In recent years, the debt collection market in Armenia has become more active. The process has nothing to do with "mafioso" collectors that we usually see in Hollywood or Russian movie. Instead there are law firms in Armenia offering, among others, debt collection services.

How is debt collection carried outin the Armenian market? Is debt collection deemed legally legitimate Aram Orbelyan, Senior Partner, Attorney, Concern-Dialog law firm, featured answers to these questions in his interview to Banks.am.           
    
Market Development in Armenia

The debt collection market in Armenia started to develop in 2010-2011. Before, a number of organizations had already tried to consider the option of selling their debt or transferring it to some collection service.
There are organizations in the world that also purchase debts. For instance, they purchase the debt of 1 million AMD at 500 thousand AMD and their further profits depend on the progress in the case. This sale system seemed to have failed in Armenia; whereas, it cannot be excluded that a few such cases occurred. Instead, the service market started developing and stimulated the debt collection process. In fact, these services are used by telecommunication companies, banks, universal credit organizations and theoretically may be also used by other public service providers.


No collectors from the movies in Armenia

We have no traditional collectors that you can see on TV and in Russian criminal movies when they inscribe “thief” or “robber” on the debtor’s front door or break their windows or disturb their neighbors. There have been some cases, when people were disturbed for their debts by the use of non-legal tools, among others; e.g. they tried to frighten the debtors through so-called local criminal authorities. As such, this constitutes a crime, and it was not widespread.

The debt collection practices are as old as the concept of debt. As many as 3000 years ago, in Sumerian times, if a debtor did not pay his debts, the entire family found themselves in a so-called debt slavery as long as the debt was not paid. In the Middle Ages, slavery was replaced by imprisonment. In the 1800s, the practices of imprisonment for debts was wiped out and if the debt was not secured by any collateral, creditors found debt collection very problematic.

Therefore, debt collecting organizations, commonly known as collectors, emerged. In some cases, such agencies were entities run by the very creditors, but they proved to be not so effective. It turned out that it was more effective to apply to an independent agency that could work either for a fee or for some share of the collected amount. In fact, collectors act as intermediaries between debtors and creditors.

Currently, there are available…
    
Today, there are already specialized debt collection organizations in the market. In addition, there are organizations similar to ours that provide both classical advocacy and debt collection services.
Our main clients are banks and other financial institutions. As a rule, they have their own legal department that manages debt collection. That’s why such companies usually turn to debt collecting organizations when they face non-proportional debt increase or when they just do not wish to spend more resources on this process. The advantage of Concern Dialogue is that the debt collection process is clearly defined and described, and its different stages are carried out by different links of the team.

How does it work?

Generally, creditors address us 30-60-90 days after expiry of the agreed deadline for the outstanding debt. Creditors do not pay anything to us while we take required actions to return their debt (negotiate with the debtor, draft and file a claim to the court and even at the stage of trial proceedings and enforcement of the judicial act). Our organization gets its payment only after some amount is returned and deposited on the creditor's bank account. For instance, even if we win the case but the company has no funds to pay back (and we have faced such a case), we get nothing.

Companies pay us at the designated percentage rate of the received amount as per arrangement and relevant contract and this rate may vary from case to case depending on the debt amount and our preliminary estimate of its possible return as well as preestimated costs of the operations.   Typically, the average rate for small debts is 15-20%, assuming that the law firm will receive a maximum of 20.000 AMD from a debt of 100.000 AMD, a fairly small amount taking into account the large-scale activities taken to collect it.

Private practices

Since 2011, Concern-Dialog law firm has processed over 90.000 debt collection cases of various big and small companies. In most of such cases, we requested the court to issue a payment order or filed a legal action. Our first experience was collection of Orange Armenia telecommunication company’s debts and later we expanded our activities. In general, large-scale debt collection issues arise in credit organizations, banks, telecommunications and communication operators, other public service providers, condominiums, etc.

We developed intensively the reconciliation practices. It’s not all about grabbing and selling some stuff and ultimately, we prefer to bring people to a stage when they pay their debts voluntarily. We have a special team that negotiates for reconciliation at all the stages, up to the stage of enforcement and auction. The factor of luck is also important: you must "catch" the person at the time they have money at hand, so that they pay our client’s debt first.

Legal aspect

Debt collection is not separately regulated by law and we perceive it as a common legal service. In any common legal service, we keep trying to reconcile, we keep negotiating and convincing. The difference is that in debt collection, our actions are automated to the extent possible; we worked out an effective system under which our actions are divided into specific steps Sequence of such steps is determined and various specialists get relevant assignments. Of course, we take an individual approach, if necessary.

The pricing principle also differs. Unlike common advocacy services when we get our service fee regardless of the final outcome, in this case the payment directly depends on the end result. Today, 50-60% of the cases examined in courts refer to debt repayment issue, while a few years ago this rate was considerably smaller.

Interviewer: Amaly Khachatryan