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Not all creditors are willing to sell their claim on an emerging market country. This has several reasons :
- The market price in case of a sale of an emerging market claim is often very low. Recovering the debt yourself gives a better perspective on a higher price.
- In case of a sale, the buyer is free to do with the claim what he wants. When he starts a hard ball game against the debtor, this might reflect on the business relation a seller still can have with the debtor. In other words, the original creditor does not have any influence anymore on what happens with his claim.
- The reputation of the creditor can be at stake. When emerging market contractual partners see that a creditor has no problem to sell an outstanding claim at a low rate, they might get tempted to default on their obligations when dealing with that specific creditor.
- Personal reputations as well can be in the line of fire. Company contracts are concluded by persons. It can be very frustrating when someone did his very best to conclude a profiting contract for his company and, afterwards, has to take notice of the fact that things are not going the way they are supposed to. Better than to sell the claim at a low rate which brings only loss of profit to the company, the persons in charge of the file with the creditor can try to make the best of it and to recover a larger part of the claim.
Still, recovery efforts take a lot of time and a great deal of familiarity with the situation in a particular emerging market. Most creditors have neither one of them. In such case, the involvement of East-West Debt is a major asset.
The way of proceeding is simple. The creditor somewhat outsources his claim by way of concluding a mandate with East-West Debt. The main advantage for the creditor is that he has not to make any additional costs, in contradiction to engaging attorneys or intermediaries. Only in case East-West Debt is successful in recovering the debt, the company will charge a fee for its work.
However, the creditor remains the "boss" in the file. He can opt for a full mandate, allowing East-West Debt to undertake all possible actions in his name in order to recover the debt. In such case, East-West Debt can turn to legal action or amicable efforts.
Nevertheless, not all creditors are very keen on the use of legal action against their debtor. They might have future commercial aspirations or might have a certain understanding for the problems of their debtor. In that case, a restricted mandate can be concluded on the basis of which East-West Debt is restricted to recovery efforts through amicable settlements.
LEGAL ACTION RECOVERY
This is the most straight forward way of recovering a debt on emerging markets. Most countries have a law system which allows people to enforce their rights. The idea is logical : if your debtor is unwilling to pay a creditor, let a neutral authority decide whether the debtor has an obligation to pay and, in case the answer is positive on this first question, give the necessary tools to a creditor to enforce the decision of that neutral authority.
PROCEDURES ON THE MERITS
This is the basic step in recovering debts. As long as a creditor did not succeed in obtaining a judgement against his debtor, he will not be able to collect any assets in a legal way. He might be able to freeze some accounts, taking them up will remain impossible as long as a judge did not pronounce a judgement in favour of the creditor against his debtor.
The main problem is that it is not so easy to know which judge is the one who should render the judgement in case the debtor and the creditor have a different nationality and the goods are delivered from one country to another. Each country has its own system of international private law which answers these questions.
Moreover, when dealing with emerging markets other factors play a role. Political influences, extreme high judicial costs, prejudices, unfamiliarity with the local legal system, ... they all will have an influence.
East-West Debt's highly specialised litigation team is the creditor's reassurance that these questions are dealt with the proper way. The internal East-West Debt Litigation Division will see to it that the right and competent local litigators are approached and will follow the proceedings with a close eye.
ENFORCEMENT PROCEEDINGS
In first instance, even before a judgement on the merits has been obtained, a creditor often has the possibility in many countries to freeze the assets of a debtor. Again, East-West Debt offers an added value to creditors because not only the obvious assets of a debtor, like the office buildings or corporate goods, can be frozen but also more hidden belongings, like foreign bank accounts.
East-West Debt is a real specialist in discovering foreign bank accounts of emerging market debtors. The persons who tried this already, know how difficult it is and it is with a certain amount of proud that we are one of the few who succeed doing it.
On some occasions, these preliminary freezing actions are already enough to force a debtor to pay. But in general, freezing assets of the debtor is one thing, actually collecting them another. East-West Debt sees to it that all procedures are run through by the book and the dangers of counterclaims are reduced to a minimum.
AMICABLE
No doubt about it, legal actions can bring the appropriate solution, they can also jeopardise the future commercial relationship of a debtor and his creditor. Not always, an emerging market debtor is unwilling to pay, most of the time he is just not able. However, it is not because the debtor is incapable of paying today, that he will also be incapable of paying tomorrow.
Legal action might then be considered by such a debtor as a proof of lack of confidence in his willingness to pay or as the ultimate effort to cut off his breath. A possible retaliation of legal proceedings might then be to cut off all commercial links with the creditor.
Therefore, a creditor always has to evaluate his future intentions. In case, he comes to the conclusions that he still has a willingness to deal on with his debtor, it is better to try to resolve the matter in an amicable way. In this perspective, East-West Debt grants its customer various possibilities.
RESCHEDULING AGREEMENTS
As mentioned already, a debtor is not always unwilling to pay, sometimes the momentum that he is up for payment is badly timed. The economical and political situation of a country in general might be unfavourable, the debtor himself can have defaulting debtors causing him liquidity problems or he might be in the waiting line for fresh money. These kind of situations pop up even more regularly in emerging markets.
Keeping distant talks can then prove to be fatal as it provokes misunderstandings. East-West Debt is the creditor's guarantee that a co-ordination scheme is put in place with people locally deliberating with the debtor to investigate rescheduled payments.
Indeed, a debtor might find himself in the impossibility to pay USD 1 mio in one time, it can well be possible for him to pay five times every month USD 210.000. Such a rescheduling agreement, setting out a pay off scheme in instalments, can be interesting for all parties. The creditor gets back the principal amount accrued with a certain amount of interest, the debtor is able to pay off his debt and both parties have the feeling they can continue their commercial relationship.
FISCAL SWAP
Another reason for defaulting payments by the debtor in emerging markets might be provoked by a lack of hard currency. Especially in case the debtor is a governmental institution, the perfect solution might then be to agree on a fiscal swap.
Through the right local contact and an interested third party, provided for by East-West Debt, a fiscal swap solution can be worked out for the benefit of all concerned parties.
East-West Debt has years of experience in setting up fiscal swap schemes, especially in Africa and Latin America.
COUNTERTRADE
Quite often, an emerging market can be rather poor, taking into account the amounts on bank accounts, but extremely rich, looking at the wealth in the soil. A lot of political risk countries have large reserves of minerals or fuels like gas and petrol under their surface. Still others might be considered to be a worldwide specialist in the production of certain products like tapestries for instance.
It might then be interesting for the creditor not to urge for hard currency payment but to content himself with an exchange of the delivered product against another with a similar value.
It may look like a return to the stone age when barter trade was a run of the mill, the old time solution still works today.
OVERPRICING
This solution requires confidence from the creditor in his debtor and, therefore, is only to be advised in case it is obvious that the debtor's problems are clearly temporarily.
In case of overpricing, a creditor will drop his rights for a due payment by raising the price for the delivery of his products at the occasion of a next delivery. The advantage for the debtor in such case is that the delivery chain of the product in question is not halted but that he can pay a certain delivery on a moment which suits him better.
For the creditor, this solution is nothing more than a deferred payment..
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