Cooperation with a foreign contractor – opportunity and threat
Working with foreign counterparties opens up great opportunities for entrepreneurs, but also requires more vigilance and knowledge. If you want to do business with partners operating outside the country, it’s a good idea to be familiar with the laws of the counterparty’s place of business. You also need to keep abreast of Polish regulations on transactions involving foreign companies.
The mere fact of doing business with foreign counterparties is unlikely to pose much of a problem – at least as long as transactions go smoothly. However, if difficulties arise, the recovery of receivables can become extremely complicated.
Important!
Before you do business with a foreign company, think seriously first. Answer the questions:
- Is your company ready for it?
- Do you know your capabilities and responsibilities related to it?
- Do you have procedures that you will follow if complications arise?
But since you’re here, let’s safely assume that you need help, not good advice that can only be applied long before problems start.
Cross-border case – definition
In this text we will discuss, among other things: the issue of cross-border disputes. So let’s establish a precise, clear definition.
We speak of a cross-border case when at least one party to the dispute is domiciled or permanently resides in a European Union member state that is different from the state in which the court is hearing the case. So if your company is in a dispute with a company operating outside Poland – in the Czech Republic, France or Portugal – we are talking about a cross-border dispute.
The debtor avoids contact – what next?
What can happen? The most common problem is when a contractor simply avoids contact. He doesn’t pick up the phone and doesn’t write back emails, or does so with a long delay. It may also be that communication is severely hampered by a language barrier. While we have the right tools to make life easier (translation, message enhancement and AI-based applications), the goodwill of both parties is key. If your foreign counterparty-debtor doesn’t want to contact you, they need to be encouraged to do so.
In this case, an attempt to resolve the matter through direct communication may fail. The next step, then, should be to send an official letter – this, however, must arrive at an address where the counterparty can be found. And this is where trouble often begins.
Unfulfilled obligations? There are paragraphs for that
At the outset, it is worth noting that extortion is treated differently in the European Union and outside it. This means that in a situation where you are doing business with a counterparty based in a European Union country, different regulations will apply than if the company operates – for example – in the United States.
EU Regulations
Within the European Union, there are regulations included in two documents:
- Regulation (EC) No. 1896/2006 of the European Parliament and of the Council of December 12, 2006 establishing a European order for payment procedure,
- Regulation (EC) No. 861/2007 of the European Parliament and of the Council of July 11, 2006 establishing the European Small Claims Procedure.
Thus, if a foreign counterparty fails to fulfill the provisions of the contract, it will be necessary to proceed in accordance with the above-mentioned legal acts. It is worth mentioning here that Regulation (EC) No. 861/2007 applies only to situations where the value of the dispute does not exceed EUR 2,000.
Lugano Convention
Poland is bound by the so-called Lugano Convention, the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters. This document is helpful when you need to establish jurisdiction for a case. It is through it that you will find out what law applies in a given situation.
Private International Law
Records in the law of dn. help determine which legal system governs any disputes between contractors who do business in different countries. It’s also the document on the basis of which jurisdiction a dispute falls under.
What is worth keeping in mind?
Before you start the recovery process, take a handful of tips to help you carry it out efficiently and make sure you don’t miss anything important.
First: unless you specialize in law, get professional help. Debt collection companies or specialists in international law will help your company go through the process of debt recovery and make sure you avoid making basic mistakes.
Important!
Collecting debts on your own is as possible. Be aware, however, that independent collection attempts will certainly take longer than the implementation of a specific, prepared debt collection strategy available to specialists. Moreover, collecting debts from a foreign counterparty is generally more complicated than in the case of repayment problems on the part of a Polish client.
Second: time is money (literally). The longer you delay collecting a debt, the more difficult it will be to successfully complete the case. So there is no time to waste, as sometimes days determine the possibility of effectively recovering money.
Third: before you decide to go to court, try amicable (soft) debt collection methods. There is always the possibility that the debtor is facing temporary difficulties, and is in fact already on track to return the amount owed. Issuing a lawsuit in this situation can severely damage your relationship, although of course the bigger barrier to successful cooperation is the debt itself.
Fourth: if your debtor is a non-EU company, be prepared for higher collection costs and court costs.
Debt collection alone or with a company?
Each situation may be different, so it is not easy to point to a clearly better solution. In most cases, however, establishing a partnership with a professional debt collector will make more sense. After all, recovering debts on your own can turn out to be a grueling marathon that will consume a lot of resources, offering no guarantee of success.
However, if you decide to use the services of a company that deals with debt collection, you will face a difficult choice of the right service contractor.
How to choose a debt collection company?
