Debt Collection in Sri Lanka

The debt collection process in Sri Lanka begins with an assessment of the debtor’s solvency, their line of business, the history of the business, the availability of documentary evidence of the debt, ongoing court cases and enforcement proceedings, and the possibility of disputing the debt. This assessment determines the strategy that will be used on behalf of the client in the collection process.

If the debtor has no ongoing court cases or outstanding judgments for debt collection and is actively engaged in commercial activities, then it is advisable to use the out-of-court debt collection stage.

This stage involves active negotiations with the debtor in order to reach an agreement on payment of the creditor’s claims or other possible settlement options (e.g. return of goods, transfer of the debt to a third party, exchange of services or goods).

Interaction with the debtor begins immediately after sending a notice by mail, email, phone or instant messengers. This process involves intensive communication with the debtor in order to exert constant pressure. The main objective is to establish contact with key decision makers to achieve the fastest possible debt recovery.

The average time for informal out-of-court collection is up to 60 days (except in cases where a debt repayment installment plan has been agreed upon). If this stage does not bring the expected results or after an initial analysis it becomes clear that it is not applicable, it is necessary to proceed to collection through the courts.

Before initiating judicial collection, it is worth paying attention to the limitation period. The limitation period for debt collection is 6 years. The limitation period is interrupted if the debtor acknowledges the debt obligation by written confirmation. After the interruption, the limitation period begins to count anew.

Sri Lankan legislation provides for judicial debt collection in the usual and accelerated judicial procedure.

The usual judicial procedure is carried out by filing a statement of claim with the court, after which the court checks the claim for compliance with the requirements of the law. If the court has no objections to the claim, the court shall cause a summons to be issued requiring the defendant to answer the claim on or before the date specified in the summons.

On the date designated in the summons for the defendant to appear and answer, if the parties appear in court, the defendant will be asked to answer the plaintiff. If the defendant admits the plaintiff’s claim, the court will enter judgment against the defendant in accordance with the admission. If the defendant does not admit the plaintiff’s claim, the defendant must file a properly certified written answer with the court. If there is good cause, the court may give the defendant an additional period of time to file an answer to the complaint.

Immediately upon the expiration of the time allowed for filing an answer to the claim, and whether or not an answer is filed, the court shall set a date for hearing and deciding the claim and shall notify the parties thereof. If the defendant fails to appear on the day appointed for appearance and filing of the answer, or on the day appointed for the hearing of the case, the court shall hear the case ex parte and shall issue a preliminary decision in favor of the plaintiff.

If the defendant appears on the day appointed for the hearing of the case, the court shall establish the existence of a dispute between the parties on factual and legal issues. If there are disagreements between the parties on material factual and legal issues, the court shall record such issues and conduct further proceedings in the context of examining the evidence and arguments of the parties that resolve the disputed issues.

The court, on the basis of the evidence that has been duly admitted, or on the basis of the facts admitted in the petitions or otherwise, and after hearing the parties, shall issue a decision either immediately or on another day, which will be notified to the parties after the end of the process.

In the judgment the court may award interest at the rate agreed upon by the parties in the instrument of claim or, failing such agreement, at the rate of five per cent per annum, payable on the principal amount awarded from the date of the claim to the date of the judgment, in addition to any interest awarded on such principal amount for any period prior to the commencement of the claim.

The expedited court procedure is used to recover a debt or a specified sum of money arising under a bill, cheque or other written document or agreement for a specified sum of money. After the case is commenced, the court issues a summons to the defendant, under which the court only notifies the defendant of the procedure. If the defendant wishes to object to the claim, the defendant must obtain leave from the court. The court may grant leave to defend if the defendant pays the amount specified in the summons and provides substantial evidence that the plaintiff’s claim is unfounded. The court finds in favor of the plaintiff if the plaintiff does not object or if the court considers the defendant’s objection to be unfounded.

A decision of the court of first instance may be appealed to the High Court within 14 days of the date of the judgment. A decision of the High Court may be appealed to the Court of Appeal within 14 days of the date of the judgment. The decision of the Court of Appeal may be appealed to the Supreme Court of Sri Lanka within 60 days from the date of obtaining leave to appeal. An application for leave to appeal must be made within 14 days from the date of pronouncement of the impugned decision. The decision of the Supreme Court is final and cannot be appealed further.

Once the judgment has entered into force, the creditor should initiate enforcement proceedings. The judgment may be brought for execution within 3 years from the date of entry into force of the judgment. As part of the enforcement of the judgment, the creditor’s claims may be satisfied by seizing and writing off funds from the debtor’s accounts; seizing the movable and immovable property of the debtor and then selling them; seizing and confiscating securities; seizing and confiscating the shares of the company.

If the debtor is in a state of insolvency, it is advisable to use the bankruptcy procedure of the debtor. The creditor has the right to initiate this procedure if the debtor has committed an act of bankruptcy. According to the provisions of the Insolvency Act, a debtor is considered to have committed an act of bankruptcy in the following cases: the debtor has left the territory of Sri Lanka; the debtor has been in prison for 21 days for non-payment of debts; the debtor makes a fraudulent gift or transfer of any of his property, with the intention of defrauding or detaining his creditors; the defendant does not pay a debt under a court decision within thirty days after notice of insolvency. At this stage, if the debtor’s assets are insufficient to fully satisfy the claims of creditors, it is possible to cancel the debtor’s transactions made with the intention of causing damage to creditors. Among such transactions, the following should be highlighted in particular: transactions for the transfer of any property of the debtor, made without valuable consideration; transactions made with the purpose of giving an advantage to one creditor in relation to other creditors; any fraudulent transactions committed with the purpose of evading payment of debts to creditors or otherwise violating their rights. As a result of the cancellation of the above transactions, it is possible to return back to the debtor what he lost from such transactions and thereby increase the liquidation estate to satisfy the claims of creditors and cover the costs of implementing the bankruptcy procedure.

If you have any questions or need support for international debt collection in Sri Lanka, our company is ready to provide its expert assistance to effectively resolve your financial issue. Contact us to get additional information and professional support from specialists of the leading debt collection agency.

# DEBT COLLECTION AGENCY SRI LANKA

14.10.2024

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