Author: mr. Mannes Westhuis
Over the last few years, China has rapidly developed into one of the largest trading partners in the world. Wherever you go, you will find products that were “made in China”.
Although you may not consider it at first, it is not just China’s export market that has experienced explosive growth. As a result of major production, China imports large quantities of raw materials and equipment from all over the world. The Netherlands benefits in particular from the transit of goods from China, but also exports chemicals, machinery, materials, transport equipment, waste material and knowledge for the benefit of production in China. The export of goods and services from the Netherlands and other countries to China continues to increase year on year. Between 1999 and 2011, Germany saw its export to China increase tenfold and Belgium increased its export eightfold. On average, the value of European exports increased 6.5 times between 1999 and 2011. The largest exporters to China are Germany, Japan, South-Korea and the United States.
Therefore, China’s essential role in the world economy cannot be ignored. It will not come as a surprise that, as a result of this growth in trading, the number of claims on and by Chinese companies have also increased. Subsequently, there are a growing number of unpaid claims.
How does the collection process work in China?
Trade with China often involves large amounts of goods and, therefore, high claims. Debt collection in China has always been problematic and the demand for assistance in the collection of unpaid invoices has grown tremendously in recent years. This demand has contributed to Bierens’ decision to open a new office in China, so that we can be of better service to our clients regarding questions about doing business with China and collecting debts in China.
This mailing is a first step toward outlining the course of action in the event that your invoices remain unpaid.
Claims on Chinese debtors can be submitted to Bierens for an initial extrajudicial process in the same way as you would submit any other claim. The process is as follows:
1. If you want to hand over the collection of your unpaid invoices, you should firstly provide us with all relevant information, documentation and correspondence. You can do so via email, fax or post, as well as through the debt recovery form on our website.
2. We carefully review each submitted claim. Should we require additional information, then we will contact you. The first demand letter is sent to your debtor as soon as possible.
3. During the extrajudicial phase, we will investigate your debtor further to determine the company’s legal identity. Who are the owners? Is the company connected to the government? We will obtain up to date credit information to find out more about your debtor’s creditworthiness and the chance that they will be able to comply with a possible judgment in the future.
4. Our next step is to determine whether or not your debtor is able and willing to repay your claim. This is a crucial phase of the extrajudicial process. In the event of high claims, the lawyer will visit your debtor in person. We maintain pressure on your debtor at all times. Payment of a claim in China is more a matter of honor than of respecting the contractual provisions. This explains why we perform extensive debtor background checks: we want to make the debtor feel that they are responsible to pay. You will also be updated on a regular basis, in order to keep you informed of developments regarding the collection and to provide you with the results of visits to your debtor. This might result in the arrangement of a settlement, but most cases are settled during the extrajudicial phase.
5. In the event that legal proceedings are necessary, these will only be commenced upon receipt of your instructions. In China, the threat of commencing proceedings alone can be enough to achieve payment, as a lawsuit against one’s company can be perceived to harm a person’s honor. Therefore, it will come as no surprise that during this phase, in which the threat has been made, many cases are completed successfully as well.
6. The commencement of legal proceedings involves drafting a Statement of Claim, which shows the basis and the amount of the claim. This is then filed at the competent Court. Once the Court has acknowledged the matter, a Writ of Summons is sent to your debtor. This process takes approximately one week.
Roughly a month after submitting the claim to the Court, a first hearing will be planned. In general, you will not be required to attend the hearing in China. We will need to arrange a Power of Attorney so that our local colleagues are authorized to make decisions on your behalf. During the hearing, the Court will make one final attempt to amicably settle the matter. If the Court’s mediation during this hearing is successful, then the terms of settlement will be transposed into a judgment. If the parties cannot reach an agreement, the lawsuit will continue and several other hearings (in most cases) will be arranged, during which the parties can exchange evidence. Eventually, a judgment will be pronounced by the Court. Depending on the complexity of the case, this process can take anywhere between 6 and 9 months.
7. Once a judgment is obtained, it can be executed by, for example, seizing the debtor’s bank accounts, seizure of property or transfer of rights.
8. If the claim is in Chinese currency, we will need to obtain approval from the Chinese State Administration of Foreign Exchange (SAFE) for the repatriation of funds to the foreign party. Our office will handle this as well.
9. After successfully concluding your case, we will close our file, and you will receive a written confirmation shortly thereafter. Naturally, we will also inform you in the event that the execution is unsuccessful.
As you can see, the procedures are similar to those in Europe. However, the course of events can be entirely different depending on the case. Thanks to our back office in Shanghai and our local partner attorneys, we can be of excellent service to you when it comes to doing business in China. Please feel free to contact us, if you would like to receive further information.