Six Challenges For Starting Legal Proceedings in Latin America

140729.2 Six Challenges Legal Proceedings LATAMIn a globalizing world we do more international business than ever before. Economic growth takes place in what we used to call the developing countries.

Focusing on Latin America, countries like Brazil and Mexico, but in the last few years certainly also for example Colombia, Peru, Chile and Panama, have gone through significant growth periods attracting foreign businesses and investments.

But what if you are based in North America or Europe and you do volume business in one of these countries, or you closed a very important business deal, and your client is not paying? What if the deal is not covered under your credit insurance, your client passed through all internal due diligence and compliance procedures and know your client policies, and amicable debt collection and interferences of a debt collection agency, local representatives, or even a law firm do not result in payment of the outstanding debt?

Naturally the next step would be considering legal proceedings to rightfully enforce payment of the goods you delivered or the services you rendered.

You have to be aware though that legal proceedings in connection with debt collection in Latin America can be challenging.

Although each country has its own legal system and very particular local circumstances, and countries differ considerably one from another, I have defined what I feel can generally be considered as the Six Challenges For Starting Legal Proceedings in Latin America in connection with debt collection.

  1. Unknown territory

First of al, for many people outside Latin America, the territory is unknown. People do not know how the legal systems actually work. You may also not know where to start if you want to legally force your client to pay, and which company or firm to contract. Latin America sounds far away, your do not speak the language and you may not even know where you client is exactly based.

  1. Complicated legal systems

But even if you are familiar with the territory, often the legal systems are complicated enough to make legal proceedings far from straightforward. There can be various types of proceedings, several courts and local jurisdictions, and various stages and appeal procedures within legal proceedings.

  1. Substantial legal costs

Often legal proceedings are expensive. Minimum amounts for which it makes sense economically in the first place to start legal proceedings may be a lot higher than “back home” (although I realize here there is a big difference between for example the United States en many countries in Europe). And there may be certain costs you incur which you cannot claim back from the debtor.

  1. Inefficient legal system

Apart from complicated, legal systems tend to be, to say it in a politically correct way, inefficient. Although the law may be on your side, the way the “system” works in practice because of political or social reasons (I mention corruption, social disruption and foreign currency exchange restrictions as some obvious examples), can still make it a complicated job to actually enforce your rights to receive payment.

  1. Incompatibility

This is one we may not immediately think of, but which in practice often cause unpleasant surprises. The way you put together paperwork with your client, the way you invoiced or the jurisdiction your business deal is subject to, may not work legally in the country of your client and therefore turn out to be irrelevant. Or your invoices are by law expired and cannot be legally claimed anymore. You can have a brilliant lawyer on the case, but if your claim is incompatible with the system, there is little chance for success.

  1. Verdict may be unenforceable

Let’s say you decide to go legal, and you “survive” all five previous challenges. Then you might have to face a sixth hurdle. Because of the high level of “informality” in business (a lot of small companies with limited liability), no formally established company, businesses not properly registered or set up locally, inaccessibility of areas, untraceable business owners, lack of infrastructure, or no assets, the verdict you just obtained may in practice turn out to be unenforceable after all.

Summarizing, there are challenges for companies for starting legal proceedings in Latin America in connection with debt collection. I defined unknown territory, complicated legal systems, substantial legal costs, inefficient legal system, incompatibility and enforceability as the six main challenges.

It does not mean you should not start legal proceedings if the deal involved is economically worth it, and your files are up-to-date, and you have a budget available for proceedings; and, you are aware that patience is of the utmost importance. There are excellent lawyers who know the systems inside out, who can do a great job representing you and who can successfully collect your outstanding debts.

This post is just to give a very broad outline of the challenges foreign companies may face when they consider legal proceedings and it is not meant to generalize or simplify. I am aware that the challenges mentioned could also apply anywhere else in the world.

If you are interested in learning more on the subjects of legal proceedings or collections in general in Latin America please connect on Linked-In or follow me on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

2 thoughts on “Six Challenges For Starting Legal Proceedings in Latin America

  1. […] Important to make a strong case towards your debtor, and to show leverage to start legal actions in Mexico against your debtor to legally enforce payment of overdue invoices or a contractually agreed payment, is to have on file the documentation to support your claim in Mexico. Supporting documentation regarding the debt may consist of contracts, invoices, order forms, order confirmations, debt acknowledgement, and (email) correspondence about the outstanding invoices. Note: because of the complexity (or ineffectiveness, you may choose yourself how to define it properly!) and costs of legal proceedings in Mexico, it is highly unlikely you may ever end up suing a debtor in Mexico, unless you handle the file as a matter of principle and / or the claim is really – I mean, really – substantial; not just a couple of tens of thousands of dollars. Click on the following links for more info on legal in Mexico or Latin America. […]


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