How to Proceed with International Debt Collection?
- International Commercial Arbitration
- Out-of-Court International Debt Collection
- International Debt Collection in Court Proceedings
- The Choice of Court
- The Applicable Law on Debt Collection
Is it possible to recover debts owed in a foreign country? The answer is yes, since lawmakers have provided for international debt collection, a series of international laws and regulations.
Globalization and the resulting large number of cross-border transactions, brings with it problems if the debtor, based abroad, refuses to pay.
For this reason, those who are in the habit of making purchases and sales with referrers allocated in foreign countries, take care to protect themselves already at the contracting stage by clearly indicating the court with jurisdiction in case of insolvency or dispute, the law applicable to the contractual relationship and any arbitration clauses.
This applies both to Italians waiting to receive money from foreigners and to foreigners waiting to receive money from Italians: in order to recover foreign debts more easily, the best weapon is prevention, that is, assuming that the buyer might not pay and protecting oneself accordingly.
How to Proceed with International Debt Collection?
Three different methods can be chosen to proceed with international debt collection, depending on the circumstances of the particular case:
- International commercial arbitration
- International debt collection out of court
- International debt collection in court proceedings
International Commercial Arbitration
International commercial arbitration is considered the fastest way to protect oneself in case one does business with third parties residing abroad, and specifically in non-European countries.
As mentioned, to protect themselves, many companies already stipulate in the contract which court has jurisdiction to hear the case in the event of a dispute, the law applicable to the contractual relationship, and any arbitration clauses.
If an appropriate arbitration clause is prepared, the creditor who has not been paid can resort to arbitration to claim what is due to him.
The regular award, which terminates arbitration, has the same effect as a judgment.
Arbitration also protects in those cases where Italy does not have bilateral agreements on the mutual recognition of judgments.
The effectiveness of the arbitral award is guaranteed by compliance with the 1958 New York Convention, which has seen some 200 countries commit to recognizing the validity of awards and enforcing them on a reciprocal basis.
How Debt Collection Functions Through International Arbitration?
The procedure depends on the body chosen, but generally involves:
- The creditor files a petition
- The deciding body is formed (single arbitrator or panel of three arbitrators)
- A schedule is drawn up for the filing of pleadings and hearings
- The procedure ends with an Arbitration Award
- The Arbitration Award is submitted to the legal orders involved, and enforcement is sought.
Out-of-Court International Debt Collection
Regardless of arbitration , to carry out international debt collection there is the possibility, before considering legal action, of attempting to recover what is owed through extrajudicial action.
The debtor has time to pay what is owed spontaneously, or settlements can be reached with him or her leading to payment even in installments, agreeing on a repayment plan.
Among other things, out-of-court international debt collection procedures make it possible to maintain good relations with the insolvent client for the purpose of possible future collaboration.
How International extrajudicial Debt Collection Functions?
- The out-of-court international debt collection procedure begins with sending a letter of pre-action to the foreign debtor, drafted by a lawyer.
- If the debtor agrees to pay within a specified period of time, the arrangements are agreed upon.
- If the debtor refuses, disputes the invoice, or fails to respond, the only alternative to recover debts is to take court action.
International Debt Collection in Court Proceedings
If one decides to proceed with international debt collection by judicial means, there are several avenues to follow.
The discriminating factors in deciding what action to take will be the type of contract, the amount of the debt, the country of the debtor, the location of the court called upon to decide, as well as the applicable law.
The first step is to inquire about the law and commercial customs in force in the debtor’s country.
Next, an asset check should be done to assess his solvency in case the court should take forced action on the assets by injunction.
It is important to understand whether the debtor could still meet the debt in that case.
How international judicial debt collection works?
International debt collection by court changes depending on the procedure you choose to follow:
European order for payment procedure
In Europe, EC Regulation No. 1896/2006 has been in force since 2006, under which, the requesting party can obtain a payment order that is valid and enforceable in all European countries (except Denmark).
Known as the “European Payment Order Procedure,” the order can be issued by any European court.
Its utility is to reduce the time and cost of “cross-border litigation on uncontested pecuniary claims.”
The injunction does not require cross-examination with the other party to be operative.
However, the debtor has 30 days from the date of service of the order to file an objection.
The court in charge is that of the member state of origin while the European order for payment can be recognized and enforced in the other member states (no further declaration of enforceability is needed) and its recognition cannot be opposed.
