Debt Collection in Hong Kong
Debt Collection in Hong KongUpdated on Thursday 08th April 2021
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Sometimes business owners in Hong Kong are faced with the unpleasant situation of not receiving their due payments for the performed services. While clients may struggle financially or may have other reasons to avoid payments, the most common way to deal with unpaid invoices is to request the services of a professional debt collection agency in Hong Kong.
The list below presents the main stages of collecting overdue payments, following the natural order from an amiable collection, or non-contentions proceedings, to the legal action that can be initiated.
- Reminder letter: the first step in the amicable set of actions, the letter sent to the debtor will include a friendly reminder of the pending payment.
- Final notice: when the debtor has exceeded all of the overdue payment reminders, the creditor can send a formal, final notice.
- Set a meeting: the debtor and the creditor can try to negotiate during a meeting; this is also an opportunity to consider alternative dispute resolution methods, like arbitration.
- Commencing legal action: when all other amicable actions have failed, the creditor can initiate legal action through a writ of summons. The debtor can either settle or file defense.
When the creditor resorts to legal action, he will be asked to prepare a set of documents and bring forward the needed evidence against the debtor. Such documents that support the claim include invoices, proof of delivery and any contracts concluded between the two parties.
Our law firm in HK offers local debt recovery services as well as international debt recovery services. Each debt case is different and our professionals will work closely with you to ensure that you receive your payments.
Amicable debt recovery in Hong Kong
The first step in every debt collection process in Hong Kong is the amicable phase. Also known as pre-legal debt collection, during this phase the negotiator will send one or more notice letters (summons) to the debtor in an attempt to convince him or her to pay the due debts.
In order to be able to understand the reasons that have led to the accumulation of debts, our debt collection agents in Hong Kong will need the contact information for the debtor as well as any relevant documents that attest the relationship between you or your company and the debtor. Included in this category are any previous invoices, contracts, agreements, and others.
Our Hong Kong law firm is able to provide the adequate pre-legal debt collection services if you have a branch in Hong Kong that has due payments from other clients or if your company in Hong Kong needs international debt collection services. This pre-legal phase is often preferred by many businesses in Hong Kong because it is an alternative to the legal proceedings that can help maintain the business relationship with the customer. An expert is able to search for the best solutions to help the client find a repayment option and pay off the outstanding debts to your company.
As a general guideline on how to proceed when first identifying a debt accumulation, we recommend a thorough monitoring of undue payments that will allow for timely identification of the problem. The sooner a business owner can identify a payment problem, the sooner the amicable phase can begin and a business-to-business relationship may experience little to no deterioration. Of course, this is as true in inter-business transactions as in transactions with a third party or a sole trader.
Our team of lawyers in Hong Kong can help businesses with information about the accounting practices in place that need to be duly observed by all businesses. By observing these practices according to law business owners are also making sure that they keep all of the relevant transaction documents for a minimum period as well as that they store them accordingly (at the company’s headquarters or as otherwise determined). This good practice of storing invoices and business partner details is important for ensuring a fast-track identification of the debtor and the due amounts.
Of course, there are cases in which simply getting in touch with the debtor and sending the formal notifications will not produce the desired results.
If the amicable debt recovery fails, we will begin the court debt collection procedure.
Court proceedings for debt collection in Hong Kong
The payment of any outstanding debts should be agreed upon in a contract signed by the parties at the beginning of their business collaboration. The preferred debt collection method or litigation method can also be stated in a contract. The court proceedings for outstanding debt commence with a Writ of Summons. Once this is served to the debtor, he may decide to file a defense.
Our lawyers in Hong Kong can legally represent you in any debt collection case that needs to be solved in court. The Hong Kong legal system is based on the English Common Laws and business claims regarding unpaid debts tend to be settled efficiently. The courts in Hong Kong that deal with the recovery of debts are:
- the Small Claims Tribunal: for sums no larger than 50,000 HK $;
- the District Court: for claims that usually do not exceed 600,000 HK $;
- the High Court: for claims that exceed 600,000 HK $.
Our lawyers can assist companies that have an enforcement court order that was already issued by a Hong Kong court or by a court in another jurisdiction (provided that enforcement is possible in Hong Kong).
Court debt collection will have different associated costs. One of the attorneys at our law firm in Hong Kong can evaluate your case and determine what steps will be necessary and what the estimated costs for court debt collection will amount to.
Debt extension options
As seen from the descriptions of the two debt collection phases, claiming the due amounts can be a lengthy process, depending on the debtor’s situation and responsiveness. This is why we recommend getting in touch with our attorneys who specialize in debt collection as soon as possible in order to initiate the amiable debt recovery phase. In practice, the first phase can commence as soon as the agreed-upon payment period has expired. This is usually included in the agreement between the two parties and it is used as a reference for the payment plan. Companies can also decide upon an addendum on the payment schedule, as needed. Our lawyers in Hong Kong can advise on signing an agreement to extend the debt payment. This document will include the following details:
- - the parties: the contract will state the names of the two businesses or the business and the individual; the name and the address (registered address for businesses) will be stipulated.
- - the due amount: the agreement for the extension of the debt payment will clearly specify the amount that is due and payable.
- - the terms: an outline of the payment schedule, if used, or the extension date agreed by the parties.
