Effective Collection

Kira V. Koruma
Head of Litigation and Arbitration Practice
Yakovlev & Partners

Banks and noncommercial organizations do not always succeed in the extrajudicial settlement of problems of nonpayment by counteragents. In some cases, a creditor cannot avoid using the procedure of collection through the courts.

Can collection through the courts be effective? Yes, undoubtedly, since collection is secured by state enforcement power, its legal regulation is established and, on the basis of an effective decision by the court, a creditor may subsequently initiate bankruptcy proceedings for the debtor. There is also the possibility of coming to a peaceful settlement at any stage of the commercial proceeding.

Debt collection through the courts may be considered effective if, as a result of consideration of the case by the court, the creditor is awarded the claimed amount and the amount of time in considering the case does not exceed the term established by law or a reasonable term.

It is important to not make mistakes during the preparation stage. Very often the maturity of obligation under an agreement does not mean that the party, which has not fulfilled its obligation in due time, is deemed to be a debtor. In such cases, the creditor should take certain actions provided by the law, which will result in the debtor becoming liable under its obligation. For instance, in the case of a loan agreement, one should forward a claim for loan repayment, and in the case of a bill, one should make the bill payable and protest the bill. Only after that may a creditor apply to the courts.

The same applies to a situation in which the creditor is entitled to claim early repayment of debt. Prior to claiming early collection of debt through the courts, the creditor should give the respective notice to the debtor and present proof of this notification to the court. If the claim procedure for resolution of disputes is provided for by agreement or by the law, then forwarding preliminary notice of claims to the debtor is obligatory. Otherwise the claim will be rejected.

It is also very important strategically to determine the circle of defendants correctly. This will allow a minimizing of the amount of time for considering the case, avoiding presumable delays in consideration of the case on behalf of the defendant or defendants. The most common situation is one in which the obligation is secured by a number of guarantees, pledges and mortgages, with the debtor or guarantor being foreign citizens. Accordingly, when thinking of the most effective plan of collection in such cases, the following should be taken into account:

1) Arraignment of a foreign citizen as a defendant entails increase of the term of consideration of the case because of the necessity of notifying the foreign citizen of the time and place of proceeding. Therefore, filing one claim against the Russian and the foreign legal entity is unreasonable.

2) The law does not prohibit collection fr om the borrower and its guarantors under separate proceedings. The law provides the respective rules in the case of unjust enrichment with simultaneous enforcement of two judicial acts under one and the same debt. Therefore, in some cases, making separate claims to debtor and each guarantor would be more effective. This allows for the minimization of counteraction and for the reduction of the term of consideration of the case. Should all claims to the debtor and the guarantors be made in one application, each of the defendants may counteract the collection, including by making counterclaims, disputing agreements in separate claims, or changing his location, which may considerably delay the case.

3) Nonperformance of obligations by the debtor is the reason for taking recourse upon the subject of mortgage. The mortgagee has the right to take recourse upon the subject of the mortgage, if the obligation secured by the mortgage has not been performed at its maturity, except in a case wh ere such a right will emerge later in accordance with law or agreement, or the debt may be collected earlier in accordance with the law. No other conditions for taking recourse upon the subject of the mortgage are provided by existing legislation.

Therefore, taking recourse upon the mortgaged property is possible under a separate claim, without previously making a debt claim to the main debtor and issuance of the respective judgment.

Under the filing of claims and subsequent consideration of cases, it is necessary, with respect to the defendants’ behavior, to use the possibility of consideration and separation of claims provided by the procedural legislation for the purposes of effective justice.

If defendants file separate claims on nullity or ineffectiveness of respective agreements — or if they demand their amending or termination, which is often done with the sole purpose of delaying the case — it should be noted that according to explanations of the Plenum of HAC RF of 23.07.2009 N 57, the filing of such claims does not provide a reason for suspending the debt collection proceeding, and the defendant is entitled to object or make a counterclaim.

Collection through the courts can be effective!