Debt recovery is an effective means of resolving disputes in general and specifically in the context of debt collection. It is a relatively common method employed by many businesses. In the following article, TNTP’s legal team will provide insights into the effectiveness of litigating for debt recovery within the construction industry.

1. What is Litigation for Debt Recovery?

Litigation involves the creditor filing a lawsuit, along with relevant documentation, with dispute resolution authorities, including the competent court and commercial arbitration center. The purpose of litigation is to request these dispute resolution bodies to issue a legally binding document, which includes an Arbitral Award in the case of commercial arbitration, and a Judgment/Verdict with legal enforceability in the case of the competent court.

These Arbitral Awards/Verdicts are based on legal provisions and the case’s evidence and documentation. Consequently, the enforcement of such judgments is ensured by legal regulations, and the enforcement authorities act on behalf of the state’s authority to carry out necessary enforcement measures. This ensures that the debtor is compelled to execute the judgment and settle the debt.

For the aforementioned reasons, litigation is a preferred method for many businesses seeking to recover debts in a legal context within the construction industry.

2. Advantages and Disadvantages of Initiating Legal Proceedings for Debt Recovery

a) Advantages

• Acceptance of a business’s initiation of legal proceedings is based on the content of the documentary evidence, such as contracts and relevant legal provisions provided by the parties involved. Therefore, if a business can substantiate that its request is legitimate, the Court or Arbitration Center will accept this request.
• Initiating legal proceedings in accordance with legal regulations helps ensure transparency.
• The legal judgments, decisions, or verdicts will have legal enforceability, compelling the debtor to comply, regardless of their willingness.
• Enforcement authorities will act on behalf of the state’s authority to carry out enforcement measures if the debtor does not cooperate. Thus, ensuring effective debt recovery.

b) Disadvantages
• Legal judgments, decisions, or verdicts may be subject to appeals and objections, leading to prolonged proceedings. If the appeals or objections are successful, the business’s request may not be accepted.
• If a business lacks sufficient evidence and documentation to substantiate its initiation of legal proceedings, the Court or Arbitration Center may not accept the request.
• Businesses will have to pay court fees and legal costs before these authorities can resolve the dispute. The amount to be paid depends on the value of the debt being sought, which can be a burden for the business.
• The enforcement procedure may be ineffective if the debtor is no longer operational or lacks assets for execution. In such cases, the enforcement process may be prolonged, and certain stages of enforcement may require additional fees from the business.

3. Is Initiating Legal Proceedings for Debt Recovery Effective in the Construction Industry?

From the factors mentioned above, it can be seen that while initiating legal proceedings for debt recovery has many advantages, this method also comes with certain limitations. The most crucial aspect is whether the business has sufficient evidence to substantiate its request for litigation or not, and whether, after obtaining a legally enforceable judgment, decision, or verdict and meeting the conditions for enforcement, the debtor can still settle the debt or not.

For these reasons, businesses need to assess their cases, financial capabilities, and the value of the debt when considering whether initiating legal proceedings for debt recovery will yield the highest value for them.

The above is an article by TNTP’s legal team on the topic: ” Is it effective to sue for debt recovery in the construction industry?” We hope that this article will be beneficial to our readers.