- DSO in Ireland remains around 50 days. Small and medium businesses in Ireland have an increased DSO of 60 days, with 24% of them waiting a punishing 120 days before they see funds.
- Legal action can be expensive and time-consuming, often with little reward. Amicable negotiations from debt-collection agencies are a good way of identifying payers from non-payers.
Collecting in Ireland
Availability of financial information
There is little financial information on Irish businesses and even though incorporated companies must register with the Companies House, it may, in practice, be fairly difficult to trace debtors.
Professional networks may help obtain reputational insights, however a specialized provider is strongly advisable. Allianz Trade allocates each company a grade reflecting its financial health and how it conducts business. The grades represent a core of our knowledge and analyses, and help clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions.
Main corporate structures
Liability for business debts is determined by legal structures, which can be described as follows:
- Businesses which do not require a commercial organization may be operated by one private individual registered as a Sole Trader. Two or more individuals may also decide to share ownership and responsibilities through Partnerships (as regulated under the Partnership Act of 1890), in which case the partners may be jointly and individually liable for the actions of the other partners (while increasing fundraising capacity). Limited Partnerships (as regulated under the Partnership Act of 1907) may alternatively offer limited liability to the partners.
- Incorporated entities may also be relied upon. Private Limited Companies are popular because the shareholders (up to 99) are only liable for the company’s debts in relation to their individual capital contribution, and there is no minimum capital requirement. Larger businesses would rather be set up through Public Limited Companies, for which a minimum capital of EUR 38,092 is required. In this type of company, the shares are tradable and the shareholders are only liable for the value of their share(s), while debts may only be recuperated from the company’s assets.
• Often, foreign investors decide to settle in Ireland through a Branch entity independent from the parent company and capable of doing business in Ireland.
in first instance by the Circuit Courts). The Commercial Court was created in 2004 as a division of the High Court dealing specifically with intellectual property and commercial disputes with a monetary value in excess of EUR 1 million. The Supreme Court is the court of final appeal.
Days Sales Outstanding (DSO)
Late payment interest
Debt collection costs
Having said this, RoT agreements can be used as a negotiation tool during the pre-legal stage as a means to obtain the return of goods which are still unpaid.
The most common payment methods are as follows:
- Swift bank transfers are most commonly used in Ireland as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. For export transactions, transfers should be guaranteed through an Export Credit Insurance policy, which helps minimize the risk of sudden or unexpected customer insolvency. Allianz Trade’ worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which clients may trade and claim should something go wrong. Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) constitute reliable guarantees.
- Irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms specifically agreed by the parties have been met) may also be considered.
- Checks tend to provide no guarantee as they entail no liability if they remain unpaid. Relying on bank guarantees and requesting down payments is therefore common.
If the claim is undisputed, it is alternatively possible to request a fast-track summary judgment (Summary Summons) from the competent court. When the debtor company has assets in other EU Member States, a European Payment Order procedure facilitating the recovery of undisputed debts (under Regulation EC No 1896/2006) may also be triggered. In this case, the demanding party may request a domestic court to issue an Order to Pay which will then be enforceable in all European Union countries (except Denmark) without exequatur proceedings.
If the claim is disputed, by contrast, a discovery phase takes place to allow the parties to explain and prove their respective arguments before the court renders a decision, but judges in the Commercial Courts may also suspend the proceedings for up to 28 days to allow resolution of the dispute through mediation or arbitration. The courts typically award remedies in the form of compensatory and punitive damages, specific performance, declarations, injunctions, etc.
- Copies of invoices
- Up to date statement(s)
- Clients terms & conditions
- Original power of attorney
Lodging an appeal
Enforcing court decisions
How long could legal action take?
How much could this cost?
