law exist. If a shareholder, a related person or a person who actually controls the management of the company causes losses to the company through wrongful actions, the issue of personal liability may be assessed separately. For the creditor, this means that before bringing claims against owners, managers or related persons, it is necessary to collect evidence of control, wrongful actions, transfer of assets, losses caused and the connection between those actions and the company’s inability to repay the debt.

If you need debt collection in Mongolia, our company can help assess the documents, verify the debtor, choose an amicable or court recovery strategy, prepare materials for court, organize work with a foreign court decision or a foreign arbitral award and support enforcement actions. In international cases, it is especially important to determine in advance whether the debtor has assets in Mongolia, which evidence confirms the debt, whether special proceedings may apply and whether the decision obtained can be effectively enforced.

# DEBT COLLECTION AGENCY MONGOLIA

06.02.2022

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