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Originally published:
Nov-01-2011
View More Articles on Country Risk
 By Ahmed Zakaria Mahfouz and
Ibrahim Zakaria Mahfouz
Dr. Zakaria Mahfouz Law Office
Alexandria Egypt
Long known for its pyramids and ancient civilization, Egypt is the largest Arab country in the world. As such, it has played a central role in Middle Eastern politics.
Despite the current political, civil and social turmoil in Egypt, ABC-Amega’s correspondent attorneys in Alexandria report that Egyptian courts and attorneys are still hard at work. Current collection litigation procedures, however, are fraught with delays and obstacles. Attorneys are hoping for improvements to the system as the new government takes shape.
The following provides an inside look at the procedures and processes currently in place at a successful Egyptian debt collection law firm.
Debt Collection Steps
The receipt of an account by the Mahfouz Law Office, puts the following process in motion:
- A registered letter is sent to the Egyptian debtor requesting him to either provide evidence of payment of the debt, or to make payment immediately.
- Some days later, a reminder letter is mailed.
- One week following the mailing of the reminder letter, the debtor is contacted by phone.
- If the matter remains unresolved two weeks after the reminder letter has gone out, a notification requesting payment within one week is sent via a bailiff (officer of the court).
Should these amicable efforts be unsuccessful, the next step is some form of litigation – but only if the debt justifies further action and the creditor gives prior approval.
Unfortunately, the amicable efforts outlined above often fail, as Egyptian debtors are well aware of the lengthy and complicated task of obtaining a judgment. Unless they admit the debt and want to pay it, they currently have little incentive to come to any kind of negotiated payment terms with the creditor.
Litigating a Commercial Debt
Civil Liability Case
A civil liability case is the normal legal procedure for collecting an unpaid debt in Egypt. The statute of limitation for such a suit is seven years from the maturity date (due date) of the debt.
Steps in a Civil Liability Case
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Notification of the legal action must be served on the debtor by a bailiff.
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Request is made for a summary judgment in the creditor’s favor. The time-frame for a decision is 48 hours. However, in most cases, the request is rejected, the judge sets a hearing date and the Court notifies the debtor.
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The Court then delegates the Office of Experts of the Ministry of Justice to make a determination of legal right. The Office of Experts then studies the case and the documentation, hears the testimony of the parties and renders a judgment.
Unfortunately, the Office of Experts is burdened by an overwhelming number of claims and it usually takes from one to three years for an “expert” to make a judgment.
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The party losing the case has 40 days to appeal the judgment. It then takes one to two years for the Court of Appeal to make a decision. However, this Court may require that the case go back to the Office of Experts, which can significantly increase the length of time to a final determination.
Execution of the Judgment
Assuming the creditor wins, the judgment is executed in a similar manner to U.S. judgments. That is, unless the debtor pays voluntarily, an asset search is performed to determine if there are any assets from which to pay the judgment. Here is where the process differs from that in the U.S. In the United States, if no assets are found, the creditor is basically out of luck. In Egypt, on the other hand, a criminal case may be filed and the debtor may face imprisonment.
Involuntary Bankruptcy
Prior to 1999, threatening to file an involuntary bankruptcy usually resulted in immediate payment of the debt due to the stigma and harsh penalties of a bankruptcy ruling.
However, with the large number of bankruptcies resulting from the economic downturn, a new law (Law 17 of 1999) was issued. The law requires more stringent requirements of proof before the court will allow the involuntary bankruptcy petition. This includes proving that the financial status of the debtor is unstable and that the total financial transactions involved are not valued at less than €20,000.
To accommodate the influx of bankruptcy filings, Law 120 of 2008 established economic courts with jurisdiction over bankruptcy filings. The purpose of establishing these courts was to ensure prompt settlement of bankruptcies. The courts, however, have circumvented their intended purpose by making rapid decisions to reject involuntary bankruptcy filings. Thus, the attempt to force a bankruptcy has become a waste of time since losing a bankruptcy proceeding simply means that the creditor must file a new lawsuit.
Litigating Bad Checks
The most efficient means of litigating against an Egyptian debtor that bounces a check is to file a criminal case.
Bouncing checks in Egypt is a misdemeanor which can result in imprisonment. Therefore, debtors have a powerful incentive to settle their debts rather than take a chance on spending time behind bars.
Most Egyptian creditors seek to obtain a bank check as collateral for a debt. The creditor holds the check until an actual payment is made. If NO payment is made, and the check is presented, but dishonored, criminal penalty can result.
What the Future Holds for Egyptian Civil Law
Messrs. Mahfouz are hopeful that the January 2011 revolution in Egypt will result in:
- An entirely new national constitution to eradicate much of the inequities of the Mubarek constitution.
- New legislation with a reduced timetable that will speed up the adjudication of civil actions.
- Regulations requiring the Office of Experts to examine only those cases that require technical assistance.
- Increase in the number of qualified judges; along with training and a reduced caseload to enable them to process civil cases more quickly.
- Establishment of a police force under the Ministry of Justice to execute judicial rulings only.
- Legislation to punish, with imprisonment, those that refuse the execution of civil provisions amicably, without prejudice to compulsory execution.
Final and Binding Arbitration in Egypt
As noted by David Greenberg, Asst. VP International Collections, ABC-Amega:
Egypt ratified the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards on March 9, 1959; it entered into force on June 7, 1959. Its ratification included reservations that Egypt will apply recognition and enforcement of awards only if they are made in the territory of another contracting state. Due to the political and legal situations currently extant in Egypt, we recommend that creditors include an Arbitration Clause, vetted by an attorney. into any contracts with Egyptian entities. See “Final and Binding Arbitration” and “Collecting Foreign Arbitration Awards”.
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