Innovation in outstanding money recovery

Outstanding money recovery remains a prevalent legal business in today’s commercial landscape. It is no longer confined to disputes over sales contracts and loan agreements but has also become increasingly common in disputes related to equity transfers, financial leasing and factoring disputes. The comprehensive management of outstanding money recovery plays a pivotal role in creditor asset management, and the demand for it has surged in the post-pandemic era.

In the current economic climate, lawyers face the challenge of assisting creditors in resolving difficulties and mitigating risks in collecting outstanding amounts. This calls for innovative strategies as the key to success.

The challenges

Amid an economic downturn, corporate profitability is on the decline. Consequently, the repayment capacity and willingness of some companies have noticeably decreased. This has led to a rising number of outstanding money recovery cases, accompanied by growing complexities. Typically, the following situations arise:

1. Debtors are mired in financial crisis, burdened with multiple cases where the enforcement procedure was suspended after enforcement of the whole property was discovered by unified investigation clues, making it difficult to trace their assets.
2. To evade debt repayment, debtors often resort to tactics such as pledging, mortgaging or selling assets, concocting substantial debts to shift assets, relinquishing claims or security interests, and maliciously extending the performance period for debts.
3. Third parties are involved but unco-operative in executing accounts receivable. When the court issues a notice requesting third parties to repay the due debt to creditors, third parties raise a timely objection, arguing that the receivable does not exist or has not matured unless confirmed by legally effective documents. In such scenarios, the court is unable to proceed with execution, stalling the process. This necessitates alternative legal approaches, such as a subrogation legal action, to find a resolution.

Property due diligence

When debtors are in debt crisis, most of their assets are often subject to court-ordered sealing-up, detention and freezing. Unearthing new trails leading to the debtor’s assets is the pivotal step towards a solution.

The author proposes a comprehensive strategy for investigating assets of both debtor and guarantor, covering the following key aspects.

Vigilant monitoring of the debtor’s litigation and enforcement. In the face of numerous creditors waiting for the sealing-up, the lawyer must proactively seize opportunities to apply for court-issued asset sealing-up upon discovering fresh leads – thus achieving the purpose of the first seizure – and simultaneously conduct a further enquiry of accounts receivable data based on the debtor’s litigation history.

Understanding the enforcement dynamics of related cases can guide selection of the optimal pathway to recover the money. For instance, if other creditors have already provided interim measures for the debtor’s equity and real estate, the lawyer should pivot attention towards alternative avenues such as trademarks and know-how. This strategic shift holds the potential for significant breakthroughs.

Seeking a court-issued investigation order to retrieve information on property in various places related to the debtor. A lawyer should investigate the debtor’s national and international bank accounts that might fall within its business scope. Additionally, in cases where the debtor faces challenges in repayment, it’s essential to conduct property-related investigations concerning guarantors and sureties, with a specific focus on entities like large state-owned enterprises known for their repayment capacity.

Combining company annual reports and significant transaction data to identify accounts receivable information. Based on thorough communication with creditors and information from the company’s annual reports – along with information on subsidiaries in consolidated statements of the relevant listed companies, in conjunction with news reports of the debtor’s significant projects and ongoing construction ventures as well as industry practices – the lawyer, can deduce the likely timeframes for sub-debtor payments, allowing for estimation of relatively accurate accounts receivable amounts. This establishes a foundation for subsequent actions, including an assisted enforcement and a subrogation legal action.

Innovative approaches

In cases where traditional methods fall short in collecting money, the author has distilled a set of fresh approaches, informed by a wealth of successful experiences.

Using revocation rights to recover transferred debts. For debtors who illicitly transfer assets by gratuitous asset transfers or transactions at unreasonably low prices, creditors should promptly seek pre-litigation protective measures to prepare for the enforcement phase. If the debtor has already transferred assets, creditors should act promptly to exercise their revocation rights.

Using penalties as an inducement for fulfilment of obligations. During the enforcement process, when faced with debtors capable of meeting their repayment obligations but unwilling to do so, creditors should actively negotiate with the debtor and use fines, detentions, or even the possibility of criminal penalties as leverage to induce the debtor to repay the debts, ultimately achieving a settlement.

Initiating subrogation lawsuits against solvent sub-debtors. For debtors who genuinely lack the means to repay their debts and are unco-operative in executing accounts receivable, the author suggests recovering outstanding money through subrogation lawsuits against solvent third parties (sub-debtors), following the clues from the above-mentioned asset investigation procedures.

In conclusion, outstanding money recovery in the current economic landscape is a result of changing times. Lawyers must adapt to the evolving landscape and enhance their skills to recover money successfully. They must also apply innovative approaches within the existing legal framework to address practical challenges and difficulties.