Due to the drastic downturn of financial state for a majority of companies in Ukraine, recovery of debts becomes even more in-demand than ever. In most cases it is the Ukrainian banks that become the "victimized party" because for several years they have issued loans to well-known businesspeople "on parole", without any real collateral, ascertainment of the borrowers' financial status, or examination of their credit histories. As the result, at present time many banks found themselves in a "stalemate".
Due to the drastic downturn of financial state for a majority of
companies in Ukraine, recovery of debts becomes even more in-demand
than ever. In most cases it is the Ukrainian banks that become the
"victimized party" because for several years they have
issued loans to well-known businesspeople "on parole",
without any real collateral, ascertainment of the borrowers'
financial status, or examination of their credit histories. As the
result, at present time many banks found themselves in a
"stalemate". On the one hand, the amounts of overdue
(bad) debts that gradually become categorized as hopeless debts are
on the rise. On the other hand, the banks are pressured by the
regulator - the National Bank of Ukraine that obliges to increase
capital reserves to secure problem debts. Most financial analysts
believe that the situation in the near future will only
worsen.
Not too long ago banks rarely hired law firms and collection
agencies. However, today their legal departments cannot handle the
volume and the complexity of debt recovery cases. To recover debts
from individual borrowers banks usually hire collection agencies
that use traditional approaches in work with debtors (letters,
telephone calls, meetings, recovery from property, etc.). Big
business debts have a far more complicated nature and to collect
them by traditional means (collection based
on a court judgment) does not always work. To handle such
collections more often than not banks retain big law firms that
have the resources to analyze different aspects of debtors'
activity and develop debt recovery strategies that do not always
imply direct debt collection under court judgments. Further we
would like to focus on a few suggestions on how to handle bad debts
based on the extensive experience of the INYURPOLIS Law Firm (ILF)
attorneys in resolving such cases.
Banks ought to remember that the chances to successfully recover a
debt very much depend on how quickly they act. Unfortunately, the
ILF's practice shows that banks have not yet realized how
critical their situation has become. They are not yet ready to
proceed with rigid and aggressive policy of working with debtors.
However, today when numerous businesses have staggering debts to
several banks at the same time, the slightest delay in action may
lead to prospects of not being able to collect the debts.
The choice of debt recovery mecha¬nism should be made on the
case-to-case basis. Judicial recourse is not a "panacea"
and may lead to positive results only if a debtor owns liquid
assets. Very frequently out-of-court debt dispute resolution and
negotiating are the most effective approaches which as a rule
result in restructuring of a debt.
Often banks have to deal with debtors who intentionally deceive
them by hiding assets, manipulating facts and documents. That makes
any negotiating with such debtors a waste of time.
Recently, it became more and more difficult for banks to collect
debts or to recover from pledged property under court judgments.
Debtors file for bankruptcy following which courts grant
moratoriums on loan payments. If such a situation occurs, a bank
runs into a substantial risk of not being able to get back the lent
funds entirely or in part.
In cases when such dishonest conduct by a debtor takes place the
ILF attorneys design a multi-choice debt recovery strategy that
includes judicial and out-of-court measures. When working out such
a strategy special attention is drawn to information about current
lawsuits a debtor is involved in and their background. This
information may be useful in choosing further steps to be taken: to
initiate a bankruptcy proceeding against the debtor, to take
measures to preclude the debtor from going through a fraudulent
bankruptcy or use of other dishonest means of defense.
This is especially important for foreign banks that do not always
have reliable information about their Ukrainian borrowers and the
current situation. Such circumstances are often used by the latter
to evade debts.
Banking has its rules that are meant to protect customer
relationships from
any external interference. But considering the mass avoidance by
debtors of a civilized dialog with banks as to debt repayment and
the many contradictions in the Ukrainian legislation that
facilitates debtors' dishonesty in attempts to protect their
interests, banks ought to implement more aggressive defense
strategy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
