Debt collection is one of the most common reasons why individuals and legal entities contact lawyers. Entering into any kind of business relationship usually entails entering into a contract, the subject of which is the payment of a certain amount of money for provided services, delivered goods, leasing of a house, or any other subject, etc. However, most often the aforementioned cases of building a business relationship materialize without entering into a contract nor is there any written trace of such business being concluded.
Enforcement of claims in three steps has already been a topic on our site. However, in this blog, we will explain the various options and procedures in more detail.
Entering into any business relationship puts the business actors at risk, because it can happen that the other side does not fulfill their contractual obligation, most often that is the person who has the financial obligation. When such a situation occurs, the creditor seeks a lawyer in order to exercise his right, that is, to initiate adequate procedures for the collection of his monetary claims.
Monetary claims in business relationships most often arise from issued invoices, bills of exchange (promissory notes), concluded contracts, court judgments, and arbitration awards.
In this blog post, we will cover the ways of collecting debts when the basis for the creation of debt is one of the above-mentioned basis.
1. Debts arising from invoices and their enforcement
Legal entities (companies and entrepreneurs) issue invoices for the delivered goods or services, depending on the activity they perform. These invoices are linked to the previously established business relationship between the business partners. Invoices are, within the legal terminology, Authentic Documents, which represent the basis for initiating enforcement proceedings. It is important to note that invoices are not the only Authentic Documents, but the most common. In addition to them, a bill of exchange appears as a frequent Authentic Document, which means that everything we will say about collecting claims from invoices also applies to bills of exchange, with small differences.
- Can the invoice be subject to forced collection of a debt? (Eligibility of the invoice to be subject to forced collection)
Before starting the enforcement procedure of unpaid claims, invoice issuers must determine whether the invoice can be subject to forced collection. The conditions that invoices must meet to be considered the basis for initiating the forced collection procedure are provided by the Law on Enforcement and Ensuring of The Claims. That regulation provides that the invoice
"eligible for the initiation of enforcement proceedings if it contains data on the enforcement creditor, the enforcement debtor, the subject, type, scope, and due date of the enforcement debtor's obligation."
If the due date of the obligation is not specified in the invoice, written proof that the enforceable creditor has left the debtor a subsequent deadline to fulfill the obligation shall be submitted with the enforcement proposal.
When do I send a pre-enforcement notice to my debtor?
Upon determining that the invoice meets all the conditions to be considered an Authentic Document suitable for enforcement, the creditor must make sure that the debtor is informed of his obligation. If a signed delivery note was sent along with the invoice, it will be considered that the debtor has been notified of the obligation he needs to fulfill. However, if the invoice was not accompanied by a delivery note, then the creditor must notify the debtor of the due obligation.
This pre-enforcement notice should be in written form, most often in the form of a WRITTEN WARNING before enforcement, which gives the debtor a few days to fulfill the obligation, and if he does not fulfill it, the creditor will initiate forced collection of his claims towards the debtor.
In an ideal scenario, upon receiving a warning, the debtor will realize that he has not paid the financial obligation and to avoid enforced collection, and therefore the costs of enforced collection, he will make the payment within the deadline that the creditor has left for voluntary payment.
However, this scenario is very rare in reality. Often, the debtors dispute or ignore these warnings, which leaves the creditor with no other choice but to start an enforced collection procedure.
Initiation of the enforced collection procedure
After the deadline given by the creditor to the debtor to pay his due debt, and the debtor does not do so within the deadline, the creditor has fulfilled all the conditions to initiate the enforcement proceedings before the competent court.
The procedure is initiated by submitting a PROPOSAL FOR ENFORCEMENT against the debtor based on an authentic document. The proposal for enforcement has mandatory elements determined by law, which must be fulfilled in order for the proposal to be approved by the court. We suggest that you contact a lawyer to efficiently start the enforcement procedure.
After the creditor, or his lawyer as his legal representative, submits a proposal for enforcement, the enforcement procedure is initiated, but the enforcement itself begins when the court approves the proposal for enforcement, after which the court makes an ENFORCEMENT DECISION, and submits that decision to the appointed public enforcer for enforcement.
