Debt collection procedures in the candidate member states: Turkey, Romania and Bulgaria

Due to their candidateship for the EU, countries like Turkey, Romania and Bulgaria are experiencing a fast development in economic- and social-cultural areas. Every year more and more companies make the decision to do business with these candidate countries. Because of privatizations, trade and foreign investment stimulation programs and liberalized corporate and tax rules and regulations, these countries offer interesting perspectives for Western European companies. Meanwhile, it is important that the companies willing to take this step, research all aspects of doing international business in advance. Before concluding a commercial contract with a domestic commercial partner, a foreign entity should check its financial situation and some information regarding its reputation in the business environment and past activity. This data makes it possible to distinguish between different companies and to avoid those that already had payment litigations or do not have the economic strength or behaviour you may required. Knowledge about debt-collection in those prospective member states is also one of the basic aspects which should be looked at.

Those companies interested in doing business in one of the abovementioned countries have to realise that the debt collection procedure is different from the way we are used to in the Netherlands. In the Netherlands or UK for instance, the creditor and debtor are protected by specific laws, yet in our countries there are not such laws. Debt-collection agencies are fairly new institutions on these markets and there are no special regulations arranging their legal status. This means that a special permission or license is not required. This freedom must be understood ? mainly in out-of-court collections, which are not controlled by any special regulations. Such companies are specialized in debt collection and in offering preliminary information regarding domestic firms. They can provide the available information regarding a potential commercial partner. They draw reports containing important information on the potential commercial partner (identifying data, shareholders and Administrators, exports and imports, payment incidents, litigations, pledges, mortgages, balance sheet, profit & loss account, liquidity, solvability, profitability, etc.) and they can also represent the creditor in the collecting procedure of receivables, both outside and in court. Furthermore, as debt-collection in those countries is one of our services, we will summarise the situation for Bulgaria, Romania and Turkey. Primarily, it is significant to emphasize that the problems occuring in the stages of business relations, may strongly come as source of the lack of legal advice of Contracts, Foreign Direct Investment undergone steps, etc. It is of high importance to be well advised on related domestic specific laws and regulations. In the above mentioned countries, out-of-court debt collection (Inkasso) is not well organised, there are no specific laws and it is benefited (?) and tried to find solutions from the regulations of Trade and Obligation law. This enables the debtor to find the way to avoid his responsibilities. Debt collection agencies cannot appear in court on behalf of the client. In legal procedures, representation by a lawyer registered at the bar association is required, the lawyer acts on the behalf of the client on the base of a written authorization and following the requirements of the Civil Procedure Code. A registered lawyer is allowed to plead anywhere in that country. Debt collection agencies in most of the cases are credit reporting agencies as well, which closely collaborate with lawyers regarding the preparation of claims, court hearings, tracing properties, researching registers, etc. Apart from the debt collection agencies, a lot of law offices are active in the same field as well, however, the means used by the lawyers and debt collectors are different. Lawyers seem to be more oriented (?) toward the official legal procedure and are not familiar with all means of settling a claim out of court. A debt collector agency is oriented (?) towards amicable settlements of the arisen dispute and will try through consensual allowances to resolve the dispute while preserving the business relation between the creditor and the debtor. Debt collection procedure in these countries is generally pretty straight forward and consists roughly of two sections: 1. An amicable settlement or out-of-court agreement; 2. Court procedure, which can take place in front of: - the relevant state courts or - an arbitration court The Pre-Legal Procedure (Inkasso) This can be executed either by debt collection agencies or lawyers and is the effort to solve the dispute out of the court. Primarily the debt collection agency or the lawyer, seeks the possibility to conclude an out-of-court agreement for voluntary execution and payment of the appropriate and stipulated debt. Once the claim is received, a written payment request letter is sent to the debtor. This first request for payment contains a detailed statement of the amount due, including costs and interest/default as provided under commercial laws. Following the written statement reply of the debtor or in case of silence, in order to reach an amicable settlement, the debtor is contacted and is asked for a meeting. As result of this meeting two parties may agree on: - Full Payment, - Partial payment, - Payment in installments, - Settlement proposal of debt is disputed. Contacting the debtor and performing preliminary negotiations before signing a settlement between the parties, is a very important stage. The agreement will settle all the details of the execution, liability and actions in case of non-execution. In case of non-execution, the dispute can be referred to a Court of Arbitration or a Civil Court. In the case of an amicable settlement, which provides for payment in installments we recommend that, in order to ensure the creditor accepts the proposal, the debt collection agency or the lawyer shall prepare and also observe the execution thoroughly. If the proposal of the debtor is unacceptable for the creditor, the collection procedure continues. In general, most debtors try to avoid legal procedures