International freight transportation and international trade in general is a great environment for unfair debtors to prosper. A lack of knowledge about international debt recovery is one of the main reasons why debts accumulate.
How to recover a debt from a foreign debtor?
© Corbis

This situation is often being taken advantage of by dishonest international freight customers, who understand that the carrier is a foreign company and probably will not initiate the debt recovery process, if an amount of debt is relatively small (e.g. EUR 1000 – 2000). In such cases international freight customers quite often go “unpunished”, while the carrier’s company is left with the debts.

If a debtor is established in another EU member state country, a creditor has two options of debt recovery process: initiate European order for payment procedure or initiate court proceedings in the debtor’s country according to the national laws. Although European order for payment procedure was created with the purpose of making international debt recovery easier, quite often initiating court proceedings in the debtor’s country brings results faster.

Since foreign companies are increasingly establishing business relations with Lithuania, here are several tips, which might be useful in recovering debts from Lithuanian companies.

1. A call or simple written claim might be enough. Sometimes even those customers, who have been speaking fluent English during the period of implementation of transportation contract, suddenly pretend unable to speak any foreign language when it comes to payment for the services provided. Also quite often debtors just ignore creditor’s calls and claims, because they know that it is most likely that creditor would not start a legal procedure due to the lack of knowledge of debtor’s country laws, long and expensive litigation process, as well as the need to find qualified lawyers, etc. In such cases a call from the local representative of the creditor, for example, Lithuanian lawyer, or a simple claim written in debtor’s national language might be enough. It is worth to remind the debtor during the call or in the written claim that the creditor might require to pay not only the debts, but also the expenses incurred during the debt recovery process (e.g. expenses for the lawyer). Quite often such call or claim is enough to convince the debtor to settle his debts.

2.There is a possibility to initiate bankruptcy proceedings against the debtor. According to the Lithuanian law, if a company does not pay for the goods or services in time, each debtor’s creditor has the right to initiate bankruptcy proceedings against the debtor. Prior to applying to the court with such request, it is necessary to warn the debtor by written notice that if the debtor does not pay the debt within the time limit set by the creditor (at least 30 days), the creditor will apply to court in order to initiate bankruptcy proceedings against the debtor. Usually most debtors become frightened by such notice not only due to the risk of bankruptcy proceedings, but also due to the fact that the court, after getting creditor’s application, will oblige the debtor to provide quite a large amount of documents, related to company’s financial situation, debt obligations, etc. Therefore it is worth including a warning about initiation of bankruptcy proceedings into the written claim to the debtor. Bankruptcy proceedings are often considered more threatening by the debtors than usual debt recovery cases.

3.It is possible to initiate debt recovery case in court. If the debtor is a Lithuanian company, in most cases the creditor has to apply to the court in Lithuania (unless parties have agreed on jurisdiction in a specific country or other jurisdictional rules are set forth in the existing legislation). While initiating debt recovery case in court, the creditor also has the right to ask for the interim measures, for example, to ask to arrest the property of debtor’s company, as well as to freeze the debtor’s assets which are being held in debtor’s bank account (in the amount of the claim). In comparison with neighboring countries, for example, Poland, it is much easier to apply interim measures in Lithuania, where there is no need to provide the court with detailed information about the debtor’s property – a detailed list of the debtor’s property is usually made by the bailiff after the court’s decision to apply the interim measures. According to the Lithuanian case law, when making a decision on application of interim measures court considers the following factors: amount of claim, debtor’s financial situation, decrease of debtor’s property and/or number of employees, company’s debts to the state budget, etc. It is easier to execute the decision of the Lithuanian court rather than the decision of a foreign court in Lithuania. For example, if a decision of another EU member state’s court would be executed in Lithuania, it should be translated into the Lithuanian language first, also some additional procedures should be carried out (it is necessary to apply to court with a request to recognize and allow to execute a foreign country’s decision or to apply for European enforcement order, which can be issued only if all the conditions set forth by EU regulations are met).

4.It is important to evaluate debtor’s financial situation. Evaluation of debtor’s financial situation is important before starting business cooperation, as well as while deciding whether it is worth beginning a debt recovery process. Often a creditor brings a suit to court, pays considerable amounts for legal services, translation of documents, court fees and, after prolonged proceedings, when he finally gets a final enforceable decision and contacts the bailiff for the execution, it becomes evident that the debtor has no assets, from which the debt could be recovered. In such case the creditor not only fails to recover the debt, but also incurs additional expenses for the debt recovery process. Therefore it is highly recommended to evaluate debtor’s financial situation while deciding whether to start a debt recovery process. Some information about the legal and financial situation, debts and assets possessed by the Lithuanian debtor is available for a fee from the Lithuanian State Centre of Registers (www.registrucentras.lt) and private credit-rating companies (www.creditinfo.lt; www.cr.lt). A foreign company can also check for free whether the Lithuanian debtor’s company is not a subject of a bankruptcy or restructuring proceedings on the official website of Department of Enterprise Bankruptcy Management (www.bankrotodep.lt). Information about the change of number of debtor’s employees and debts to state (social security) budget is also worth considering – this information is available for free on these websites: http://draudejai.sodra.lt/draudeju_viesi_duomenys/ and www.rekvizitai.lt.

Therefore in most cases even if the company registered in a foreign country unreasonably avoids paying on time for the goods or services provided, the situation is not hopeless. In case of a small debt, bad or unknown debtor’s financial situation, the creditor may try to recover his debt not through the court proceedings, but with the help of a representative, who is aware of the peculiarities of debtor’s country laws and speaks debtor’s national language. If the amount of a debt is big and the debtor’s financial situation is good, the creditor may initiate legal debt recovery proceedings if pre-trial debt recovery proceedings did not provide with positive results.

Law Firm Judickienė and Partners JUREX (www.jurex.lt) is a specialized business law firm representing clients in business litigation and offering effective solutions to avoid them. Law Firm’s dispute prevention methods protect from financial losses and help to develop successful business and relations with business partners. Law Firm Judickienė and Partners JUREX is recommended for its dispute resolution practice by the international legal directory Legal 500.

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