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To what extent can collection costs be recovered from a debtor as damage?

To what extent can collection costs be recovered from a debtor as damage?

Posted by: Susanne Hermsen: German Desk, Corporate law

Just like in the Netherlands, German courts are also wrestling at the moment with the question of whether collection costs can be recovered from the debtor or not. A brief overview of the current state of affairs in Germany is given below.

Starting situation
If a debtor has defaulted on payment of an outstanding debt, the creditor may be able to recover the collection costs incurred for this debt (such as the costs of hiring a collection agency or lawyer) as damage from the debtor. This is only the case however, if, at the moment the collection agency, for instance, was hired, the creditor could regard this measure as an economically responsible and necessary measure. If the claim does not exist or the debtor contests the claim, the creditor may not regard the engagement of a collection agency as an appropriate and necessary measure, in which case the collection costs are not eligible for compensation.

Collection via a collection agency belonging to the company’s own group
The case law of the German Supreme Court serves as the starting point for assessing any compensation of collection costs incurred by a collection agency belonging to the company’s own group. Issuing demands to debtors is one of the duties of every creditor and the costs of this cannot be recovered from the debtor. Small and large creditors must furthermore be treated equally.

If a group of companies decides to set up its own collection agency in order to collect outstanding claims, these collection costs cannot be recovered from a debtor. This simply creates an ‘artificial loss item’. Otherwise, smaller companies, which cannot set up their own collection agency but which must themselves take care of collecting outstanding claims, often after working hours or on weekends, would suffer a disadvantage.

Engaging an independent collection agency
If an economically independent collection agency is engaged, a distinction is made according to the following situations:

a) The collection agency’s activities are successful (to some extent)
If the debtor makes payment (or partial payment), engaging the agency was an appropriate measure for the objective.
The creditor can demand compensation from the debtor for these collection activities. The law sets limits for the height of this compensation. Other necessary services can also be charged (such as: address identification, credit check, visit to the debtor). A success fee should not be paid by the debtor however.

b) The collection agency’s activities are not successful and a lawyer is subsequently commissioned to conduct a lawsuit
In the case cited here, the creditor can demand that the debtor pay half of the collection costs eligible for compensation in the event of successful engagement of a collection agency (see above).

c) The collection agency’s activities are not successful and no lawyer is subsequently engaged
In this case the collection costs are eligible for compensation if, in their ex ante view on grounds of the specific circumstances of the collection agency’s activity, the creditors could have assumed that the collection agency would have been more successful than a lawyer. For commercial debtors, this question can be answered in the affirmative significantly more frequently than for claims in respect of consumers. The amount of the collection costs that are eligible for compensation is limited, however, to the compensation cited in a).

Outlook
The problems ascertained in practice in Germany have given politicians a wake-up call. Various corrective measures are being discussed in politics at the moment, such as:

• Introduction of supervision;

• Introduction of fixed collection costs;

• Information obligations on the part of a collection agency towards the consumer;

• Organisational change in the order for payment procedure

We will have to wait and see which of these measures will be implemented in practice.

 

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