- - the penalties: the rights of the creditor should the debtor be unable to observe the terms of the debt payment extension agreement.
The agreement will also include the name and title and the authorized signature of both parties. When concluding such as agreement it is advisable to seek legal counsel from one of our lawyers. We can provide complete details on drafting the agreement as well as the special measures that may be commenced should the debtor be unable to pay (such as the court proceedings). Of course, signing such as agreement means that the debtor has agreed to the amicable solutions and is willing to observe the measures to avoid taking the case to court. Signing such an agreement is usually a preferred course of action for both parties.
It is useful to keep in mind that debtors are protected by law from abusive debt collection practices and that the pressure imposed by the creditor should remain within acceptable limits. Harassment tactics against debtors are not encouraged. These can include making bothering telephone calls and inappropriate visits, posting the notice letters in a public location (such as outside the office) or even minor assault, in some cases.
The video below highlights the main steps of debt collection in Hong Kong:
Debt collection companies are not subject to specific licensing, however, the Hong Kong Monetary Authority does regulate banks and other institutions that provide services under the Money Lenders Ordinance.
Our team observes all of the legal provisions against malpractices in debt collection phases and strives to provide services that focus on amicable debt collection. Our lawyers offer services in a professional manner and observe a good code of practice.
Debtor representation in Hong Kong
In some cases, the debtor’s situation and the ability to keep the business open are discussed once the final payments are made. Some companies, those that had outstanding debts that are incompatible with being able to move forward with their business activities, may be forced to close once the debt collection process is complete. This is a situation that is handled according to the Hong Kong law and some of the company’s creditors may receive their payments once the liquidation phase takes place.
Our team provides services to debtors who are involved in debt collection practices and are looking for an amicable solution to their financial issues. We work diligently to find solutions or alternatives focused on saving the business whenever possible and, together with the debtor company’s’ owners, we strive to formulate a corporate restructuring plan that can suit the needs of the debtor and those of the creditor.
If your company is facing financial difficulties, you can choose to reach out to us as soon as you determine that a restructuring plan is needed, even before you are contacted by the creditor with the purpose of submitting a formal notice for payment. Timely action can prove valuable for both parties and, in some cases, it can be essential for allowing the debtor company to use the time needed to restructure or refinance. Our lawyers are able to provide legal representation during the amicable negotiation phase as well as during the legal proceedings, in debt collection litigation. Of course, our team will take the possible steps to avoid court liquidation or avoid taking the case to court altogether.
Options for debtor companies in Hong Kong
Debt restructuring is the process through which the company negotiates with the creditors in order to find a solution for the outstanding payments. The actual restructuring plan can be proposed by the company itself or, in some cases, even by the creditors. If this is the optimal solution for your company, our lawyers will provide the needed assistance to draw up and enforce the debt restructuring agreement. During this process, the interest rates on loans can be reduced or, alternatively, the due dates can be extended. In other cases, the solution may be to offer the creditors equity in the business, in percentage with the debt owed. These steps can be used together, all for the purpose of offering the company the chance to pay back its outstanding obligations. In most cases, creditors will agree to these options because the alternative, liquidation, could mean that they will receive even less in assets (thus their debt would still not be paid in full).
Our Hong Kong law firm can also help you with bankruptcy proceedings, should the case require such a step. This is a different process, in the sense that it is an essential and mandatory process through which each company will go, once no other options for making the payments to the creditors are possible. The goal is to sell the assets once the company has declared bankruptcy, and to use the capital to make the necessary payments to the creditors. If the company is still unable to meet the repayment plan, it will go into liquidation. These two steps – bankruptcy and liquidation – can discussed in greater detail with our lawyers. If you need more information, please do not hesitate to reach out to us before the company enters these two distinct stages.
Corporate restructuring encompasses the solutions or strategies taken by the company in order to change its operational model. This is another manner in which an organization can choose to handle financial difficulties, however, it is also a solution that can be employed when companies are pursuing other goals, such as corporate mergers or a sale as well as a transfer in ownership. For the purpose of solving existing financial constraints, a company will use corporate restructuring to cut costs, such as reducing the number of employees or reducing its overall size (operations, centers, headquarters, etc.) by selling part of its assets.
Internal restructuring can refer to changes in the company’s operations, departments, processes or ownership. The goal is to make the business more profitable. At this stage, the company can work with our team of lawyers who will act as financial advisers and will negotiate the restructuring plan. Moreover, the company can also employ the services of financial advisors. Internal restructuring does not concern solely the number of employees, although their reduction can be a significant step in the required process. It can also focus on reducing the number of locations the company has (closing down branches, if needed) as well as making significant changes to the computer systems, internal procedures and networks.
Corporate restructuring can be a disruptive process, as the company will need to reinvent itself in some cases. However, it can be the only solution that stands between the company’s ability to continue its activities in Hong Kong and bankruptcy (and, implicitly insolvency) because of outstanding debts. If the process is unsuccessful, the company can consider the remaining options (bankruptcy and liquidation included) with the help of our team of legal advisors.
Debt collection should take place as required by the creditor and with consideration regarding the debtor’s situation. Ideally, it is a process that concludes as favorably as possible for both parties. Please contact our Hong Kong attorneys if you want to know more about debt collection in Hong Kong.