Peru collection profile

Financial information is very limited in Perú. Companies and entities that at the end of a fiscal year exceed certain thresholds of sales or assets (greater than 30,000 UIT) 39M Euro, are required to submit their audited financial statements to the SMV. Whish is a small part of the country market.

The main types of corporations in Peru include:

• Public Limited Company (S.A.) is characterized by limited liability of partners based on the capital contributed, the division of capital into shares, and the free transfer of these shares. These companies can be open or closed. Closed companies have a small number of shareholders (2 to 20), and the shares are not traded on the stock exchange. They are ideal for family-owned or small and medium-sized businesses, offering a more informal and flexible structure. Open companies can be purchased by anyone, allowing public access to the capital market for financing.
• Limited Liability Company (LLC) has between 2 and 20 partners. Each partner's liability is limited to their contributions, without compromising their personal assets. Capital is divided into shares, not stock, and characterized by having a single owner, who is responsible for the business without the need for partners. The owner's personal assets are separate from those of the business, and there is no minimum share of capital required for incorporation. 
• Limited partnerships are characterized by the existence of two types of partners: general partners, who manage the business and have unlimited and joint liability for the company's debts, and limited partners, who contribute capital and have liability limited to their contributions.

There is no law that allows the debtor to be charged a collection management fee, unless there is a prior stipulation in the purchase agreement.

Article 1123 of the Peruvian Civil Code establishes the right ownership protection of an asset to retain it until the debtor pays the obligation, considered as a guarantee of payment and a legitimate pressure mechanism

In Peru, Supreme Decree No. 011-2003-PCM, which regulates Law No. 27598, governs the collection methods used by both external and internal debt collection companies. It prohibits abusive tactics and establishes time and communication limits. It only allows to call the debtor between 7am to 8pm during weekdays. For collections between companies, the provisions of the Civil Code apply, which define judicial and extrajudicial procedures for the collection of commercial debts, as well as the statute of limitations on debts.

It is important to conduct an amicable settlement before formal proceedings. It is important to clarify that it is actually mandatory (under Law 26872) to conduct conciliation or mediation hearings before commencing formal proceedings in ordinary processes, however, it is not compulsory in executive processes.

Before starting legal proceedings against a debtor, in addition, assessment of their solvency and assets is essential as it allows verification as to whether the company is still active and whether recovery chances are at best: if insolvency proceedings have been initiated, indeed, it often becomes impossible to enforce a debt. 

It is worth noting that most conciliations are agreed before the matter goes to court as an attorney will look to resolve the matter in conciliation or arbitration centres. Procedural costs and delays are very high, so court proceedings should be avoided overall. 

The Peruvian Civil Procedure Code, established by Decree 768 of 1992, regulates civil judicial proceedings, including ordinary and executive proceedings.

The legal process to follow will depend on the documents supporting the debt.

If you have a promissory note, bill of exchange, check, or some other type of security, you can initiate a legal enforcement process, which allows for preliminary seizure measures. Initially, the existence of the debt does not require proof. This process can take approximately 6 to 8 years to enforce the debt.

In Peru, most commercial relationships are based on invoices, a document that does not constitute a security. Therefore, the process to be initiated is an ordinary process, which is preceded by conciliation. Additional supporting documents must be provided from the outset. Preventive seizures are not permitted. The process has an estimated duration of 10 years.

As a general rule, claims must be brought within specific periods of time which vary depending on the subject matter. Ordinary proceedings must be brought within ten years, debt-related claims within five years (three years for negotiable instruments). Courts have no authority to alter time limitations which are considered a matter of substantive law, but cases are rarely dismissed due to time limitation issues.

• Original invoices (for executive processes)/copies of invoices (for ordinary processes)
• Promissory notes
• Detailed account status
• General information about debtor 
• Power of attorney
• Bill of exchange 

If the debt is recovered through foreclosure proceedings, it is possible to request prior seizure measures against the debtor's assets. If it is through ordinary proceedings, this measure is not possible, as a court ruling declaring the existence and enforceability of the debt must first be obtained. 

The parties may lodge an appeal within three days of service. Decisions rendered in the first instance are brought before the judge, and if there´s a second instance it is brought before Supreme Courts. Arbitration awards are not subject to appeal.

Legal proceedings in Perú are generally public, and a third party can access basic information about the case. However, access to the file with the detailed proceedings is only possible for those involved in the process.

