Credit Insurance Claims Management & Recovery … Management...Saudi Arabia Indefinite Recent...

Credit Insurance Claims Management & Recovery Services

Claims Management & Recovery Strategies

Aman Union 5th Annual Meeting

11 November 2014

Outline

• Our History & Network.

• Claims Management & Recovery Defined.

• Claims Management.

• Recovery Strategies.

– Amicable Recovery.

– Formal Recovery.

• Challenges Facing Formal Recovery.

• Recommendations.

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History and Network

More than 30 years experience in international debt collection.

Our History Spain and Portugal

1980

1978

Founded

First collection in Italy

1983

Belgium, England and France

Scandinavia

Western Europe

Southern Europe

1990

1999

Eastern Europe

Europe

Latin America

China

2012

2011

Middle East

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Iran & Arab World Country Coverage

• Morocco • Algeria • Tunisia • Libya

• Saudi Arabia • Yemen • Oman • United Arab Emirates

• Egypt • Sudan • Jordan • Lebanon

• Kuwait • Bahrain • Qatar

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Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

England

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Malta

the Netherlands

Norway

Poland

Portugal

Romania

Russia

Slovenia

Spain

Sweden

Switzerland

Ukraine

European Office & Coverage

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Argentina

Brazil

Chile

Colombia

Costa Rica

Dominican Republic

Ecuador

El Salvador

Guatemala

Honduras

Jamaica

Mexico

Nicaragua

Panama

Paraguay

Peru

Trinidad & Tobago

Uruguay

Venezuela

Latin American Office & Coverage

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CLAIMS MANAGEMENT & RECOVERY

Claims Management vs Claims Recovery

Claims Management

• Wider scope, duration, and more

phases.

• Requires administrative skills.

• Requires credit insurance

knowledge.

Claims Recovery

• Focused on loss prevention or

recovery.

• Requires negotiation and

commercial skills.

• Requires legal knowledge and

knowledge of debtor’s industry.

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Scopes of Claims Management & Recovery

Pre-Indemnification Period

Scope of Claims Recovery (duration measured in years)

Internal Activities within the Insurer Activities of External Recovery Agency

Claim Analysis & Investigation 30+ Days

Internal Recovery Attempts

External Recovery Attempts

Claim Filed

90+ Days from default.

Commencement of Recovery Activities

120+ Days from default.

Appointment of External Agency

150+ Days from default.

Scope of Claims Management (Duration measured in many years)

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Scope of Claims Management

Claims is either collected, settled, or closed without recovery.

Closure

Litigation / Arbitration typically outsourced to external recovery agencies and / or law firms.

Formal Action

Recovery teams, or external recovery agencies attempt amicable recovery.

External recovery agencies are typically appointed at some stage in this process.

Amicable Recovery Attempts

Claims Management Department, Recovery Teams, and external recovery agencies validate the claim.

Some assistance from external agencies is sought.

Claim Investigation

Claims Management Department analyse claim and check compliance with policy.

External agencies not typically engaged in this process.

Claim Analysis

Debtor no longer covered by insurance policy.

PH faces the risk of uninsured debt arising during this period.

Claim Filing Period

Transactions preceding filing of claim.

Little active involvement of ECA.

Requirement of policyholders to periodically report their sales.

Pre-Claim Default

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Scope of Claims Recovery

Claims is either collected, settled, or closed without recovery.

Closure

Litigation / Arbitration typically outsourced to external recovery agencies and / or law firms.

Formal Action

Recovery teams, or external recovery agencies attempt amicable recovery.

External recovery agencies are typically appointed at some stage in this process.

Amicable Recovery Attempts

Claims Management Department, Recovery Teams, and external recovery agencies validate the claim.

Some assistance from external agencies is sought.

Claim Investigation

Claims Management Department analyse claim and check compliance with policy.

External agencies not typically engaged in this process.

Claim Analysis

Debtor no longer covered by insurance policy.

PH faces the risk of uninsured debt arising during this period.

Claim Filing Period

Transactions preceding filing of claim.

