Til Debt Do Us Part – The Art of Amicable Settlement (Part 2)

As Mahatma Gandhi rightly said, “Peace is the most powerful weapon of mankind”. It is in fact the most sought-after commodity in the whole world and peaceful resolution of any dispute creates an environment of co-existence in lieu of legal tussles that may be particularly worrisome. Like any other relationship, businesses also focus on maintaining long-term relationships.

Amicable settlement assumes several different forms in different aspect of law, as well as in life in general. The term amicable settlement can be understood more informally as a friendly settlement; in international law the term most widely used is “good offices”. Whichever form it may assume, amicable settlement is a win-win situation for both parties in maintaining a relationship, finding a common ground and resolving disputes. It not only benefits, the parties but also plays a role in reducing the ever-increasing burden of cases in courts. It plays an important role in resolution of civil and commercial disputes and is far more advantageous than resorting to litigation or arbitration.
In our experience, creditors that have long term relationships, or are trying to build relationships in the market, almost always opt for amicable settlement of their credit since it maintains confidentiality and opens a voluntary channel of non- contentious communication between the parties, this process also saves time and money of the parties involved.

The concept of amicable settlement in debt collection, may seem fairly simple. As an entrepreneur you may think that having established a good relationship with your client, coming to an agreement with them would be a piece of cake, but this is not the case. It does not take long for a business relationship to turn sour especially since finances are involved. Further, entrepreneurs tend to become personally invested in their deals and in such a case, emotion can get the best of their objectivity.

To avoid animosity, one should appoint a legal expert to carry out such negotiation. Experienced professionals have an edge over carrying out successful settlements and possess skills that a lay person may not necessarily possess.

Bargaining and Negotiations

The endgame of carrying out amicable settlement via bargaining and negotiations is clear; recovering the default amount while not hampering the relationship between the parties. If done tactfully, it can bear fruitful results; and such tact can only be acquired by experience. An expert, would be able to determine right from the beginning whether a negotiation is going to end well or not. For instance, the defaulting party’s stance and their responsiveness, play a role in this process. The negotiator can effectively evaluate the success ratio and navigate the situation in such a way that it focuses on creating an environment where the contractual interest of both parties is taken into consideration.

In keeping with safeguarding the contractual interest of both parties and comfort of transaction, a negotiator also ensures to maintain confidentiality of the terms of the agreement, unless otherwise required to be disclosed by law. Further, they should also ensure that the terms of the negotiation/settlement do not breach any laws, rules or regulations of the jurisdiction. The discussion must also be ethical and maintain the ideal of professionalism.

Upon successful conclusion of the negotiation, the terms discussed should be recorded in writing and executed through a settlement agreement by both parties. Having the terms written down and agreed upon serves as concrete evidence in court, in the event that the defaulting party fails to adhere to the terms of settlement.

The Settlement Agreement

Having a settlement agreement in place bestows an obligation on the defaulter and ensures enforceability of the settlement in the event of failure to comply. There are several terms that must be considered when drafting a settlement agreement. A very important aspect creditors may overlook while drafting such an agreement is the acknowledgement of debt. Acknowledging the value of debt, its age, mode against which it is due and the reason for the debt is important to be recorded considering the highly volatile nature of liquidity in the market and a debtor’s ability to keep their word.

Further, one must also record the original value of debt as well as the amount that the creditor is accepting in satisfaction of the debt. Once this is determined, the parties can get into the logistics of the mode of payment, the duration within which such payment is to be concluded and so on.

Pssst… let me give you a quick heads-up; as per the upcoming amendments in legislation regarding post-dated cheques, there are some changing trends in the market wherein, companies are now refusing to issue post-dated cheques. Now, how else would you guarantee payment and/or liability? A settlement agreement or an internal memorandum is the way to go.

Outcome of Settlement

You might be thinking, once the settlement agreement is executed your debtor will pay you back for sure. But despite such an agreement, the debtor may default. In the event there is a default in any of the instalments stipulated in the payment plan; The Settlement Agreement ensures the financial safety of the creditor, however, there is no guarantee. The point here, such an agreement acts as a replacement for thousands of documents that would need to be prepared to prove your claim. It simply is a cost-effective superhero, enabling you to prove your claim in court without going the extra mile to prove its validity. Further, such agreement records the debtor’s acknowledgment of the debt, shifting the burden of proof from the creditor to the debtor to prove the truth or falsity thereof.

By taking these steps, the creditors safeguard themselves from potential bad debts. Even if there is a breach of agreement, it strengthens their position in front of court to efficiently recover the debts and enforce their rights.