Authorizing a lawyer to carry out debt recovery
In practice, not every business has sufficient time, resources or experience to directly handle overdue receivables. Allowing the debt recovery process to be prolonged not only affects cash flow but also reduces the success rate of recovering outstanding debts. Therefore, many businesses choose to authorize a lawyer to carry out debt recovery in order to ensure that the process is conducted in compliance with the law, professionally and effectively. However, for such authorization to achieve its intended purpose, businesses should clearly understand the scope of work that a lawyer is authorized to perform as well as the relevant legal regulations.
1. What does it mean to authorize a lawyer to carry out debt recovery?
- The authorized lawyer represents the business in handling the debt within the scope of the authorization
Authorizing a lawyer to carry out debt recovery means that a business authorizes a lawyer or a law-practicing organization to perform, on its behalf, one or more tasks relating to the recovery of an outstanding debt on the basis of a Power of Attorney executed in accordance with the law.
Depending on the needs of each matter, the scope of the authorization may include reviewing legal documents, assessing the recoverability of the debt, contacting the payment obligor, issuing payment demand letters, participating in negotiations, representing the business in court or arbitration proceedings and participating in judgment enforcement procedures after a legally effective judgment or decision has been issued.
Throughout this process, the lawyer acts as the representative or the defender of lawful rights and interests of the business, rather than as the person who directly owns the debt.
- Distinguishing the authorization of a lawyer for debt recovery from illegal debt collection practices
Many businesses still confuse authorizing a lawyer to work with the debtor and relevant authorities or organizations to require the debtor to perform its payment obligation with illegal debt collection practices. Although Vietnamese law prohibits the business of illegal debt collection practices, businesses remain entitled to engage lawyers to provide legal services for debt recovery.
The nature of a lawyer’s work is the provision of legal services. A lawyer represents the client in exercising lawful rights arising from civil or commercial relationships and uses measures permitted by law to require the payment obligor to perform its payment obligation. All activities are carried out in accordance with the laws governing civil matters, commerce, litigation and judgment enforcement.
By contrast, illegal debt collection practices were previously a separate business line operating under the name of collecting debts on behalf of creditors. Due to the widespread occurrence in practice of coercive acts, threats and other unlawful conduct, this business activity has been included in the list of prohibited business lines.
2. May a business authorize a lawyer to carry out debt recovery?
Current laws permit businesses to authorize lawyers or law-practicing organizations to represent them in carrying out activities relating to the protection of their lawful rights and interests within the scope permitted by law. Accordingly, a business may authorize a lawyer to perform the following tasks:
- Authorization to negotiate and work with the payment obligor and relevant authorities and organizations
In many cases, the involvement of a lawyer from the very beginning helps make the negotiation process more professional and effective. Instead of conducting discussions based on emotion, the lawyer works on the basis of the relevant documents, contracts, evidence and applicable legal provisions, thereby clearly identifying the payment obligation as well as an appropriate course of action. Negotiations conducted through a lawyer also help the business maintain commercial relationships where the parties remain capable of continuing their cooperation after the outstanding debt has been resolved.
- Authorization to commence legal proceedings before a Court or an Arbitral Tribunal to seek payment
If negotiations do not produce a satisfactory outcome, the business may authorize a lawyer to prepare the litigation file, file the statement of claim, participate in legal proceedings and exercise procedural rights and obligations in accordance with the law. Having a lawyer involved from the case preparation stage often helps minimize evidentiary deficiencies, accurately identify the claims and develop an appropriate litigation strategy for each specific matter.
- Authorization to participate in judgment enforcement after a legally effective judgment or decision has been issued
In many cases, although a legally effective judgment or decision issued by a competent authority requires the debtor to perform its payment obligation, the debtor deliberately refuses to comply voluntarily. In such circumstances, the business must continue with judgment enforcement procedures in order to protect its lawful rights and interests. The business may authorize a lawyer to work with the civil judgment enforcement authority, monitor the enforcement process and request the application of preservation measures or compulsory enforcement measures in accordance with the law in order to enhance the likelihood of recovering the outstanding debt.
3. What work will a lawyer perform after being authorized by the client to carry out debt recovery?
- Reviewing debt records and supporting evidence
This is the first step and also the most important one. The lawyer will review all documents relating to the outstanding debt, including the contract, contract appendices, invoices, delivery records, acceptance certificates, debt reconciliation records, payment documents, emails and other relevant materials in order to determine the legal basis as well as the likelihood of recovering the outstanding debt. Reviewing the documents at the outset helps the business identify the appropriate strategy rather than merely focusing on exerting pressure for payment.
- Issuing a payment demand letter
After reviewing the documents, the lawyer may, on behalf of the business, issue a payment demand letter to the payment obligor. A letter that is prepared with a complete legal basis, clearly specifies the amount payable, the deadline for performance of the payment obligation and the legal consequences of continued default generally carries greater weight than merely reminding the debtor by telephone or text message. This also serves as an important document to prove the breach of the payment obligation if the matter proceeds to the dispute resolution stage.
- Representing the business in negotiations and settlement discussions
In many cases, the business’s objective is not to commence legal proceedings but to recover the outstanding amount within the shortest possible time. The lawyer may represent the business in meetings with the payment obligor, formulate a repayment plan, prepare meeting minutes and record payment commitments in order to protect the business’s lawful interests.
- Preparing the litigation file and participating in legal proceedings
Where negotiations no longer produce any meaningful result, the lawyer will assist the business in preparing the litigation file, developing a dispute resolution strategy, drafting procedural documents and participating in hearings, mediation sessions and court proceedings in order to best protect the lawful rights and interests of the business.
