Recovering receivables is one of the most frequent situations where a client engages an attorney. Just for that reason, we have prepared you selected information about the process of recovering receivables which you can become familiar with here:
Reviewing a claim
Before you take the first steps and start legal action toward recovering a receivable, it is necessary to objectively consider whether you have a claim that can be successfully exercised by litigating. Any subjective feeling that you have a financial claim against another person has to be documented so a receivable actually exists from a legal standpoint and can be recovered in the courts.
With an objective legal review of your claim, you can engage an attorney who, after having ascertained the facts of the case and considered it from a legal point of view, provides a legal opinion regarding the matter. You should submit to the attorney all documentary and other evidence which demonstrate your claim and describe the facts of the case in detail. The following is considered examples of documentary and other evidence:
- Purchase agreements, job contracts and other contracts where the principal is either named or unnamed, from which your claim originates
- Invoices, incoming and outgoing records, checks, bills of exchange and other documents
- Delivery notes of goods that were taken
- Written correspondence between you and your debtor which relate to the receivable being recovered
- Photo documentation and information on audiovisual and/or electronic media which may possibly substantiate the case
- Statements taken from witnesses who can confirm the origin, existence and extinguishing of the claim
If the attorney believes you have a claim and it can be recovered through legal action, it is appropriate for the attorney to try resolving the matter out of court (through “negotiation”). We strongly recommend doing this even though an objection can be made that this process is useless and superfluous. From practical experience, we can certify an average of 50% of disputes have been settled out of court and to the satisfaction of both disputing parties. In addition, settling such a matter out of court is always basically less costly and requires less time than going to court or seeking distraint.
Having advised the client on the path to take, the attorney can choose a number of ways to negotiate with a debtor who owes the client. The following possibilities, for instance, can be considered:
- A written notice from the attorney to have the outstanding amount paid to the client, addressed through registered mail to the debtor. In the notice the attorney sends to the debtor, an additional period for paying the debt is included, together with an explanation to the debtor about the legal basis of the client’s claim and a reference to the legal provisions on which the client’s claim is established.
- A personal meeting with the debtor’s attorney or legal representative, where the attorney explains the client’s legal claim to the debtor and tries, following the client’s instructions, to obtain an out of court agreement.
If the case can be successfully settled out of court and both parties agree to a method of reconciling their legal relationships, the attorney will execute the necessary documents finalizing the settlement and ending the dispute between the two parties. Several different legal steps can be considered here to end the dispute between the parties:
- Paying off the debt. If the dispute solely involves a receivable past due and there are no other legal relationships between the disputing parties to be resolved, it is sufficient for the debtor to demonstrably pay off the debt to the client. In this case, no other legal action needs to be taken in the matter.
- Agreement under §570 of the Civil Code. An agreement can be made with the debtor to have the currently existing liability substituted with a new obligation. In this case, the current obligation is extinguished and the debtor is obliged to cover the new liability. Entering into such a new agreement is appropriate, for instance, when the client agrees with the debtor for the latter to settle the debt other than monetarily (by transferring title to a movable or immovable asset).
- Settlement agreement under §585 of the Civil Code. This agreement also replaces the original liability with a new obligation which results from a settlement. It differs from an agreement under §570 of the Civil Code in that the legal relationships between the two disputing parties are governed in an adversarial or doubtful manner. In many cases, the client’s claim does not have to be explicitly given. The receivable to the client may be related to various facts and pieces of evidence that can cast doubt on his or her claim.
- Besides the methods outlined above to extinguish the liability pursuant to the Civil Code, there are other means specifically addressed in the Commercial Code which apply to commercial relationships.
If the attorney is unable to settle the dispute out of court, the client has to decide whether the dispute with the debtor can be resolved in court. The seriousness of this decision needs to be mentioned. Before making such a decision, the client should be aware and consider the following facts:
- The client’s legal claim to have the debtor pay the outstanding amount and a judgment of the client’s probability of success in litigation. A fundamental condition of the client’s rights to seek recourse in the courts is the existence of the legal claim itself (see the preceding section “Reviewing a claim”). Once the client has submitted all documentary and other evidence, the attorney will inform the client about the probability of the client’s success in litigation. We draw to attention that an attorney cannot guarantee a client success in litigation. No attorney can provide such a guarantee because the debtor can also submit evidence during litigation which may in the end decide the case. Neither the attorney nor the client has to know about the existence of such evidence whatsoever before litigation commences. The attorney’s role in litigation is to advise and rationally represent the client, utilizing his or her legal rights under the law. An attorney essentially has the same rights as the client. The only difference between the attorney and the client is that the attorney knows the law and legal regulations and how to apply them.
- Court costs. There are other financial costs for the client connected with recovering a receivable through the courts. These basically involve court fees, costs for legal representation and costs for substantiating evidence. The amount of court fees and legal representation costs directly depend on the amount of the claim. In other words, the greater the receivable, the higher the cost of litigation. Naturally, if the client is successful in litigation, the court will require the debtor to pay all the costs of litigation that the client would have to pay.
- Debtor creditworthiness. An order of distraint (a final judgment or payment summons where the debtor is obliged to pay the debt off to the client) still does not mean the client will be able to recover the receivable in full by means of distraint. For this reason, it is practical for the client to cooperate with the attorney in attempting to ascertain the debtor’s ability to pay. Naturally, it is very complicated outside of distraint proceedings to reliably determine whether the debtor is able to pay or not. The debtor’s creditworthiness is determined, for instance, by reviewing in the Real Estate Registry whether the debtor owns any property. If the debtor owns real estate, then the claim can be satisfied, in the case of distraint, by selling the real estate.
If the client decides to recover the receivable through the courts, he or she consults with the attorney about other legal steps. The attorney chooses the best legal process to take and, in particular, decides on the type and form of the motion or claim. Once litigation commences, the attorney provides unlimited legal services to the client until the matter is legally finalized. In litigation, the attorney works with the client to take legal action directed toward legally finalizing the manner in the client’s favor.
Matters are litigated pursuant to the Civil Court Procedures Code No. 99/1963 Coll., regardless of whether a civil or commercial dispute is involved. However, this is not the only legal course of action according to other regulations regarding legal procedures.
If a client is successful in litigation, the court issues a ruling which binds the debtor to pay the outstanding amount together with late interest, as well as litigation costs. Once the decision becomes final and enforceable, litigation is regarded as having been completed.
Either a final and enforceable decision or a payment summons is regarded as an order of distraint and, based on this, payment of the outstanding amount can be compelled through distraint proceedings. The attorney may, before making a motion for distraint, notify the debtor in writing to pay the outstanding amount within an additional period, if this is practical.
Distraint proceedings are conducted and carried out pursuant to the Distraint Procedures Code No. 233/1995 Coll.
Distraint also results in other court costs, namely the cost of being legally represented by an attorney, court fees for issuing a mandate to the distrainer and also for the distrainer’s expenses. The cost of these proceedings is in the end borne by the debtor – the obligor.
A distrainer acts pursuant to an order of distraint and, in most cases, determines procedure. Distraint can be carried out in the following ways:
- Garnishing wages and other income
- Remitting the receivable
- Selling movable objects
- Selling securities
- Selling real estate
- Selling a business
The distrainer can carry out distraint in a single distraint action or over several steps.
If the distrainer manages to collect the outstanding amount with late interest and court costs, he or she transfers these financial
resources without delay to the client’s account.