Upon receiving the Enforcement Decision and all attachments, the Public Enforcer implements the enforced collection procedure by implementing the proposed means of enforcement on a specific subject of enforcement. For example: if the creditor determined the confiscation of funds from the debtor's bank accounts and their transfer to the creditor's account, the Public Enforcer will send an order to the National Bank of Serbia to block the debtor's accounts and to transfer from his account the funds necessary to settle the creditor's claim.
After the funds necessary to settle the creditor's claim are seized, the enforced collection of the debt is completed and the Public Enforcer decides that the procedure is CONCLUDED. With the acceptance of this decision, the enforced collection procedure has not been fully completed, but the creditor acquires the right to submit a REQUEST FOR REIMBURSEMENT OF COSTS OF THE ENFORCEMENT PROCEDURE within 8 days from the date of receiving the decision on the conclusion of the enforcement procedure. The request for reimbursement of costs is an essential part of the enforcement procedure because, during the enforcement procedure, the creditor had certain costs for the payment in an advance to the Public Enforcer, compensation to the Public Enforcer, etc. Only after reimbursement of the creditor's costs is the procedure definitely ended.
2. Bill of exchange as the basis for the creation of a monetary claim and the procedure for enforced collection of the promissory note
All of the above is common to all Authentic Documents, i.e. invoices, and bills of exchange. However, the bill of exchange is an Authentic Document that has certain specificities, which we will pay special attention to.
First of all, the bill of exchange can be collected both judicially and extrajudicially, i.e. through a bank.
Judicial collection of the bill of exchange
Judicial collection of a bill of exchange works in the same way as an enforced collection of debt based on other Authentic Documents, with the exception that before submitting the bill of exchange for enforced collection, it is necessary to fill it out in accordance with the bill of exchange authorization and submit it in the original, certified copy or copy to the court. Of course, when signing a bill of exchange and a bill of exchange authorization, it is important that these documents are written by a lawyer because an improper bill of exchange authorization leads to the inability of the creditor to legally fill out a blank bill of exchange. In addition to filling out the bill of exchange, the enforced collection of the bill of exchange through the court is subject to certain specificities, which are provided for in the Law on Enforcement and Ensuring of The Claims.
The specifics of the court procedure of enforcing a bill of exchange
Firstly, it is not necessary to inform the debtor beforehand about the due date of the obligation. Of course, this condition is relative, because everything depends on the power of attorney for a bill of exchange. In the practice of domestic companies and entrepreneurs, it is common that the debtor hands over to the creditor, when concluding a certain contract, two or more blank bills of exchange of his own, with the "no protest" clause, with the authority for the creditor to fill them in when the obligation is due. This greatly shortens the enforced collection process because the debtor is not given an additional deadline, but can immediately proceed to the forced collection procedure.
The second specificity is the effectiveness of the enforced collection procedure. First of all, unlike other Authentic Documents, the enforcement decision based on the bill of exchange is enforced before the enforcement decision becomes legally binding. This has the effect that if the court approves the objection of the debtor, the actions already taken in the procedure will not be canceled, but the procedure will be stopped until the conclusion of the civil procedure on the objection against the payment order. Furthermore, the voluntary payment period stated in the enforcement decision based on the bill of exchange is five days, as opposed to eight days for other Authentic Documents. Likewise, the enforcement debtor's objection does not delay the enforcement of the decision on enforcement, unlike decisions on enforcement made based on other Authentic Documents.
The above-mentioned specifics are the most important and the most tempting to conduct the bill of exchange collection procedure. However, the specifics described above are related exclusively to the enforced collection of the bill of exchange through the court. As we mentioned above, this is not the only way to collect a bill of exchange.
Payment of a bill of exchange through a bank (Fast payment of a bill of exchange)
Another and much faster way to collect a bill of exchange is to collect it through a commercial bank. This method of bill collection is much less common in practice, especially in legal practice, because for its fulfillment it is necessary to submit precisely demanded documentation, which the creditor and the debtor rarely have at their disposal. If the creditor consults with a lawyer after the establishment of a business relationship, he will be told what he needs to collect the documentation to be able to collect his claim quickly.
- The way to an enforced collection of a bill of exchange through a commercial bank
The first step is the REGISTRATION OF THE BILL OF EXCHANGE. A bill of exchange is registered if a bill of exchange registration form is filled out, which can be obtained at any bank. After the registration of bills of exchange, they are registered on the website of the National Bank of Serbia.