Where the case is heard under appellate procedures or other procedural stages arise in accordance with the law, the lawyer will continue to act as the representative or the protector of the lawful rights and interests of the business throughout the entire dispute resolution process.
- Representing the business during the judgment enforcement stage
Where the business has obtained a legally effective judgment or decision but the debtor still fails to voluntarily perform its payment obligation, the lawyer may continue to act within the authorized scope in carrying out judgment enforcement procedures. The lawyer’s work includes preparing and filing the application for judgment enforcement, working with the civil judgment enforcement authority, monitoring the progress of the enforcement proceedings, providing or requesting verification of information regarding the judgment debtor’s assets and requesting the application of preservation measures or compulsory enforcement measures in accordance with the law where the statutory conditions are satisfied.
4. Documents that a lawyer should review before accepting the authorization
- The contract, contract appendices, purchase orders, accepted quotations or other agreements evidencing the legal basis giving rise to the transaction between the parties;
- Invoices, payment documents, delivery records or other documents proving that the business has fulfilled its contractual obligations;
- Debt reconciliation records, debt confirmation records or other documents confirming the outstanding payment obligation of the debtor;
- Official correspondence, emails and messages exchanged between the business and the debtor concerning requests for the performance of the payment obligation;
- Other documents relating to the debt recovery efforts previously undertaken by the business.
After receiving the documents provided by the business, the lawyer will conduct a preliminary assessment and propose appropriate solutions for the particular matter. Once the lawyer determines that the business has sufficient legal grounds to demand payment and the business agrees to authorize the lawyer, the lawyer will prepare and execute a Power of Attorney with the business. This document serves as the legal basis establishing the lawyer’s authority to represent the business in carrying out debt recovery.
5. Contents that should be included in a Power of Attorney for debt recovery
- Information of the principal and the attorney-in-fact
The Power of Attorney should clearly specify the information of the business, its legal representative or authorized representative and the information of the lawyer or law-practicing organization acting as the attorney-in-fact.
- Information regarding the outstanding debt to be recovered
The outstanding debt should be clearly identified by reference to the contract or transaction giving rise to the payment obligation, the amount due, the due date and other relevant information. Clearly describing the outstanding debt helps avoid disputes regarding the scope of the authorization during implementation.
- Scope of the authorized work
This is the most important provision of the Power of Attorney. The business should clearly specify the tasks that the lawyer is authorized to perform, such as issuing payment demand letters, participating in negotiations, signing meeting minutes, filing a statement of claim, participating in legal proceedings or working with the judgment enforcement authority. The clearer the scope of the authorization, the smoother the implementation process and the lower the risk of disputes.
- Duration of the authorization and the rights and obligations of the parties
The Power of Attorney should clearly specify its effective term, the rights and obligations of each party, the circumstances in which the authorization terminates, as well as the parties’ responsibilities to cooperate throughout the handling of the matter.
6. Important considerations when a business authorizes a lawyer to carry out debt recovery
- Clearly specify the scope of the authorization to avoid exceeding the authorized authority
The business should avoid using overly general provisions and instead clearly define the scope of work, namely the limits of the tasks that the lawyer is authorized to perform, in order to avoid situations where unclear agreements result in the lawyer carrying out work beyond the authorized scope.
- Do not authorize unlawful acts
A lawyer may only perform work that complies with the law. A business must not request or authorize a lawyer to engage in acts that infringe upon the lawful rights and interests of the payment obligor or to use unlawful measures to exert pressure.
- Clearly agree on legal service fees and additional expenses
The parties should reach an agreement from the outset regarding the method of calculating legal service fees, the scope of work, litigation costs, expert examination costs, evidence collection expenses and other related costs in order to avoid disputes during the course of the engagement. These matters may be agreed directly in the Power of Attorney or in a separate agreement between the business and the lawyer or law-practicing organization.
7. Frequently asked questions regarding the authorization of a lawyer to carry out debt recovery
- Is notarization of the Power of Attorney for debt recovery required?
Not every case requires the Power of Attorney to be notarized or certified. Whether notarization is required depends on the content of the authorization and the legal provisions applicable to the particular transaction. In many cases, a Power of Attorney that has been properly executed in accordance with the law is sufficient for the lawyer to carry out the authorized work.
- May a lawyer receive payment on behalf of the business?
A lawyer may receive payment on behalf of the business only where the Power of Attorney expressly provides for such authority. In the absence of such an agreement or where the matter falls outside the authorized scope, the lawyer has no authority to receive payment from the payment obligor on behalf of the business.
- Is authorizing a lawyer to carry out debt recovery the same as illegal debt collection practices?
These are two entirely different activities. Lawyers provide legal services in accordance with the law and represent businesses in exercising lawful rights in order to protect their clients’ lawful rights and interests. This activity is not the same as the business of illegal debt collection practices, which has been prohibited under the investment laws.
Authorizing a lawyer to carry out debt recovery is a practical solution that enables businesses to recover outstanding debts in compliance with the law, professionally and with reduced legal risk when dealing with payment obligors. Through reviewing documents, developing legal strategies, representing clients in negotiations, participating in legal proceedings and handling judgment enforcement, a lawyer not only helps improve the likelihood of recovering outstanding receivables but also maximizes the protection of the business’s lawful rights and interests at every stage of the matter. If your business requires legal assistance during the debt recovery process, please contact TNTP for timely support.
