Business development is based on contractual relationships with clients/customers, partners, suppliers, and so on. Companies enter into hundreds and thousands of business contracts, which may result in accounts payable and receivable. And this is quite normal if the debts are repaid on time. Another thing is when the counterparty-debtor for some reason missed the deadline for payment, and this becomes a problem for the company.

 

Recovery of debts under economic contracts – this is one of the important areas of work of the Lawrange Attorney Association. Our experience in many cases provides an opportunity to close the issue with debts out of court methods. However, we are also ready to go to court or arbitration, as well as to support enforcement proceedings, so that the client can get the necessary solution.

 

Advantages of professional legal support

Cooperating with us, clients get more than they initially expected. Having solved the problem with a particular debt, we can offer assistance in preventing the formation of new debts, namely, consultations in the field of contract law, drafting, and examination of business contracts. Our services include checking the business reputation of the client’s counterparties, determining the authority of the official to sign the contract, determining the essential terms of the contract, and so on.

If a debt problem has already arisen, we develop the most effective algorithm for its solution, taking into account such factors as time, confidentiality and financial costs.

 

Support at every stage of the process

Even if the path to achieving the goal is rather long and complicated – for example, it includes filing an appeal and cassation complaint – we are ready to go through it together with the client. At each stage we provide such a necessary set of services as consulting/explanation of the current state of affairs, preparation of procedural documents, negotiations with the counterparty, and representation in court.

 

Minimization of risks and losses for business

Firstly, unpaid debts are a loss for business. However, uncollectible receivables also carry indirect tax risks in case of incorrect write-off. In addition, under-received funds are always a limitation in the development, expansion, and scaling of business. This means that every effort should be made to ensure that debts are repaid.

 

Saving the client’s time and resources

A business requires constant attention of the owner/manager. And spending time on legal issues is a great waste. Especially since, without proper knowledge and experience, it takes a hundred times longer to resolve each such issue than it would take the appropriate specialist. Besides, AA Lawrange is not one specialist, but a whole team working together. Actually, our services are quite a measurable benefit for the client.

Why do legal entities have bad debts?

The presence of current and long-term receivables is quite a common situation for a business entity. However, when the terms of payment under the terms of the contract expire, the debt becomes overdue/problematic, and this is already a negative phenomenon. It is advisable to take measures to resolve this issue so that the debt does not become uncollectible. In addition, it should be taken into account that debts may arise as a result of advance payments or prepayments when the counterparty does not fulfill the obligations undertaken.

 

Please note! There are many reasons why debtors (debtors) do not pay debts. Conventionally, they can be divided into two groups. First, in a number of situations non-payment was planned from the very beginning already at the conclusion of the contract (for example, the contract was signed by an unauthorized person or the terms and conditions contain ambiguous interpretations). Second, the counterparty does not consider it necessary or cannot make payment (e.g., it is not satisfied with the quality of goods or its enterprise has suffered from a natural disaster/war).

 

Debt collection by type of contract

In the course of business activities, a legal entity usually enters into different types of contracts. Among them – contracts of sale, transportation, leasing, contracting, rent, loan and so on. The peculiarities of their execution and conditions differ to a significant extent. Accordingly, the nuances of debt collection arising as a result of violation of the terms of this or that contract are different.

Supply contract

According to Art. 712 of the Civil Code (CC) of Ukraine, under the supply contract the seller (supplier) undertakes to transfer the goods into the ownership of the buyer within the established term, and the buyer undertakes to accept the goods and pay the agreed amount for it. Recovery of debts under the supply contract may include claims not only for the unpaid amount, but also recovery of penalties, fines, 3% per annum, inflation costs.

 

Necessary documents to work on the case:

 

  • supply contract + additional agreements (if concluded);
  • specifications to the contract specifying the name, quantity, and cost of goods;
  • delivery notes;
  • other documents, in particular – acts of reconciliation, protocols of disagreement to the contract, claims, and demands regarding the fulfillment of the contract.

 

Lease agreement

Under the lease agreement, the lessor transfers or undertakes to transfer to the property of the lessee for use for a certain period of time. In accordance with Article 762 of the Civil Code of Ukraine, a fee is charged for the use of the property, the amount of which is established by the contract. Debt under such an agreement arises due to late rent payments, their payment not being in full, and so on.

