Thy neighbour's capital

One of the major problems facing businesses is that linked to the non-payment of debts. Amendments introduced to the Code of Organisation and Civil Procedure have changed the trend. Previously it paid debtors to delay payments due. It was a popular belief to hold back from resorting to the law courts because of the well-known bureaucratic delays those seeking justice had to endure to recover monies owed to them.

Debtors could hold their creditors to ransom because lawsuits took a long time to be decided. A sense of frustration had been building up over the years. Many businessmen preferred avoiding lawyers' advice and recourse to the law courts because it was an exercise in futility and interminably long winded. Obviously this led to the common belief that one could build a business off another's credit simply by delaying payments for years on end. A kind of "thou shalt run your business on they neighbour's credit".

One of the objectives the Ministry of Justice and Home Affairs set itself to achieve during the last two years was to change this unfair practice and take it to a diametrically opposite direction. This has been achieved through introducing new, speedier and cheaper procedures to creditors in certain specific areas; primarily, a fast track to bills of exchange and debts below the amount of Lm5,000. The government has introduced a procedure through which these debts can be easily collected.

Instead of the expense, complication and time-consuming and long-winded processes which lawsuits of this nature seem to generate, creditors now have at their disposal the option to use the simpler executive judicial letter (EJL). In the case of bills of exchange, the procedure is that if an EJL has been filed, notified to the debtor and payment not effected within two days, the EJL would be considered as an executive title. A similar procedure has been introduced for debts under Lm5,000 with the difference that if the debtor does not object to the EJL within 30 days of being notified this will also constitute an executive title.

An executive title, that costs only Lm10, has the advantage that it grants the same rights one obtains as a result of a court judgment: executive warrants including the registering of legal hypothecs. These procedures have proved to be quite popular and have been put to good use. Last year, 972 EJLs for bills of exchange were issued. The highest amount claimed in one single case was of Lm150,000. Incidentally, 1,429 EJLs for amounts below Lm5,000 were issued; thus most of these creditors have been granted an executive title equal in force to a court judgment within two months. This is in sharp contrast to the situation that prevailed just a few years ago when the minimum wait for the settlement of such cases was of 12 months.

These procedures had been the subject of strong criticism. However, present day experience is sufficient proof that the change has been beneficial to business and to the law courts. They have given judges and magistrates more time to decide old lawsuits and they are imparting new confidence in a system which was looked upon with a certain degree of cynicism.

Thus, in my considered opinion the bottom line is that these procedures are advocating a change of trend. Today the message is being understood. It does not pay to delay payments due: a step forward, which strives to achieve a proper business ethic and grants people in business a better cash flow. This is so essentially important to small- and medium- sized enterprises.

Dr Mifsud Bonnici is Parliamentary Secretary at the Ministry of Justice and Home Affairs.