Is your outstanding debt increasing?

Learn how to ensure that debtors pay their outstanding dues and the processes involved to recover them

Unpaid invoices and outstanding receivables are major problems faced by companies in the UAE. The lack of cash inflows and outstanding debts due to them, forces many companies to shut down.

MBG Corporate Services helps structure debt and recover outstanding dues from customers both through effective management strategies and through the legal course of action. MBG follows the following process for debt structuring:

Extra-judicial process:

• Due Diligence: In the event of the defaulter being non-reachable, investigation is done on the contact number and due diligence at the registered regulatory authority, as to the validity of the trade license if it’s a company, and at the immigration department, if it is an individual. We also examine the best chances of recovery.

• Serving demand letter/legal notice: A formal demand letter or a legal notice carefully drafted by our expert lawyers is served via email, registered post, or courier. It contains details of the debt, the name and contact details of the defaulter, the object of the debt and the payment deadline. The letter and the notice also constitute potential legal action should the payment not be made on time. This notice may also be served as a notarization through the Notary Public in the respective emirate.

• Communications: Once the demand letter/legal notice is successful, our representative establishes a line of communication for negotiations with the counterparties until an appropriate response is offered to the client.

• Negotiations and Settlement: Under this, once the representative is confident that communication is established, the debt collector engages in informal negotiations for prompt payment with the defaulter. The most important part of the collection process is the evaluation of the defaulters’ behaviour and how willing they are to pay and settle the matter. There is constant bargaining and negotiations. The negotiations are effected and settled by a documented settlement agreement of the payment terms and conditions. Once agreed upon, there is an execution of a formal settlement agreement, which can be immediately legalised at the court of competent jurisdiction. The parties may agree on issuing post-dated cheques or manager cheques for the settlement amount.

Judicial process:

The UAE government offers several options for the creditor to initiate a claim. The payment order begins with a notarised legal notice served to the defaulter to fulfil the payment, granting a grace period of five days under the Civil Code as per the jurisdiction. If the payments are not made during the grace period, the court issues a payment order upon due registration and with documentary evidence. The payment order comes in together with the principal amount as well as the interest.

The mandatory documents are the contract, commercial invoices, statements of accounts, etc. When they are submitted with a memorandum, the court renders the payment order, which is immediately due for execution with the completion of a 15-day legal notice grace period. In the interim before executing the order, a stage for initiating precautionary and provisional relief takes course. The said measures are for ensuring the maintenance of the status quo amongst the parties and safeguarding the creditors’ rights and interests.

Under the execution proceedings, such procedures are undertaken, upon the judgment being final and binding, by initiating the enforcement of the payment order for recovering the amount by taking precautionary and execution procedures.

— Sakina Dickenwala is director — legal services; Jui Dongare is legal manager and Deepak Azad is legal manager at MBG Corporate Services