which cost Time and Money, by means of an amicable settlement. If the endeavors to reach an amicable settlement have been unsuccessful for the next 6 to 8 weeks, after taking the approval of the creditor - client, the lawyer can start the legal proceedings. To make sure whether or not a legal procedure will be successful, it is advisable for the creditor to undertake a feasibility study. Therefore, in order to determine the chances of success, the creditor is advised to investigate the solvency of his debtor. In some cases the debtor is, for financial reasons, not able to pay his debt or might have practiced fraud to hide his financial obligations, thus even by legal actions the creditor will not be able to handle his rights. The results of this investigation which are outlined in a report and combined with an advice should help the creditor with his decision whether to start the legal procedure or the case ought to be closed. LEGAL PROCEDURE OF RECUPERATING A COMMERCIAL RECEIVABLE In order to recuperate the money owed on the basis of a commercial report, Romanian, Bulgarian and Turkish laws stipulate mainly similar ways. The similarity stands for the main proceedings, but there are differences in time frames, fees, etc. The court may allow a seizure of the claim for its full amount or only for those parts, which it considers sufficiently supported by evidence. The plaintiff is allowed to request, even during the entire course of the procedure, a deduction to ensure the claim. In that case the court can make the plaintiff represent a guaranty (money or property) if the claim is supported by evidence/reliable written statements. The seizure is made: I. By imposing an interdict upon immovable property; II. By restraint of movable properties and receipts of the debtor; III. By blocking of all available bank accounts. Execution Procedure To start an execution procedure, the court should have given the judgment and the time limit for objections to be over. This means that primarily, the court decision has to be legally enforceable. The engaged lawyer shall ask the Court for a special execution list. This is a base on which the lawyer can apply for an order of execution. Although this description of the legal procedure is written with outmost care, no rights can be derived from it. Bankruptcy Involuntary liquidation proceedings are instituted for legal entities that become insolvent. Involuntary liquidation proceedings are aimed to provide fair satisfaction for creditors of the bankrupt and opportunities for reorganization of the debtor's enterprise. Bankruptcy proceedings shall take into consideration the interests of the creditors, the debtor's estate and the employees of the debtor. A company becomes in state of insolvency when it is unable to meet its payment obligations as they fall due, in the ordinary course of trade and business. Insolvency is presumed when the debtor discontinues his payment There are two possibilities for the plaintiffs which reached the court: Court Procedure If the efforts for an amicable settlement were unsuccessful, the only way to resolve the issue is to submit a claim to the relevant state court. This is the second part of the debt collection procedure. The court where the defendant is regionally established / has its registered office, shall hear the case. Here it is very important that the claims are proved by written documents. After the judgment of the first instance court, the parties have a limited time frame to appeal against it. The party appealing the judgment will be responsible for the costs of the appeal. Arbitration Court The debt collection procedure can also be invoked to Arbitration Court. For this, an arbitration agreement should have been concluded among parties. Arbitration is preliminary negotiated and all legal disputes can be referred to an arbitration institute by putting an arbitration clause in their agreements. In case of an arbitration clause, the parties do not lose their right to claim in front of a Public Court. The opposite situation is possible, too. If there is no arbitration agreement, the parties do not lose their right to submit a claim to the Arbitration Court. Length of a debt-procedure The length of a debt collection procedure depends on the process followed. When a pre-legal (out-of-court) procedure leads to a settlement agreement, it may take only several weeks. But, when the complete legal procedure is followed and the debtor does not appeal the first instance court judgment, it will take about six months, and when the debtor does appeal, it will be extended by 6 up to 12 months. In complicated cases and when all possible appeals are applied by the debtor, it can even take several years, but this is very exceptional. To avoid such long-term proceedings, we always advice to have the contracts checked by a national lawyer or a debt collection specialist. Also it is wise to have the contracts written in both languages via officially legalized translations. What will the EU membership do? In 2007 the enlargement of the European Union has been planned for Bulgaria and Romania, while the negotiations with Turkey will start by the end of this year. This provides a lot of opportunities but also raises questions. For instance, what will be the procedures for debt-collection in these countries afterwards? Whilst Bulgaria and Romania will have to implement thoroughly the Community law (For instance the Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions, the Council's communication related to Incasso, incurance and services, would have to be implemented by the new member states. This could have its effect on payment conditions (and possibly debt collection). For Turkey, it seems that it will take more time to approach those approximating rules and standarts. Note for readers; In specific cases, procedures for debt collection respectively to Bulgaria, Romania or Turkey may need different ways and means to be handled. To be able to provide specific advice we will need more detailed information according to a case. You can contact the country lawyers for Turkey, Romania and Bulgaria at the following address: Legal and Finance International Services BV, Nieuwe Markt 65a, 4701 AD Roosendaal Phone: +31 165 391 565 Fax: +31 165 391 967 Email: [email protected] Website: www.legal-finance.com