Little active involvement of ECA.

Pre-Claim Default

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CLAIMS MANAGEMENT STRATEGIES General Overview of

Individual Claim Management

Gathering Claim Information Decision

• Determination of claim admissibility / eligibility for indemnification.

• Gathering sufficient evidence of disputes / non-performance to present policyholders.

• Loss Adjusting / adjustment of claim amounts in light of partial disputes / non-performance.

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Claims Portfolio Management

Portfolio Management Policies

Quarterly Management

Reports on all claims we are handling

Claim Management

Claim Manager / Handler

Actions Taken Recommended

Strategy and / or Legal Advice

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Claims Management Challenges

• Policyholder risks and challenges.

– Pre-indemnification challenges.

• Slow or no provision of accurate and timely information, lack of documentation.

• Claim information is passed from the credit control / accounting departments; not the

sales departments.

• Accuracy of claims and eligibility for indemnification (Moral hazard).

– Post-indemnification challenges.

• Slow responses / lack of cooperation (morale hazard).

• Provision of important documents (PoA, original transaction documents).

• Resumption of business / compromising insurer’s position.

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Claims Management Risks

• Lengthy internal procedures delaying recovery activities.

• Statutes of limitations barring formal action against the debtor.

• Non-compliance with formal / procedural requirements in debtors’ jurisdictions.

– Non-compliance with local requirements for debt assignment or subrogation to the

insurer.

– Non-compliance with local requirements for noting / protestation of bills of exchange.

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RECOVERY STRATEGIES General overview.

Evolution in Trade & Investment Landscapes

Traditional Landscape

• Localized businesses.

• Homogeneous / local culture.

• Immobile and attached to local

resources.

• Limited number of chances to re-

start business.

New Landscape

• Globally integrated.

• Multi-cultured.

• Highly mobile with access to

multiple streams of resources.

• Unlimited number of chances to re-

start business.

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Evolution of Recovery Strategies

Traditional Approach

• Follow strict procedures and timelines.

– Dunning letters & reminders.

• Threats of legal action.

• Little to no regard for reasons for non-payment.

• “All or nothing” / single solution approach.

• Recovery activities are part of the debtor’s problems.

New Approach

• Follow strict timelines but with malleable procedures.

• Introduces legal action as a possible outcome.

• Primary interest in reasons for non-payment.

• Exploring multiple feasible solutions.

• Recovery activities are part of the debtor’s solution.

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AMICABLE RECOVERY

The Debtor – Friend or Foe?

• The debtor’s cooperation is critical for successful amicable recovery.

• The dynamic between the collector and the debtor is the key determinant of success.

• Solution orientation is key to successful amicable recovery.

• Win-win outcomes are generally possible.

• Clear communication to debtors about the benefits of cooperating is required.

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Priorities & Solutions During Amicable Recovery

• Debt restructuring.

– For short-term transaction, restructuring is generally from short-term unsecured debt to

medium-term debt.

– Collateralization.

– Repayment plans.

• Legal restructuring.

– Change of creditors from policyholder to insurer.

– Change of jurisdiction.

– Seeking joint or separate guarantors.

• Controlled resumption of business with the policyholder with debt recycling as an option.

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Important Considerations for Amicable Recovery

• Frequent and regular face-to-face visits to debtors.

• Close monitoring of debtors’ industry, and country risk.

• Close monitoring of debtors’ activities, registration renewals, etc.

• Clear and open communication with the debtor to ensure compliance with restructured

agreements.

• Familiarity with local statutes (esp. statutes of limitation) to evaluate our position.

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FORMAL ACTION Overview of

“A bad settlement is better than a good court case”

• Formal action is always a last resort.

• Formal action is a pressure mechanism and not a means to an end.

• Formal action is expensive, unpredictable, and not always enforceable.

• All parties lose control during formal action.

• Communication and settlement attempts must continue.

• Settle (if possible) at the earliest reasonable opportunity.

