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Last year, the number of small claims proceedings rose by 16.7% to reach 657,057

Mar, 08/04/2015 - 00:00

EAE Business School has presented its report entitled “Analysis of the small claims process 2015”, a study of the efficiency of the small claims procedure for recovering unpaid debts. The aim of this report is to ascertain the effectiveness of the small claims process in the current business context for recovering financial debts or, in other words, for obtaining a sum that is owed when payments due from a debtor are not received by a creditor.

General conclusions from the research include the fact that claims for debt recovery after non-payment of amounts due rose by 16.7% in the last year, with a total of 657,057 small claims procedures being started in 2014. Moreover, the report highlights the fact that only 7.3% of these claims ended with the amount claimed by the creditor being paid. Meanwhile, 47% of the initial applications for small claims proceedings were not admitted to hearing by the Court Clerk.

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EFFECTIVENESS OF THE SMALL CLAIMS PROCESS FOR DEBT RECOVERY

According to the report by EAE Business School, small claims proceedings currently account for 38% of all civil cases brought to court, based on judicial statistics. In 2013, there were 563,176 small claims lodged, while the number of initial applications for small claims proceedings rose by 16.7% in 2014 to reach 657,057. Furthermore, in the first quarter of 2015, 166,433 initial applications for small claims proceedings were lodged, representing a drop of 2.7% in comparison to the same period in 2014.

EAE’s report shows that, of all of the small claims proceedings started against debtors in 2014, only 7.3% ended with the total amount claimed being paid by the debtor, with 37.4% of cases ending with an enforcement ruling against the defendant and only 6.6% of small claims proceedings leading to oral proceedings. In 2014, there were 252,574 small claims cases admitted to hearing, equivalent to 42.1% of all of the applications lodged. A total of 47% of the initial applications for small claims proceedings were not admitted to hearing by the Court Clerk. In other words, if almost half of small claims proceedings are not admitted to the process, this legal channel is not very effective in terms of recovering debts.

Over the last twelve years, the percentage of proceedings that ended with the direct payment by the debtor has remained stable at about 7% of all of the applications lodged with courts. Meanwhile, the proportion of cases not admitted to proceedings almost doubled between 2003 and 2010. In recent years, it has remained above 43%.

Terminación de los procesos monitorios por pago e inadmisión 2003-2014

PROS AND CONS OF THE SMALL CLAIMS PROCESS

EAE Business School’s report also highlights the main pros and cons of these small claims proceedings. On the plus side, the study underlines the fact that it is a relatively and smooth process in terms of legal proceedings. Secondly, the process is deemed to achieve an acceptable level of payment recovery (in certain sectors more than others) after enforcement rulings from the courts, either with the debtor consigning the amount claimed through the court or finally deciding to make direct payment to the creditor. The third positive aspect of the system is that, if no opposition is lodged by the debtor within 20 days, the Court Clerk rules that the small claims procedure is terminated and serves notice to the creditor to enable enforcement simply on request. Fourthly, in the case of small claims proceedings being started for amounts less than 6,000 euros, in the event that the debtor lives in another judicial district, if there is no opposition lodged by the debtor, the creditor avoids having to travel to another city and appear at the hearing. The fifth positive aspect is that, in the event of opposition from the debtor in claims for amounts less than 6,000 euros, the case is heard in oral proceedings, which enables a relatively speedy procedure. Lastly, in the event of opposition, in the statement submitted to the court for the opposition to take effect, the debtor must indicate the reasons they do not believe that they owe the amount claimed, which is an advantage for the creditor in comparison to statements in oral proceedings, as they have the opportunity to prepare for the oral hearing if they know the reasons for opposition and bring any evidence or witnesses that they consider necessary to prove their credit right.

The key shortcomings of the system include the speed with which cases are closed if the debtor cannot be located, and termination of the process if the debtor’s address provided by the creditor is wrong or even if the debtor changes address during the proceedings. Another significant issue relates to opposition from the debtor, as they only need to appear in court and claim any cause for exemption in avoid the Court ordering enforcement and lead to the full proceedings of the case corresponding to the amount of the debt that the creditor wishes to recover.

“One of the dilemmas that face the creditor is whether or not it is a good idea to lodge a legal claim against a bad debtor who has refused to reach a reasonable agreement for payment conditions and is trying to avoid their obligations. For decades, using legal proceedings to recover unpaid debts was the last resort of company’s seeking payment and clients who deserved such measures were not always pursued due to reasons of time and cost. However, many creditors still feel that this bad deal principle still applies today in view of the fact that, despite reforms in the legislation in recent years to provide better protection for the credit rights of creditors, the efficacy of legal channels is shown to be severely lacking, according to the report. As such, the effectiveness of a small claims process for recovering financial debts (that the bad debtor pays after a court ruling to this effect) has decreased significantly since the start of the economic crisis.As a result, before resorting to legal proceedings, creditors must investigate other options for recovering unpaid debts that are more successful and profitable in the medium term”, concludes Pere Brachfield, Director of EAE Business School’s Centre of Studies into Payment Delinquency.

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