Pre-trial debt collection from foreign counterparties: will it work?

In case of cooperation with foreign contractors, the customer often does not make an advance payment for the goods, does not pay for the services provided / work performed, or simply delay the due date of payment under the agreement.

Forcing the counterparty to pay off the debt is not an easy task, but this procedure becomes especially difficult, when the creditor and the debtor are in different countries (jurisdictions).

However, even in such cases, there are ways to successfully satisfy the creditors’ claims. Based on its experience, Pravova Dopomoga Law Firm offers effective solutions to collect debts from foreign counterparts.

We have already described possible ways and stages of international debt collection in general here, so today we will talk about the prospects and feasibility of the amicable collection procedure.

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What is the amicable collection?

The first step to collect the debt should be an attempt to negotiate with the debtor. The amicable debt collection is a kind of analogue of the pre-action / pre-trial settlement of a dispute, during which a lawyer:

  • conducts negotiations with the Client;
  • clearly formulates a written claim (supported by legal arguments);
  • and exerts other legal pressure on the debtor.

In what situations should we hope to resolve the issue through pre-legal debt collection and similar negotiations?

  1. If the debtor has financial problems (no available funds to pay the liabilities).
  2. If the debtor has an “explanation” for the delay in payment that seems to be sufficient and justified to postpone the agreed deadline of payment.

As a result, after the pre-legal settlement, the creditor gets an understanding of whether there is a real opportunity to collect the debt without extra costs (by giving his/her position on the deadline for payment).

If the position of the debtor is too burdensome for the creditor - it is necessary to start a lawsuit.

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A case from our company’s practice: Collection of debt from a Russian company in France

Our Company was contacted by the Client with the following situation: his company, registered in one of the EU countries, and an industrial company of the Russian Federation concluded an agreement on organization of an exhibition of industrial designs in the People’s Republic of China. According to the agreement, the company from the Russian Federation has reserved a certain area at the exhibition to accommodate and display its equipment. Although the parties agreed on all conditions, the Russian company did not pay in full for the services provided. The agreement established the jurisdiction of French courts for disputes.

Our lawyers, having analyzed the situation and financial solvency of the debtor, determined that the most appropriate strategy for debt recovery is pre-trial settlement of a dispute.

As a result of communication with a Russian company, our lawyers presented legally and financially significant arguments for debt recovery without court red tape (which would have cost a significant amount to the Russian company, given the jurisdiction in Paris).

In practice, it looked the following way: we asked the debtor to calculate the cost of all the stages of the litigation in Paris and to compare this amount with the size of the debt, after which the debtor had no arguments left, and he agreed to return most of the debt.

Although it was a difficult case, we reached a consensus with the debtor through various means of pressure on the company.

Thus, the debtor paid the contractually stipulated amount in a short time.

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Some subtle aspects of pre-legal debt collection settlement

If you want to make an agreement with the debtor, you must provide clear and realistic conditions for the debtor, which should be stipulated in the agreement with the lawyers in advance.

Therefore, you should always clearly record the amount and methods of settlement (number of payments, dates of payment, estimated interest). At the same time, you should understand that if the payment deadlines are large, the chance of non-payment only increases, so try to set as short deadlines as possible.

In addition, you should insist that in case of violation of the payment procedure, payment shall be made “on demand” to be able to immediately file a legal action.

Although there are many negative stereotypes regarding this method, it is necessary to understand that they are related to the practice of independent settlement of the problem. Based on our experience, we can say that attempts to negotiate with a debtor without legal assistance have quite a low chance of success. You need the help of specialists who have the time, experience and tools to solve your debt issue.

The lawyers of our company have extensive experience in communications in case of troubled debts, and therefore they are able to confidently and persistently organize successful negotiations with debtors, taking into account their mentality and native language.

Do you need help in collecting a debt from a foreign counterparty? Don’t hesitate to contact us!

Find more information about International Debt Collection here.

Publication date: 29/09/2020

About author

Name: Olexsandr Shadura

Position: Lawyer

Education: National University of "Kyiv-Mohyla Academy"

Knowledge of languages: Ukrainian, Russian, English

Email: [email protected]

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