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Formal Action Landscape

Litigation

National Laws Int. & Regional

Conventions

Arbitration

1958 NYC Lex Loci Arbitri (National Arb.

Laws) ICSID BIT

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NATIONAL COURTS Litigation in the Iran & the Arab World

Procedures Available in Most National Courts

• The commercial legislations in Iran as well as most Arab jurisdictions are

comparable.

• Three stage court systems are present in most (but not all) jurisdictions.

• The following procedures are generally available.

– Prejudgment attachments, injunctions / summary proceedings.

– Bankruptcy procedures exist and occasionally effective.

– Enforcement procedures are managed and implemented through independent departments /

courts.

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Specialised Provisions of Law, Procedures, & Regulations

• Laws concerning commercial papers.

– Bank cheques.

– Bills of Exchange in national laws and UN Convention.

• Retention of Title clauses and relevant provisions in national laws.

• Recognition and application of standardized international contract types in

national laws (INCOTERMS).

• Application of banking standards (UCP 600 / URC 522).

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Statutes of Limitations (General Commercial Claims) Jurisdiction Duration from Due Date Statues Algeria 15 Years Civil Law Undefined in Commercial Law, resort to Civil Law.

Bahrain 10 Years Art. 87 Commercial Law No. 7 of 1987

Egypt 7 Years Art. 68 Commercial Law No. 17 of 1999

Jordan 10 Years Art. 58 Commercial Law 1999

Iran Indefinite. Statutes of limitations are not applied.

Kuwait 10 Years Art. 118 Commercial Law No. 68 of 1980

Lebanon 10 Years Art. 262 Decree 304 of 1942 Re. General Commerce & Companies.

Libya 15 Years Civil Law Undefined in Commercial Law, resort to Civil Law.

Morocco 5 Years Art. 5 Commercial Law

Oman 10 Years Art. 92 Commercial Law 55 of 1990

Qatar 10 Years Art. 87 Commercial Law No. 27 of 2006

Saudi Arabia Indefinite Recent developments towards civil law introduced some time limitations.

Syria 10 Years Art. 115.1 Law No. 33 of 2007 - Commercial Law

Tunisia 15 Years Undefined in Com. Law resort to Art. 402 Obligations and Contracts Gazette

UAE 10 Years Art. 95 Commercial Transactions Law No. 18 of 1993

[1] Egypt is a signatory of the UNCITRAL 1974 Convention on the Limitation Period in the International Sale of Goods. Little precedence is found where use of this convention was made, however it is worth noting that it can limit the period to four years under certain circumstances.

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Other Relevant Statutes of Limitations

• Actions to enforce Commercial Papers is mostly barred at 3 years from due date.

• Actions related to quality / performance claims are mostly barred at 6 months from delivery or

presumed knowledge.

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TREATIES & CONVENTIONS

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UNCITRAL CISG (Vienna Convention)

Member Countries

Bahrain

Egypt

Iraq

Lebanon

Mauritania

Turkey

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Arab Convention on Judicial Cooperation

(Riyadh Convention 1983)

Member Countries

Iraq

Yemen

Sudan

Mauritania

Syria

Somalia

Tunis

Jordan

Morocco

Libya

UAE

Oman

Bahrain

Saudi Arabia

Algeria

Palestine 36

Hague Convention 1979

Member Countries

Kuwait

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INTERNATIONAL COMMERCIAL ARBITRATION Recognition and Enforcement of Foreign Arbitral Awards in Iran & Arab Countries

International Commercial Arbitration in the Arab World

• Domestic and International Arbitration are effective in Iran and Arab Countries.

• International Commercial Arbitration with sovereign entities (ministries, some government

owned companies) require special authorization in Syria, Saudi Arabia, and Iran.

• Good planning and preparation for the enforcement of default awards is required.

• Many respondents prefer not to participate in the arbitration resulting in default awards.

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Arbitral Award

Recognition Proceedings

Enforceable ruling

• Direct enforcement of domestic or foreign

arbitral awards is not possible in Iran or any

Arab country.

