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Originally published:
Dec-17-2007
by Belén Domínguez
BBM Abogados
Spanish law firms involved in collections have access to important information that can bring value to creditors by alerting them to contingency measures they may adopt to prevent possible litigation. The following insights and recommendations are based on my experience as a principal in the law firm of BBM Abogados, which is often utilized to handle Spanish collections for ABC-Amega.
As do most law firms, Spanish attorneys divide collections into two stages based on how the monies are recovered.
Stage #1: Recovery Through Negotiation
This is generally the first stage carried out by law firms handling collections and usually involves the following actions:
- Correspondence with the debtor by telegram, telex, notarial request or letter to underscore the seriousness of the matter and add impact to the request for payment.
- Negotiations aimed at obtaining a friendly settlement with the debtor. The general approach is to obtain settlement for the principal plus interest accrued either by means of full cash settlement or through a calendar of payments agreed upon with the debtor.
- Signed contract of Recognition of Debt and, when applicable, issuance of Bills of Exchange to guarantee installment payments are set up through banking channels.
Stage #2: Recovery Through Litigation
Experience has shown that the majority of Spanish debtors are reluctant to pay their debt until sufficient pressure has been exerted upon them to do so, with the initiation of legal proceedings being the most effective instrument to bring about prompt payment.
The advantages provided by the Spanish Legal Proceeding Law (enacted in January, 2000) are significant for all debt claim proceedings. According to this legislation, in those cases where the debt claimed is less than 30.000 Euros, unless the debtor opposes the proceeding, the debtor’s net worth is automatically seized to satisfy the debt. In most cases, debtors do not even present themselves in court. This new law serves to speed up the collection process by more than 1 full year.
If the debtor opposes the proceeding or if the debt claimed is more than 30.000 Euros, the process will take slightly longer. It will still be significantly shorter, however, than proceedings under the previous law.
Another advantage the law offers is that the claimant can order the immediate seizure of assets without needing to provide a personal guarantee signed by the debtor, even if the debtor has appealed the ruling.
Two Common Mistakes When Dealing With Spanish Buyers
Neglecting to examine the solvency of the buyer. As a result, when accounts fall past due, the company cannot afford any payment plan and does not have enough assets against which to execute a judgment.
Failing to place claims in a timely fashion. In general, the statute of limitations for commercial claims is 15 years, so late submission generally isn’t a real issue. However, late submission does cause problem with claims relating to transport, hotel services invoices and some small cases. For transport claims, there is a 12-month statute of limitations, with an additional 3 months in some specific cases. All too often, the creditor submits the claim after the statute has expired. As debtors generally know about the statute of limitations, the only recourse left to the attorney is extrajudicial negotiation. And, in that case, if the debtor is not willing to pay amicably, there is nothing further that can be done without the leverage of litigation.
Recommendations For Handling Spanish Past Due Accounts
Research the buyer up-front. Always research the assets, solvency and, if possible, financial status of the client before entering into a business relationship. A search in the Land Registry is also recommended as well as contacting the company's suppliers and customers to gather extra information about how the company conducts its business.
Maintain good documentation of the purchase. Keep the originals and copies of orders, delivery notes, signed agreements etc. Spanish courts give a lot of relevance to written documentation, so it is to your advantage to have as many supporting documents, signed by both parties, as possible.
Spanish jurisprudence recognizes that, due to the dynamics of commercial trade, it is not always possible to have all documents completed. But the more documentation presented before the court to prove a claim, the greater the likelihood of a favorable outcome. Otherwise the attorney will have to rely on other probatory means, such as witnesses, and this involves additional time and effort.
For example, if there are no delivery proofs to present to the court, the creditor cannot prove that the goods have been delivered. The only option then is to convince the manager of the transport company to appear in court and make a declaration of delivery. This is very difficult, complicated, and often unsuccessful. Providing your attorney with good, accurate documentation is, by far, the best approach.
Follow correct Spanish procedure. In Spain, it is necessary to execute a General Power of Attorney authorizing your Spanish counsel to act on your behalf before the court, and authorizing the law firm's lawyers and procurators to represent you against the Spanish importer/debtor. This document, which is complex, should always be drafted by the Spanish attorney. Once the form has been prepared, it will be forwarded to you for the appropriate signatures. You will need to have it signed, then legalized by Apostille before returning it to the attorney.
Effectively handling collections in Spain, as in any international venue, requires a thorough knowledge of the business, legal, and social environment of the debtor. Armed with this information, a creditor greatly increases the probability of success in recovering monies owed. A reputable and experienced international collection firm, with local legal affiliates can serve as a valuable resource in this regard.
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BBM Abogados is a Spanish law firm specializing in comprehensive and integrated debt collection matters on a national and international scale. Sr. Domínguez, principle, and BBM Abogados work with ABC-Amega Inc. in support of ABC-Amega’s creditors with claims against Spanish debtors.
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