Alternatives to legal action
Alternative Dispute Resolution methods (ADR)
Mediation involves nomination of a mediator who is given responsibility for helping the parties reach a compromise. In other words, the mediator has no authority to decide on the behalf of the parties and they cannot bind the parties with a decision. An agreement is only binding if a settlement agreement is entered into between the parties at the end of the mediation. The mediator acts as a facilitator to settlement and, in debt related disputes, the solicitors would tend to act as such.
Arbitration involves the parties agreeing to rely on an independent and impartial third-party arbitrator, who is given authority to settle their dispute on their behalf. The arbitrators’ decision will be binding on the parties.
As an out-of-court settlement method, ADR can be cost-effective, generally reduces delays, allows preserving confidentiality and offers a binding decision which may then be enforced before the courts if necessary. When international transactions are involved, international arbitration may also be considered.
Enforcing foreign awards
If the judgment qualifies as an uncontested claim, it can be enforced directly (i.e. without registration) by use of an EEO provided that the debtor has identified assets in the country. A European Small Claims Procedure (as provided by Regulation EC 861/2007) aiming at eliminating intermediate steps may similarly be relied upon while enforcing decisions up to EUR 2,000.
If the claim is disputed, the procedure for registering an EU judgment with domestic courts is relatively simple. The judgment holder must apply to the relevant court for the judgment to be registered and provide the court with, among other documents, an authenticated copy of the judgment, a certified translation and, if interest is claimed, a statement confirming the amount and rate of interest at the date of the application and going forward. Once the judgment has been registered, the judgment can be enforced as if it were issued by domestic courts (according to the Recast Regulation EC 1215/2012, such an exequatur procedure is no longer required from January 2015).
On the other hand, judgments rendered in foreign countries outside the EU would be recognized and enforced on a reciprocity basis provided that the issuing country is party to a bilateral or multilateral agreement with Ireland drafted for this purpose. In the absence of reciprocal arrangements, exequatur proceedings would take place before domestic courts. As a general rule, foreign judgments cannot be reviewed on the merits of the case, but the courts would deny admissibility where the foreign decision is neither final nor enforceable in the issuing country, deemed incompatible with Irish public policy or with decisions rendered by Irish courts, if the defendant has not benefited from a due process of law, etc.
Ireland is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, therefore its domestic courts ought to recognize and enforce awards rendered through international arbitration proceedings.
The primary legislation governing the law of corporate insolvency is contained in the Companies Acts, 1963 to 2006, and in the case of receivership, the Conveyancing and Law of Property Act 1881. Insolvency proceedings in Ireland take place before the High Court.
Restructuring the debt
Schemes of Arrangement are also considered under the Companies Act (Section 201), however it is necessary to obtain approval from a majority representing 75% in value of each class of creditor. This threshold is therefore constraining and the schemes are rarely used.
Winding up proceedings
During the liquidation phase, the liquidator may submit schemes of Arrangement in order to avoid liquidating a viable business. The various classes of creditors and shareholders must approve the proposals which must be confirmed by the court in order to become effective.
Receivership is a less constraining form of proceedings insofar as it only aims at realizing a specific part of the debt on the basis of a Deed of Debenture. A receiver is appointed to a company by either a debenture holder or the court to take control of the assets of a company with a view of ensuring the repayment of the debt owed to the debenture holder. Unlike a liquidator, a receiver would have no duty to realize enough assets to pay other unsecured creditors. Often, once a receiver is appointed and they have realized assets to recover the debt due to their creditor, there is little left and the company usually goes into liquidation.
Priority rules normally apply while distributing the proceeds to the creditors. Secured debts (procedural fees and expenses, charge holders, mortgage and debenture holders) would normally be repaid to creditors prior to preferential creditors (social insurance debts, taxes, employees claims and floating charge holders) and unsecured creditors who may thus never recover their debt. Indeed, there is usually very little (if anything) left to be shared among the unsecured creditors in proportion to their debts.
Creditors protected under a receivable Retention of Title provision would normally be considered as owning a priority right over the other creditors, but it should otherwise be noted that a party going to the trouble and expense of winding up the company gains no priority for its debt.