When collecting the debt under the lease agreement in court, it is important to correctly determine the jurisdiction of the case and correctly formulate the claims, in particular – to specify what kind of recoveries are in question (unpaid amount and penalty charges).

 

Documents required to work the case:

 

  • lease agreement;
  • Acceptance certificates for the property (e.g., commercial real estate);
  • evidence of rent payment or non-payment;
  • calculation of arrears;
  • other documents relevant to the case.

 

Sale and Purchase Agreement

According to Article 655 of the Civil Code of Ukraine, under a contract of sale, one party (the seller) undertakes to transfer to the other party (the buyer) property in ownership, and the buyer undertakes to pay the agreed amount. Depending on the terms of the contract, the debt may represent both the entire value of the property and its part, as well as penalty payments accrued due to delay.

Service agreement

According to Article 901 of the Civil Code of Ukraine, under a service contract, one party (the executor) undertakes to provide a service at the request of the other party (the customer), and the customer undertakes to pay for it. Acceptance of services is usually formalized by an act, which is signed by both parties. And this is a confirmation of the fulfillment of the relevant contract.

 

Important! If the act of rendered services is signed by only one party, it can be recognized through the court as invalid. If there is no act at all, then the customer can use this to refuse to pay for services. So, when collecting debt under a contract for the provision of services is of great importance not only the contract itself and the correct wording of the terms in it, but also the presence of an act of rendered services signed by both parties.

 

Contractor’s agreement and other economic contracts

A contract of employment is similar in its content to a contract for the provision of services. However, unlike it, the subject of the contract of work is the performance of specific work with the receipt of final results, rather than the process/action. Accordingly, under a contract of subcontract, one party (the contractor) undertakes to perform certain work, and the second party (the customer) undertakes to accept and pay for it.

 

Please note! Such a contract is the best option for short-term cooperation. For example, a construction contract is common. However, as in the case of a contract for the provision of services, the principal point is the presence or absence of an acceptance certificate for the work performed.

 

The prospects of debt collection under such a contract depend on whether the customer has signed an acceptance certificate for the work performed, and sometimes also a certificate of cost of work. However, in some cases, the debt arises due to the performance of additional work without written agreement with the customer. And this is also quite a problematic situation, when it is very difficult to get paid.

 

Important! Specialists of AA Lawrange are ready to work with debt not only on the above-described but also on many other economic contracts. Turning to us for help, you get a good opportunity to increase the stability and prospects of your business.

 

Debt Collection Services

You can get any of the services listed below separately. However, you can also order from us a “package” solution of the problem, including all stages of pre-trial and court settlement. Moreover – our services on debt collection from business entities can be included in the complex support, for example – legal services of an agricultural enterprise.

 

In the list of our services in this area of work:

 

  • oral consultations (in the office, by phone, or online);
  • familiarization with case materials, documents, and preparation of a written legal opinion;
  • preparation of a claim to the debtor counterparty;
  • attorney’s request;
  • development of a draft settlement agreement;
  • preparation and filing a lawsuit with the court;
  • preparation of petitions, statements, and other procedural documents;
  • participation in a court hearing on an economic dispute;
  • preparation of an appeal and cassation complaint.

 

Debt analysis

Often when a company comes to us, it has not just one debt, but a whole portfolio of issue receivables. That is why we suggest to start with an audit of these debts, make a list of debtors, check their actual property status and solvency.

 

Debtors-debtors can be conditionally divided into three groups:

 

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  1. Those who can repay the debt at any time but will fully do not do so;
  2. those who can repay the debt if they are stimulated to do so;
  3. those who really cannot repay the debt unless bankruptcy proceedings are used to do so.

 

Debt collection tactics depend on which group the debtor belongs to.

 

Pre-trial dispute resolution

We always prioritize out-of-court debt collection under commercial contracts, especially when it comes to business, when not only the result in the form of money received, but also time and confidentiality are important.

 

Out-of-court settlement of business disputes usually includes:

 

  • sending a notice to the counterparty of unfulfilled obligations under the contract and the deadlines for debt repayment;
  • communicating with the debtor in person and by telephone;
  • conducting negotiations with our participation as independent mediators;
  • working out the terms of debt repayment and sometimes compensation or settlement;
  • monitoring the fulfillment of the repayment terms.