Finally, it should be noted that the European regulation does not provide for hypotheses in the occurrence of which provisional enforcement of the decree may be granted (a possibility provided instead by Italian procedural rules).
The judge can only pronounce the European order for payment in the case of a liquid and collectible claim.
European enforcement order for uncontested claims
The European Enforcement Order for uncontested claims, an expression of EC Regulation 805/2004 of April 21, 2004, allows the free circulation of judicial decisions, court settlements, and public documents among the member states of the European Union without going through further recognition and enforcement procedures in the destination states.
This is possible only if the claims have not been contested.
Procedure for the European Bank Account Preservation Order
The Procedure for European Bank Account Preservation Order, implementing EC Regulation No. 655/2014 of May 15, 2014, aims to facilitate the cross-border recovery of claims in civil and commercial matters.
The procedure can be initiated in advance of court proceedings against the debtor, but only if there is concrete evidence to support the urgency of the act.
Above all, it is put in place in case the collection of the debt is jeopardized (so-called periculum in mora).
The debtor is not informed of the initiation of the procedure since the idea is to surprise him before he manages to make the sums disappear from his bank account.
European Small Claims Procedure
The European Small Claims Procedure can be applied in disputes whose value does not exceed €5,000.
The reference Regulation is EC 861/2007 of July 11, 2007, as subsequently amended.
The judgment concluding the procedure is recognized and enforceable in other EU countries and is not enforceable, with rare exceptions.
The Choice of Court
Each legal system works independently. The perspective changes depending on where you are. Some legal systems tend to protect the creditor, for instance the Netherlands, while in others the debtor is more protected, for example Germany.
In general, among EU countries and between EU and so-called EFTA countries (Denmark, Switzerland, Iceland and Norway), Regulation 1215/2012 of Dec. 12, 2012 is applicable. To clarify, the latter regulation governs jurisdiction in civil and commercial matters within the European Union. It also facilitates the movement and recognition of foreign judgments between member states, under the Lugano Convention of Oct. 30, 2007, in force between EU and EFTA countries.
The Applicable Law on Debt Collection
Italy is among the signatories to the Hague Convention of June 15, 1955. The law is applicable to the international sale of goods, which provides that contracts are “governed by the law chosen by the parties, the general spirit of the agreement and the circumstances of the case.”
The European Union has over time adopted several rules to regulate the law applicable to contracts “with elements of internationality.”
In 1980, the Rome Convention established standard rules on conflicts in this area. More recently, Italy acceded to the Regulation called “Rome I” on the law applicable to contractual obligations, again with respect to European directives (in this case it was to apply Regulation No. 593/2008).
This translates to the fact that in the event of conflicts in contractual obligations, the parties to the dispute can agree on the law applicable to the contract and indicate the court that will have jurisdiction over disputes.
What prompted the European Parliament to have a specific law was the long waits often experienced for payments, both by public administrations and private individuals.
Even before quantifying the fair wait to be paid, in 2008 (Directive 2008/52/EC) member states had aimed to encourage the use of mediation, or other means of alternative dispute resolution, in cross-border disputes in civil and commercial matters.
For Italy, implementation was given by Legislative Decree No. 28 of March 4, 2010.
Mediation can be applied to all commercial transactions, regardless of whether public enterprises, private enterprises or public administrations are involved.
In Italy, European Directive 2011/7 / EU was introduced by Legislative Decree No. 192 of November 9, 2012.
Apparently, the intention was to comply with the will of Europe by introducing even stricter rules than required.
The European directive calls for every debtor to pay within 30 days after the date of receipt of the invoice.
The creditor is given the option of claiming interest on what has not been paid, even without having first solicited payment, from the 31st day.
On the interest rate to be applied we rely on the agreements made at the time of entering the contract or, if there is no specification to that effect, the European Central Bank rate, increased by at least 8 percentage points, is applied.
For a business to receive what it is owed is crucial for survival and growth, which is why it is good to know that, in the absence of clear answers from debtors abroad, you can count on the support of professionals who can recover the expected sums as soon as possible.
One in four businesses closes due to late payments.
Systematic violation of the relevant regulations has caused an official warning to Italy.
Recovering a debt with a debtor located in another country can go smoothly if one relies on specialists with experience in the field.
Boccadutri International Law Firm’s lawyers have the professional and linguistic skills to help you recover what you are owed. Please feel free to contact us here.
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