Nuances of collecting foreign debts: preventive measures and practical aspects

The international market for business is an opportunity to earn more, but with a higher risk of losses. Losses are most often associated with non-fulfillment by counterparties of their obligations and with the legalization of court decisions on the territories of foreign states. In particular, with non-payments, that is, with debts, the return of which is a difficult problem and the practical side of the implementation of the will of justice. We analyze the key points.

Debt collection: anticipatory action

An independent check of a potential counterparty (Due Diligence, Dew Diligence) is practically the most effective preventive measure. The goal is to minimize the risks of future defaults even before the start of cooperation.

If the check of the foreign partner has not been carried out, and the problem has already arisen?

It should immediately be understood that self-collection is a useless undertaking:

1. Need a lawyer with knowledge of the legislation of foreign jurisdictions and practical experience in such cases. Moreover, in some cases, he must have an appropriate education and special status.
2. You need money for current expenses – to pay state fees, notary fees, translators, etc. As in business, in collection (apart from amicable collection), you also need to first invest in order to get your own or more.

Recovery: looking for the debtor’s property

Obviously. The cost of collection should not be more than the debt itself. To do this, you need to understand what assets does the debtor have  – in property, in money, in other assets. You need to look for something that can be seized for further recovery, while the judgment is being executed.

Searching for foreign assets is a complex undertaking. You need to search in several jurisdictions, taking into account the circumstances of the debt!

A solvent company-debtor, which does not hide assets, but objects to the debt or its size, will be a better subject of recovery than the debtor-beneficiary of a bankrupt, which transferred liquid assets to third parties to make it difficult or impossible to collect them.

What should you look for? Real estate, all types of transport, securities, intellectual property, corporate rights, bank accounts.

It is these assets that are most often included in the registries. Search results help you develop the right collection strategy.

Liquid assets have been found, now it is necessary that the debtor does not hide them. For this, an application for the imposition of interim measures is submitted. The application procedure differs from country to country. For example, in England all assets of the debtor can be frozen. This is what lawyers do.

Debt collection: litigation

In the contract concluded by the parties, there should always be a clause governing the procedure for resolving disputes, the answer to the question of where the claim must be filed – to arbitration or to a state court.

Arbitration is always easier! The system of recognition and compulsory execution of the decisions of this body made on the territory of a foreign country is well developed and regulated by law.

The fundamental legislative regulator is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It is signed by 168 countries, therefore, it is almost unlimitedly universal.

This document states that the participating countries recognize written agreements that specify the obligation of the parties to submit disputes to arbitration.

It also establishes the binding nature of arbitration awards for their enforcement in accordance with the procedural legislation of the country in which the recognition and enforcement is being realized. Arbitration resolves disputes between legal entities and individuals.

The “universality” of the Convention lies in the fact that its norms are “adjusted” to the legislation of the participating countries!

For example, if there is a doubt as to whether a particular dispute can be considered in arbitration, the Convention provides for this to be decided according to the laws of the country in which the recognition / enforcement is to be realized.

“Stability and predictability” of the Convention provides its participants with certain advantages!

Thus, this document contains an exhaustive list of grounds for refusing to recognize and enforce arbitral awards. Concretizes this list of Art. 5 of the Convention. The obligation to prove the existence of grounds for refusal to execute is imposed on the person concerned.

Recovery: the nuances of recognizing court decisions

Important! If the agreement of the parties contains a clause that allows the consideration of the case in the national court, then after the decision is made, it must also be recognized and enforced in order for it to receive the status of “binding” abroad.

The 2019 Hague Convention regulates the recognition and implementation of civil / commercial decisions. Also, to resolve disputes, regional conventions, bilateral agreements on legal assistance and the principle of reciprocity are actively used if there is no international agreement.

Cross-border collection: in summary!

The above information is the tip of the iceberg. It makes no sense to go deeper, since each situation is a separate story in which the debtor may be bankrupt, there may be more creditors than assets, beneficiaries may prevent collection, etc.

This suggests that business with international counterparties should be conducted under the clear guidance of lawyers. And the problems that have already arisen should be left to be solved exclusively by lawyers with experience in collecting debts from foreign legal entities.

28.12.2021

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