Taking counsel: Efficient debt recovery through procedure of notice

  • 2008-10-15
  • By Martins Mezinskis
High inflation, a fall in real property prices, an increase in loan interest rates and a rise in prices of consumer goods have had a striking effect on the solvency of consumers. The current reality is that under the present economic situation, consumers are forced to think about their daily expenses and do not spend money on things that are not goods of prime necessity. Due to the sudden rise in the cost of living, consumers not only can't buy things that they bought before the crisis, but also have trouble paying for the purchases already made, such as loans and leases that they took beforehand.

As a result, companies have a large number of debtors to recover debts from. Such debts are usually not secured by pledge, or purchase or crediting agreements do not contain a clause from the court of arbitration.
The most important thing for entrepreneurs in the process of debt recovery is to recover the debt from debtors as soon as possible. It's not a secret that engaging in court proceedings is a very expensive and long-lasting process, which is not worth starting if the amount of the debt is relatively small. What is the solution for such situations?

Relatively lately, legislators have defined compulsory fulfillment of obligations in procedure of notice in Proceeding Law. What does this procedure offer to the creditor? Faster debt recovery from the debtor.
The Proceeding Law states that compulsory fulfillment of obligations in procedure of notice is applicable to payment obligations that are justified with documents and whose term of execution has ended, as well as payment obligations on goods delivery, providing goods purchase or services if they are justified with documents and they have not defined fulfillment term.

It must be mentioned that compulsory fulfillment of obligations in procedure of notice is not applicable for payment of debts that are related to defaulted counter performance, as well as if the place of residence of the debtor is not known or the place of residence of the debtor is not the Republic of Latvia.
How does this procedure work? After verifying that the obligation against the debtor is subject to compulsory fulfillment of obligations in procedure of notice, the creditor fills an application template approved by the Ministry of Justice, providing all requested information therein, and submits the application in a regional court. After receipt of the application, the judge of the regional court decides whether to accept or refuse the application.

If the judge decides to accept it, he or she will, without verifying the validity of the creditor's claim, issue a notice according to a sample approved by the ministry of justice and sends it to the debtor. In the notice the court explains the point of the creditor's claim and sum and summons the debtor to pay the sum indicated in the notice within 14 days of issuing the notice. Additionally, the judge indicates that the obligation mentioned in the notice will be passed to fulfillment if, during the defined 14 days, the debtor doesn't submit objections against the notice or proves payment of the debt. So, if the debtor does not submit objections or pay the debt in seven days after the end of the term defined in the notice, the judge makes a decision on compulsory fulfillment of obligations. With this resolution, the creditor is entitled to turn to law enforcement officers and commence debt recovery.

What are disadvantages of this procedure? Compulsory fulfillment of obligations in procedure of notice will only be ordered if no disputes on debt obligation and its amount exist. If the debtor, by replying to the notice issued by court, does not agree with the amount of the debt, the court will terminate the case and will not make the decision on compulsory fulfillment of obligations. This condition, however, will not forbid the creditor from turning to the court with a claims procedure and pursuing a claim against the debtor. Moreover, the paid state tax  for compulsory fulfillment of obligations in procedure of notice that cannot exceed 100 lats, which, in case of termination of the case, shall be repaid back to the creditor or channeled to the state tax that should be paid for pursuing a claim in a court.

Although there is a possibility that the debtor will not agree to the debt obligation without justification the case will be terminated, it is worth trying to recover the debt by compulsory fulfillment of obligations in procedure of notice for the sake of saving time and resources.

This article was written  by Martins Mezinskis (associate). Kronbergs & Cukste Attorneys at Law Baltic Legal Solutions based in Riga.