• Substantive requirements for recognition of

foreign awards are regulated by the 1958 NY

Convention in Iran and most Arab countries.

• Procedural requirements for recognition of

1958 NYC awards are regulated by domestic

procedural laws.

• Variation of recognition procedures exists in

Iran and Arab Countries.

• Only six countries have adopted the

UNCITRAL Model Arbitration Law.

Recognition & Enforcement of Arbitral Awards

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1958 NY Convention Countries

Member Countries

Bahrain*

Egypt*

Tunisia*

Saudi Arabia*

Oman*

Jordan*

Morocco

Lebanon

Qatar

Kuwait

Mauritania

Algeria

Syria

UAE

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Arab Convention on Commercial Arbitration

(Amman Convention 1987)

Member Countries

Jordan

Tunisia

Algeria

Djibouti

Sudan

Syria

Iraq

Palestine

Lebanon

Libya

Morocco

Mauritania

Yemen

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Challenges Related to International Commercial Arbitration

• National courts relatively hostile / uncooperative with arbitration.

– A number of high profile negative court decisions impacted credibility in the effectiveness of arbitration in the region.

• Length of ratification procedures is comparable to litigating substantive claims.

– Speed as a key benefit to arbitration is negatively impacted.

• Relatively large amount of defective arbitration agreements.

• Procedural errors increasing the risk of successful challenge to awards.

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SOVEREIGN DEBT & INVESTMENT CLAIMS RECOVERY

Investment Dispute Resolution – Medium Term Claims Recovery

Investment Claims

• Investment claims benefit from a wider set of national legislations and

international treaties that offer better protection.

• The nature of the transaction determines whether it is an “investment”

transaction.

– Movable or immovable property.

– Rights to returns from investments in financial instruments or loans.

– Intellectual property rights.

– …etc.

• Investment transactions are not necessarily large in monetary value,

• Investment transactions tend to be medium to long term (2+ yrs.).

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Sovereign Liability or Debt

• Claims against a sovereign can arise through direct or indirect transactions

between the insured and the sovereign.

• Direct transactions entail direct supplies to sovereign buyers (including

sovereign controlled corporations) .

• Sovereign liability is more likely to arise out of sovereign guarantees, or

breaches / changes in the investment environment.

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Investment Dispute Resolution

• Various conventions, bilateral / multilateral investment treaties, and national investment

promotion laws offer dispute resolution mechanism.

• Arbitration and national courts are generally available for dispute resolution.

• The type of investment determines the jurisdiction and applicable treaties.

• International Center for the Settlement of Investment Disputes (Washington Convention

1965) and Multilateral Investment Guarantee Agency are World Bank initiates to promote

investments and settle associated disputes.

• Non-compliance with ICSID awards is a breach of a World Bank mandate.

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1965 Washington Convention (ICSID)

Member Countries

Bahrain

Egypt

Tunisia

Saudi Arabia

Oman

Jordan

Morocco

Lebanon

Qatar

Kuwait

Mauritania

Algeria

Syria

UAE

Sudan

Somalia

Yemen 48

CONCLUSION & RECOMMENDATIONS

Recommendations for Claims Management

• Ensure that you and the policyholder comply with formal requirements :

– Protesting / noting bills of exchange.

– Proper serving of notices of assignment.

• Gather all transaction documents and a power of attorney from the policyholder before

indemnification.

• Take note key statutes of limitations and ensure that time is carefully managed.

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Recommendation for Claims Recovery

• Recommendations for amicable recovery.

– Establish face-to-face contact with the debtor as fast as possible.

– Work towards win-win solutions.

– Closely monitor the debtor’s industry and their individual situation.

• Recommendations for formal recovery.

– Carefully explore applicable judicial cooperation conventions or investment treaties; often

they are more efficient than national laws.

– Carefully plan for enforcement before commencing any formal action.

– Consider formal recovery as a last resort.

– Maintain contact with the debtor during formal recovery.

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Thank you

Ahmed Madkour

a.Madkour@recoveryadvisers.com