Legal

Collecting debts during the crisis

Edward Otsa Edward Otsa

Businesses in various sectors do not have a positive outlook for their turnover forecasts due to the corona crisis. As a result, they may have an extra incentive to take the uncomfortable journey and start collecting bad debt. It may often seem that the only effective way to satisfy claims is to take legal action, but before filing a statement of claim you should consider other and less costly options.

During the course of civil proceedings, the court shall take all possible measures to resolve a matter or a part thereof by a compromise or in another manner by agreement of the parties if this is reasonable in the opinion of the court. In debt disputes, it is customary for the court to direct the parties first to a judicial compromise (the judge does not make a substantive decision, but the parties reach a compromise which is recorded and approved by the judge in a court order). It means that if the creditor does not reach a compromise with the debtor before going to court, the creditor must still negotiate it in court to reach a compromise. This incurs additional costs if the creditor is represented by a legal representative. Due to this, it is reasonable to devote time to pre-court negotiations to reach a mutually satisfactory compromise even if the success of it is estimated small or unlikely.

If the debtor is open to dialogue, it may become apparent that the reason for delayed payment is the current bad financial situation of the company. In such cases, it is necessary to assess whether they have enough resources to pay the debt and base your actions on this. If the party acknowledges the debt, but admits that the party does not have the means to pay it off, then you need to analyze the party´s financial situation and decide whether court proceedings is a proportionate measure, taking into account the legal costs involved including state fees and time.

Payment of debt agreed in instalments and notarizing the agreement

The poor economic situation may not be permanent. Therefore, the debtor may need more time to recover and the debt may be repaid not today, but perhaps in the next half year. This means that one option could be to agree the payment in instalments during a longer period, which would be a better outcome than writing it off. In order for the creditor to have certainty regarding the performance of the obligation paid in instalments, it would be reasonable to draw up such an agreement in the form of a notarial declarative acknowledgement of obligation, which would in turn be an enforcement document within the procedures of the Code of Enforcement Procedure. In other words, the creditor does not have to go to court to recover the debt in question but can file an application for enforcement to the bailiff based on a notarized document.

Expedited procedure for orders for payment is suitable for smaller debts

It would be reasonable to consider submitting an application for an expedited procedure for orders for payment for smaller debts. Expedited procedure for orders for payment is a form of procedure that allows a creditor to obtain an enforcement order faster, with less burden of evidence and lower costs. There is a standard application form for the procedures, no need to add evidence to the application and there is no court hearing. The court decides on the application within ten business days from receiving it. Claims up to EUR 6400 (including ancillary claims such as interest and penalties) can be submitted in the expedited procedure for orders for payment.

Bankruptcy proceedings may be considered for larger debts

You may also consider filing for bankruptcy against the debtor if you know that the debtor owned real estate and it was transferred to a close relative (e.g. a relative, family member or related company) immediately before the insolvency claim was made. In that way it is possible to win back the so-called expropriated property and satisfy your claim at the expense of it. However, it should be noted that such a process is justified in the case of larger claims, as the creditor's bankruptcy petition requires a deposit payment to the court to cover the costs of the proceedings and to finance possible litigation related to the bankruptcy proceedings.

Whether or not you have already filed a lawsuit against the debtor, it may be more economical to try to contact the debtor and find a solution that can save you money, as well as nerves. When collecting debts, the rules for the expiration of the claim must also be taken into account.

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