 

The benefit to the debtor if the matter is resolved out of court is that the penalty assessments that have accumulated over the period of delay are often forgiven. The benefit of the debt collector is quick repayment of funds, i.e., saving time and effort for lengthy proceedings.

 

Sending a claim

Important! If all the above steps do not yield results, a claim is sent to the debtor. This document is drawn up in accordance with Article 222 of the Commercial Code (CC) of Ukraine and contains a demand for debt repayment. The terms of dispute resolution between the parties in the claim procedure are usually stipulated in the contract. The claim is considered within one month from the date of its receipt.

 

In this case, it is very critical to find out whether the deadline for fulfillment of obligations by the debtor has actually come. If the deadline for fulfillment of the obligation is not specified in the contract, then under the law, it is considered that the debt has not arisen. Therefore, the debtor should send a claim with a demand to pay the debt, after which it is considered that the term to fulfill the obligation has come. The claim itself will be further proof of the delay. As another proof, you can use a bank statement of account, which shows that no money has been received from the debtor.

 

Application to arbitration court/arbitration

A business contract may contain a so-called arbitration clause – a clause according to which all disputes, disagreements, demands or claims arising out of the contract shall be resolved in a certain arbitration court/arbitration. For example, it can be an arbitration court permanently operating at the Chamber of Commerce and Industry of Ukraine.

 

Please note! Among the advantages of collecting debts under the economic contract through the arbitration court – is faster consideration of the case than through the ordinary court. The dispute between the parties is not subject to unwanted publicity. At the same time, the decisions of arbitration courts have legal force and are enforced in the same manner as the decisions of state courts.

 

Steps before filing a lawsuit in court

If, for some reason, it is not possible to collect the debt with the help of extrajudicial methods, it is necessary to consider the prospects of appealing to the economic court. However, before filing a lawsuit, it is necessary to answer the following questions:

 

  • Is it time for the debtor to fulfill the obligation? Has the claimant missed the limitation period (three years)?
  • Is there a real possibility of getting the debt under the court’s decision? What are the prospects of enforcement proceedings in case the court satisfies the claimant’s demands? Does the debtor have assets that can be foreclosed?
  • Is there evidence of the debt?
  • What is the debtor’s current situation? Are there any enforcement proceedings pending against the debtor? Isn’t bankruptcy? Is he/she not in a state of termination?

 

Please note! At the stage of filing a lawsuit, it is advisable to take care of measures to secure it – seizure of the debtor’s property and/or funds. For this purpose, an application for securing the claim should be submitted together with the lawsuit. In it, the court should be asked to seize the debtor’s assets in order to prevent the possibility of transferring them to other persons.

 

Judicial collection of debts

In disputes related to economic activities, the courts consider the location of the defendant, that is, the debtor – a person who has not fulfilled its obligations under the contract. If there are several defendants, then at the location of one of them. However, if this is inconvenient, there is a practice of changing the territorial jurisdiction artificially. For this purpose, the claimant finds an affiliated company, which is allegedly entrusted to the debtor. As a result, another debtor-defendant appears – the court can be addressed at its location.

 

Already, in the course of court proceedings, it is possible to find such a favorable option as the conclusion of a settlement agreement. For the claimant, it is only a small concession to the debtor (for example, writing off penalty charges) but the achievement of the main result – getting his money. However, the court’s decision with the satisfaction of the requirements of the lawsuit is not always equal to the final result. There are often complicated enforcement proceedings ahead, and sometimes, participation in new court proceedings is allowed if the debtor enjoys the right of appeal and cassation of the court decision.

 

Enforcement proceedings

Enforcement of a judgment debt is no less complicated than obtaining the judgment itself. Although the public or private executor has broad rights to obtain information about the debtor’s accounts and property, not always everything goes smoothly.

 

Important! The participation of an experienced lawyer in this process gives an opportunity to intensify the work of the executor. In particular, we are talking about the use of such an effective tool as the seizure of enterprise debtor assets. If the funds found for the repayment of the debt are not enough, foreclosure can be applied to the assets on the balance sheet of the branch or other separate subdivision.