If you want to recover money from a foreign counterparty, it would be a good idea to find a company that specializes in operations in the country where the debtor operates. Thorough knowledge of the regulations is, after all, crucial to success. Don’t be afraid to ask additional questions – find out whether the chosen company has already handled cases with debtors from the country in question, and whether it works with debt collectors and lawyers operating in the debtor’s country.
Before you decide on a particular company, determine with their representatives how often they will report on the progress of the case and how detailed their reports will be. It’s a good idea to maintain control over the process and be able to review all documents – for example, for consultation with another entity.
Following the principle of limited trust, also try to find out whether the actions of the chosen debt collection company have been successful in the past. Ask for references, case studies or the names of companies for which the debt collector has conducted successful cases.
Types of debt collection
In general, debt collection methods are divided into two categories: these are amicable (soft) debt collection and judicial (court-enforcement, also known as hard) debt collection . Usually amicable methods are used first, and if they do not work, to move to more radical measures and involve the court.
We have already addressed the issue of debt collection methods – both soft and hard – in a separate article entitled: Effective debt collection, or how to recover debts. In the aforementioned text, however, we focused on domestic debt collection. So we will now indicate how attempts to recover cross-border debts differ from it.
Important!
The methods of amicable collection (call for payment, telephone contact, negotiation) are, in principle, the same at home and abroad. What differs is the approach to them and the overall level of difficulty. The real differences begin when we decide on formal steps.
How to recover money from an EU contractor?
If the debtor is based in one of the EU member states, debt collection will be a bit easier, thanks to three tools that the EU has prepared for creditors. They are:
- European payment order
- European enforcement order
- European account preservation order
Suing for a European order for payment
The European order for payment is a procedure reserved for so-called undisputed monetary claims of a cross-border nature. It can only be used in civil and commercial cases. So you won’t use the European order for payment in an administrative, fiscal or testamentary case. Another distinctive limitation is that the ENZ operates in every country of the European Union except one – Denmark.
You can apply for a European order for payment online – using the form available on e-justice.europa.eu.
In theory, it is possible to fill out an application and file a lawsuit on your own, but in doing so you should be aware of the provisions of Regulation No. 1215/2012 of the European Parliament and of the Council of December 12, 20212 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. In it are described any exceptions to the settlement of such cases.
Important!
The European order for payment is used to collect debts that are due on the date of filing a lawsuit for a European order for payment, that is, when their due date has passed.
European enforcement order
This document, too, can only be used in civil and commercial cases and, like the European Payment Order, does not function in Denmark. With an enforcement order, the entrepreneur can – without applying for an enforcement clause – demand payment from the debtor (assuming, of course, that the debtor is domiciled in another EU member state, outside Denmark).
An important feature of the European Enforcement Order is that obtaining it is tantamount to the validity of the claim. This means that the recovery authorities will not have to examine it. The relevant provisions can be found in Art. 21 para. 2 of the aforementioned Regulation No. 805/2004.
European account preservation order
This is one of the most powerful tools in the fight against dishonest contractors. The European Account Preservation Order makes it impossible for a debtor to transfer his assets to others or sell them off. In this way, he could want to avoid paying the debt.
The effect of issuing a European Account Preservation Order is to block funds in the debtor’s bank account. Of course, the warrant does not block all the funds, but only part of them up to the amount indicated in the document. From the moment the order is issued, the debtor cannot dispose of the aforementioned amount, unless he decides to give away the debt in this way.
Provisions for the order can be found in Regulation No. 655/2014 of the European Parliament and of the Council of May 15, 2014 establishing a European Account Preservation Order procedure to facilitate the recovery of cross-border debts in civil and commercial matters.
Important!
If there is a well-founded fear that the debtor may want to hide, destroy, give away or dispose of the property or part of it in order to avoid paying the debt, it is possible to obtain a protective order even before the court proceedings begin.
What is important, however, is that a creditor who wants to take advantage of this option is required to pay a deposit. This is a type of security to cover possible losses incurred by the debtor if the seizure of his bank account proves unjustified.
The seizure of a bank account is carried out within 5-10 days, and the creditor undertakes to take appropriate steps to initiate proceedings within a period of time in accordance with the rules included in the aforementioned regulation.
How to recover money from a debtor – summary
Recovering debts from foreign counterparties is a process that requires knowledge of international regulations and lightning-fast action. However, self-collection is an undertaking that requires so much commitment and knowledge that in most cases it will be better to use the services of debt collection companies.
Expert support will help avoid mistakes and increase the creditor’s chances of bringing the case to a successful conclusion. This is especially important when the debtor is from a country that is not part of the European Union.