The second step is to AGREE ON THE BILL OF EXCHANGE AS A MEANS OF ENSUREMENT. The bill of exchange must be agreed as a means of ensurement, and instructions on filling out the bill of exchange follow. The instructions contain all the necessary clauses for filling out the bill of exchange. Most often, blank promissory notes with a "no protest" clause are contracted. This clause is almost a mandatory element when bills of exchange are contracted, although it is not a mandatory element by law. The reason for such a wide application of this bill of exchange clause is to avoid a special protest procedure.
After the bill of exchange is contracted as a means of ensurement, it is necessary to submit the NECESSARY DOCUMENTATION to the banks.
a) One of the mandatory documents that banks require from a creditor who wants to release a bill of exchange for enforced collection is the "Statement of Guarantee". This document contains information about the debtor and which claim he is guaranteeing by signing these bills of exchange. This document is signed by the debtor of the monetary obligation in the contract for which the bill of exchange is issued.
b) Another mandatory document that banks require the creditor to submit is the "Covering Letter". This is a document that the creditor signs and in which he states which claim he is collecting and with which bill of exchange.
c) The third document that banks require is the "Order for the transfer of funds". The creditor fills out this document by specifying the debtor's and creditor's data, specifying the date when he releases the bills for collection.
d) Finally, it is necessary to submit the "Declaration of the submitted collection order" which is filled out by the creditor.
The last step is SUBMITTING THE BILL OF EXCHANGE TO THE DEBTOR'S BUSINESS BANK no later than two days after its due date. The due date of the bill of exchange depends on the bill of exchange authority and the agreed clauses. Most often, bills are due on the day when it is determined by the contract for which the bill of exchange serves as a means of ensurement. The reason why the bill of exchange is submitted for collection no later than two days after the due date is the imperative provision of the Bill of Exchange Act, which stipulates that the bill of exchange must be submitted for payment either on the day of payment itself or on one of the two working days immediately following it.
As can be seen, for this type of bill collection, a lot of documents and coordination are needed from the very conclusion of the contract. This type of enforced debt collection is one of the fastest and most efficient ways of debt collection, because after submitting a draft for enforced collection to the bank, together with all the necessary documentation, the enforced collection will be carried out within two to three days, and sometimes it can be the same. day. This method of enforced collection of a bill of exchange to the creditor greatly speeds up the process of enforced collection of claims, because it avoids court proceedings which, despite its advantages and shorter deadlines, certainly take much longer than the procedure through a bank.
3. Debts arising from concluded contracts
Contracts represent the most widespread form of monetary claims and therefore the basis for borrowing by business entities and private individuals. By concluding a contract in which the contracting parties are obliged to pay a certain price for the provided service, delivered goods, lease, or the like, a monetary obligation arises on the part of one of the contracting parties. Every contract that has as its object the payment of a certain price entails a provision on the deadline within which the debtor of the monetary obligation must fulfill the said obligation.
If the debtor does not fulfill his financial obligation, the creditor finds himself in a situation where he has to resort to legal means to force the debtor to pay his financial obligation. If the contract is not secured by some personal or real means of ensurement, the creditor has no other choice but to initiate court proceedings aimed at obtaining a judgment which, after acquiring the properties of legal enforceability, can be the basis for the forced collection of the creditor's claims.
It is important to understand that according to the legal force and enforceability of the court decision, the decision becomes the basis for the enforced collection of claims, a valid contract can only be the basis for making such a decision. However, a well-drafted contract with clearly defined obligations of the contracting parties can greatly facilitate the path to success in court. The role of the lawyer here can be of key importance, considering that the lawyer can draw up a contract that contains the most important clauses to protect the interests of the contracting parties and in accordance with current legal concepts, regulations, and judicial practice, and if a dispute arises regarding the contract, that there is no dispute about the true intention of the contractor. Also, even if the lawyer did not participate in the writing of the contract over which the dispute arose, he can, by looking at the lawsuit and the text of the contract, based on the text of the contract and the lawsuit itself, current legal regulations and current case law, provide legal advice on whether you should even get involved in court proceedings regarding the high costs of long and uncertain court proceedings.
