Where there is a trade there are debts. This is something that always has to be borne in mind. I was recently reminded of this at a conference which I attended last week on debt collection and credit control.
As foreign trade continues to expand especially in Eastern Europe, finance directors and CEO have to pay more attention to their customers and potential debtors. They will come across situations which they are not used to and do not necessarily fit into their current systems and management procedures. This will present new issues and challenges which the business and the management may not be used to. All businesses start in a small way and develop from a local base and if their products or services are of the right type to international markets. It is some of the more common problems which I wish to highlight.
All companies try to recover their debts within the payment period set out in their terms and conditions. These terms and conditions will always provide for a time in which the debt has to be paid. In most circumstances, debtors pay their debt but there will always be those who do not. It is when this happens that companies become vulnerable. This is when the company needs to be more aware of their legal position with regard to the debtor especially if the debtor is resident in a foreign jurisdiction.
A mistake which most companies make is delaying in taking any positive action. Even if they have in place strict rules in relation to their local debtors when foreign debtors are involved sometimes common sense does not seem to apply and the debtor is given too much latitude. The same rigorous procedures should be applied to foreign debts as with local debts. It should be remembered that you will be dealing with a foreign jurisdiction and laws and there will laws and rules which are very different from what you are used to both in attitude and practice.
There will different procedures with which you will not be familiar with if you issue proceedings to recover the debts through the local courts. There will be different time limits imposed both for issuing proceedings and responding to the court’s requests. For example, in Romania, the statute of limitation for most debts is three years. This may be different from your home jurisdiction – do not get caught out. In Romania legal costs in part are usually recoverable but only if they have been paid to the lawyer. This needs to be considered in light of the management of the court file. Then there is the amount of the court fee which is payable before an action can be issued in the court. This may be considerably higher, or lower than you are used to in your home courts.
From our experience, as a Romanian law firm whilst foreign companies are aware of this possible issue from an intellectual perspective, they often delay acting until it is too late. These may be for several internal reasons which may include fear of the unknown.
If the creditor is large enough and has sufficient volume of debts, often the first step to debt recovery is to approach one of the many debt collection agencies that now are in existence. They will for a fee take over the collection of the debt for the client. It is only if this fails that the client or the agency will approach a local law firm to assist in the recovery of the debt. Often the debt will be old and then the chances of a successful recovery will have diminished. The debtor may have gone into receivership of liquidation or may just have disappeared.
From the discussions which I had with other lawyers dealing with these matters, this is not just a Romanian problem but one that is repeated all over Eastern and Central Europe.
In the light of this, we all agreed that the most important thing for clients is to take as soon as reasonably practical local legal advice, whether in Romania or elsewhere so that they are aware of the options available to them. In Romania, we would advise that it is necessary to obtain early on in the collection process a complete view of the possible weaknesses and strengths of a case. Time limits need to be observed in Romania and the courts will not give any concessions with regard to these. This advice will not displace the role of the collection agency but will allow the client to take proactive steps to recover the debt and decide when to switch from the agency collection method to a more direct legalistic approach.
As a Romanian law firm has dealt with a number of matters of this nature we have often to advise our clients that if they had discussed the matter with us sooner then, the possibility of recovering the debt would have been enhanced. Our advice, therefore, must be to anyone who has debts in Romania which look like they may have difficulty in collecting them, is that they must take a proactive rather than a reactive attitude to the collecting of the outstanding amount. Do not necessarily follow the rules which you would adopt in your home jurisdiction as these will not apply in other jurisdictions.