Debt collection in Southeast Asia

The latest SACE report on exports has emphasized the increase in trade between Italy and South East Asia. However, the progress of GDP in these countries also corresponds to the increase in insolvencies

The latest SACE report highlighted the increase in exports from Italy to the countries of South East Asia. However, the progress of GDP in these countries also corresponds to the increase in insolvencies.

Italian export is announced to be rosy for 2018; it will not be like the last year’s boom (+ 7.4%) but the future of Italian exports is positive, up by 5.8% at the end of 2018 and 4.5%, on average, over the next three years.

It is not a coincidence that “Keep calm and made in Italy” is the title of the last annual report on exports elaborated by SACE (which is a company part of  Cassa e depositi group) and SIMEST (a 76% subsidiary of SACE and owned by leading Italian banks and business associations) which was presented a few days ago – on 27 July 2018 – in Milan, Piazza Affari.

Despite the growing geopolitical and protectionist tensions, the Italian export scenario remains positive overall after the exploit of 2017 “- these are the words of the President of Sace, Beniamino Quintieri, at Sole 24 Ore.

But what is most surprising – continues Quintieri – is the double diversification of Italy which, on the one hand, is able to expand the destinations of Italian goods more than other European countries, on the other hand is able to widen the range of products appreciated across the border “.

In this way, in the last few years, we have grown more in some fields (such as Chemical, Pharmaceutical Industry) in which we traditionally are not specialize.

Furthermore, for the two-year period 2019-2021, in addition to the usual “leading countries“, new promising countries must be added. Therefore, not only the well-known giants, China and India, but also Indonesia, Malaysia, Thailand, Vietnam will see their GDP progress at a higher rate.  The growth we are talking about is wandering at around 5% with more business opportunities for Italian companies in these countries.

But how to deal with the risk of insolvencies?

Often the increase in the volume of business and GDP corresponds also to the increase in Insolvency. Therefore delays or lack of payment occur. Before proceeding with a legal action in these countries, the different legal rules must be taken into consideration and it is important to make use of the contractual clauses on the competent court in order to define the applicable law and to reduce the risk of litigation.

Briefly reviewing the most critical issues related to non-payment by suppliers in Asia (Indonesia, Malaysia, Thailand, Vietnam) but also Taiwan and Hong Kong, we can say that they are connected to the preventive control of the debtor and the contractual management of the conditions of payment.

The language barrier still represents a big obstacle for Italian companies – and foreign ones that very often do not manage to make a minimal check or comparison between the information made available by the Eastern buyer and the official ones – available at the local business register. For example, it is good to keep in mind that in China and Taiwan the official corporate name is registered only in ideograms.

Invenium – thanks to its well-established presence – uses legal partners in the Asian area as well as on-site correspondents. This allows to overcome the language barrier and facilitates to reach an agreement between the counterparts.

Mr. Mombelli argues that Debt collection in Indonesia, Malaysia, Thailand and Vietnam has always been a very delicate process and therefore should be managed by local professionals. The goal is to arrive at a transaction or a repayment plan, fearing the threat of legal action.

It is of fundamental importance then to identify the consistency of the debtor’s assets. A company with assets or potentially transferable assets or real estate is more likely to come to some form of conciliation.
The suggestion – to minimize risks – is to operate with solid counterparties with proven commercial and financial reliability, possibly with stable business relationships with other Italian suppliers. Reputational risk – present in these countries – represents another important negotiating lever.

So the compromise between the parties is always recommended after which the tendency is to proceed first with the extra-judicial approach.  Only in case of failure, the creditor can file a complaint with the court which, if deemed admissible, will be transmitted directly to the debtor.

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