4. Court decision or arbitration award as a basis for enforcement.
Very often, not fulfilling the obligations from the contract entails the need for one of the contracting parties to initiate court proceedings or arbitration proceedings to obtain a court or arbitral decision, which, upon acquiring legal enforceability, will be the legal basis for initiating enforcement proceedings.
Considering that the subject of this blog is the enforced collection of claims, in this text we will not deal with the process of obtaining a court or arbitration decision, but only the enforced collection of claims established by a court or arbitration decision, while in one of the future texts we will deal with the stages of litigation and arbitration procedure, as procedures that precede the adoption of a court and arbitration decision.
Court and arbitration decisions are, in terms of the Law on Enforcement and Ensuring of The Claims, considered enforceable documents.
Article 41 of the Law on Enforcement and Ensuring of The Claims defines what is considered an enforceable document. Paragraph 1 of this article defines that an enforceable court decision or a court settlement that is based on giving, doing, or not doing is considered an enforceable document, while Article 42 stipulates that a court decision is considered a verdict, decision, and other decision made in a proceeding before a court, an arbitration court and by the court of honor at the Chamber of Commerce.
With regard to the legal determination of the court decision, it can be determined which conditions are necessary to start the procedure of enforced collection claims from court and arbitration decisions. The conditions to start the enforcement procedure are as follows:
- That it is a judgment, decision, or other decision of a court, arbitration court, or court of honor at the Chamber of Commerce;
- That the decision is enforceable and
- That the decision is about giving, doing, or not doing.
The first condition is easy to determine because it is only necessary to determine who is the decision-maker, which can usually be seen in the upper-left corner of the decision.
The second condition is met if the decision contains an enforceability clause. Decisions become enforceable upon the expiry of the period for voluntary payment. This clause is highlighted by the maker by stamping a stamp with the date from which the decision is considered enforceable. This, however, does not have to be a mandatory form of expressing the nature of enforceability, given that the text of the decision may state in a separate paragraph that the decision is enforceable within a certain period or upon delivery to the parties. The property of enforceability is most often preceded by legal finality, which is a property of the decision that does not allow the parties to the dispute to challenge the decision with regular legal remedies (appeal or objection). However, there are exceptions, such as, for example, the Decision on determining a temporary measure, the Decision on enforcement based on a bill of exchange, and the like. We will deal with decisions and the specifics of the enforcement of decisions before their legal finality in one of the future texts.
The third condition is a consequence of the division of court decisions, especially from civil proceedings, into condemnatory, declaratory, and constitutive ones. Each of these decisions has special theoretical features that we will not deal with in this text, but we will exclusively deal with condemnation decisions, which are the only decisions that are eligible for the initiation of enforcement collection proceedings. Condemnatory decisions are decisions that oblige one party to give, do, or not do. The reason why only these decisions are suitable for the initiation of enforcement proceedings is that they only oblige the person to do something. As it is impossible for the person in whose favor the obligation was established (the creditor) to independently force the person whose burden the obligation was established to perform the obligation (the debtor) without entering the criminal zone, this method is the only way to legally force the debtor to fulfill the obligation imposed by the court decision.
When the conditions described above are met, the creditor acquires the right to initiate the procedure for enforced collection of the claim determined in the court or arbitration decision before the competent court. The proposal for enforcement based on the enforcement document is submitted to the locally competent court. The court issues a Decision on enforcement based on the enforcement document. Depending on what the subject of the claim is, it depends on which authority will be responsible for enforcement. If it is a monetary claim, the compulsory collection of the claim will be carried out by the Public Enforcer, whom the creditor is obliged to name in the proposal for enforcement.
What mechanisms do debt collection attorneys use?
Attorneys usually collect claims through a public enforcer, by submitting a proposal for enforcement to the competent court. If the conditions are met and the creditor has a promissory note signed by the debtor, the lawyers collect the claim by presenting the promissory note to the debtor's bank, which directly transfers the funds to the creditor.
Attorneys’ part in the Enforcement proceedings
If you want to collect a claim as quickly and efficiently as possible, you need a skilled lawyer for the collection of claims, either based on a bill of exchange, an invoice, or on another basis. Our law office provides legal assistance in the territory of Serbian largest cities - Novi Sad and Belgrade, but also in the surrounding area. If you are interested in the number of costs of the procedure as well as the amount of the award charged by the Pekić law office, write to us at [email protected] or via Facebook messenger.