 

Recovery of debts from foreign counterparties

Among the main advantages of the Lawrange Attorney Association is its international practice. Among other things, we have developed effective algorithms for working with debtor counterparties located abroad. We are talking about appealing to reputable arbitration institutions of the world. This is often a much more effective way of debt collection or settlement of other economic disputes with a foreign element than applying to an ordinary court and then legalizing and enforcing the decision of this court in the relevant jurisdiction.

 

Please note! In recent years, the inclusion of an arbitration clause in international commercial contracts has become the norm. Thanks to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), the awards of international arbitrators are enforced in 75% of the world’s countries. 

 

Most often, companies and entrepreneurs apply to the following arbitrations:

 

  • The International Court of Arbitration at the ICC (International Chamber of Commerce) in Paris;
  • London Court of International Arbitration (LCIA);
  • American Arbitration Association (AAA)/ International Center for Dispute Resolution (ICDR);
  • Arbitration Institute of the Stockholm Chamber of Commerce (SCC);
  • Swiss Chamber of Arbitration (SCAI);
  • Permanent Court of Arbitration (PCA) in The Hague;
  • China International Economic and Commercial Arbitration Commission (CIETAC);
  • Singapore International Arbitration Center (SIAC);
  • Hong Kong International Arbitration Center (HKIAC).

 

Cost of services

As mentioned above, our services may involve just a single one-off consultation or the drafting of a separate document (e.g., a lawsuit or a claim). In this case, a fixed price is specified in the price list on our website.

 

However, we can also provide a solution to the issue of debts of the enterprise “turnkey”, which includes the passage of all stages of extrajudicial and judicial settlement. For such cases, we prepare an individual commercial offer with the cost of services on the basis of a preliminary study of the case. In addition, debt collection services may be included in the legal support of agricultural enterprises, manufacturing companies, or any other organizations. In this case, the total cost of the legal assistance package to the business is calculated.

 

Why you should contact Lawrange

The number one benefit for clients has always been our experience. Professionals of AA Lawrange have been practicing in the legal services market for more than 10 years. At the same time, our law firm actively provides international business support services, so we will not be stopped by the fact that your debtor counterparty is located abroad.

 

Conclusions

If an enterprise accumulates overdue accounts receivable – it can become a big problem, moreover, over time, to pull the business to the bottom. Therefore, you should forgive debts only as a last resort and in a small amount. In all other situations, you can and should seek qualified legal assistance and engage in debt collection.

 

There are several ways of such collection. These are negotiations with the debtor counterparty, claim work, an appeal to the arbitration court/arbitration, and filing a lawsuit in the economic court. At the same time, work with debts invariably involves analyzing the debtor’s situation in order to get an answer to whether the debtor has assets that can be foreclosed.

 

Collecting debts from legal entities is almost always a difficult and painstaking work. However, having experience helps to achieve success. Therefore, turning to lawyers who are constantly practicing in this area can ensure the highest possible chances of achieving the desired result.

 

FAQ

How long does the debt collection process take?

Taking into account all stages – negotiations with the counterparty, sending a claim, court proceedings and enforcement proceedings – it may take several months to achieve the goal. Even if there is a court decision, enforcement proceedings may take a lot of time – now the legislation does not limit its terms. The best option for reducing the period of debt collection is an amicable agreement with the debtor.

 

What documents are necessary to start the collection procedure?

Suppose negotiations with the debtor are planned at the beginning. In that case, the contract itself, under which the obligations have been violated, will be needed, as well as related documents, e.g., the act of acceptance of work/performance of services, and so on. If a court decision has already been obtained, and it is planned to forcefully collect the debt by opening enforcement proceedings, you will need a writ of execution, which is issued in court.

 

Is it possible to collect debts from foreign counterparties?

Yes, it is possible. However, the procedure for solving the problem depends on the terms of a particular contract. It can be a long and complicated process to obtain a decision from a Ukrainian court, then its further legalization and execution in the jurisdiction of the counterparty-debtor, as well as obtaining the necessary court decision directly in the jurisdiction of the debtor. Much more preferable ways are to apply to international arbitration (if it is stipulated in the contract) or to achieve the goal through negotiations.

 

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