As previously mentioned, use of Alternative Dispute Resolution methods has increased over the last few years following the introduction of mandatory conciliation proceedings as a prerequisite to bringing a claim before the courts (Law 26872) in ordinary proceedings. The settlement agreements achieved through this phase are binding and enforceable as final judgments. Nevertheless, in executive processes, conciliation before legal action is not mandatory. In order to streamline the procedure, original documents are obtained to insure the seizure and collect directly.

In addition, domestic or international arbitration proceedings provide for confidential settlement opportunities while arbitral awards are final and enforceable. Though arbitrators are entitled to grant interim relief, ADR methods have shown no monetary benefit because they are expensive and often do not resolve the conflict. If legal action is subsequently taken, proceedings are influenced by issues resolved during the arbitration.

In Perú, there are alternative methods of conflict resolution, such as conciliation, and arbitration.

Conciliation: The parties appear before an impartial, neutral, and qualified third party called a conciliator, who manages the differences between them and invites them to reach a conciliatory agreement. If possible, this agreement is binding on the parties and provides enforceability. 

Arbitration: The parties submit their dispute to an impartial and qualified third party, who will issue a decision that is binding on the parties and will result in a court ruling. This process, due to its specialized nature, is very costly.

In Peru, parties located in Peruvian territory may agree to apply the law of another country to their contracts, provided this agreement does not contravene Peruvian public policy. This ability to choose is based on the principle of free will and is a common practice in both national and international contract law. 

In Peru the law does not allow the parties of a contract to limit or waive the jurisdiction of Peruvian courts through foreign jurisdiction clauses.

A judgment is enforceable as soon as it becomes final (i.e. when all appeal venues have been exhausted) in ordinary processes. Usually, compulsory enforcement would occur through the seizure and auctioning of the debtor’s assets at the beginning of the executive process, since security titles and original invoices have been obtained.

It may take five years to obtain a first instance ruling while a full disputed lawsuit could spread over 10 years in ordinary processes, although in executive processes the lawsuit could take at least five years.

In principle, domestic courts would take longer to deal with cases involving a foreign party (since the originals would not be available) than to deal with cases involving domestic parties only. In practice, some extra delays would nonetheless occur depending on the complexity of each case.

Although foreign decisions against Peruvian debtors aiming at bypassing the authority of Peruvian courts would not be enforced in Perú (except in case of arbitration), domestic courts would normally enforce foreign judgments provided that they have been recognized by the Supreme Court of Justice, through an exequatur procedure, as having the value of a local judgment (Article 2104 of the Peru civil Code).

The court would typically verify whether the foreign award is final and enforceable in the issuing country and whether the foreign court was seized with a matter normally falling under the exclusive jurisdiction of local courts. It would also verify that the foreign decision was rendered without fraud while providing the parties with a due process of law. Of course, the foreign decision must be compatible with Peruvian public policy.  Once exequatur is granted, the interested party may commence execution proceedings before a lower court.

Bankruptcy law in Peru is regulated by Law 27809 of 2002 and can be filed by either the debtor or a plurality of creditors.

There are two types of bankruptcy proceedings: 1. Ordinary proceedings, which involve the restructuring or liquidation of the company, and the creditors' meeting decides on the future of the company and its assets. This is caused by arrears with creditors exceeding 50 UTI (approximately 65,000 euros) and by defaults with creditors. 2. Preventive proceedings, which seek to facilitate agreements between debtor and creditors before the debtor's situation becomes irreversible.

Both proceedings are conducted before Indecopi, the state entity responsible for administering and supervising bankruptcy proceedings. In both processes, the creditor is required to submit the necessary documentation and information to obtain recognition of the claim within the bankruptcy proceedings.

Priority is always given to labor followed by secured, tax debt, and other claims. Art. 42 Law 27809 de 2002.

The bankruptcy proceedings law establishes, from the moment of the application for admission, that the debtor is prohibited from making payments, offsets, transactions, agreements, among others, regarding outstanding credits until the time of admission. This results in penalties for both the creditor and the debtor.

Although it is difficult to estimate the average duration of a bankruptcy proceeding, given that it depends on cash flow, the general rule is that it takes around 8 to 10 years to comply with restructuring agreements.

There is no cost to the creditor to become part of the process; however, since this is a specialized process, it is recommended that a lawyer be hired to understand the subject matter, which incurs costs.