Study ranks Sweden top country for debt collection, Middle East most complicated

Insolvency proceedings cited as top factor affecting ease of debt collection, says Euler Hermes

Complex legal frameworks are making it harder to collect debts in the UAE and Saudi Arabia, according to Euler Hermes. Rich-Joseph Facun / The National

Globally, Sweden is the most straightforward country in which to recover debt while the Middle East region ranks as the most complicated, according to a report from trade credit insurer Euler Hermes.

Euler Hermes gave the Scandinavian country a score of 30 compared to the global average of 50 on a 0-100 scale. Germany and Ireland followed Sweden as the next most straightforward countries for debt collection, with scores of 31 and 32 respectively.

The UAE and Saudi Arabia were the only two Middle East countries included in the Euler Hermes 2018 Collection Complexity Score and Rating report. With scores of 81 and 94, respectively, debt collection there is three times more complicated than in Sweden. Overall, Western Europe is the easiest region in which to recover debts, while Asia-Pacific is not far ahead of Middle East when it comes to the number of countries with “severe” complexity, including Malaysia, China and Indonesia.

Saudi and the UAE were ranked as having “severe” complexity related to local payment practices, court proceedings and insolvency proceedings in the report.

“The legal framework is complex and the courts tend to lack independence and reliability while procedural delays and costs may be prohibitive,” the report noted, referring to the UAE.

On Saudi Arabia, it said: “As with all GCC states, late payment is common. In practice, the law does not regulate late payment, while late payment interest is prohibited and collection costs cannot be recovered from the debtor unless a specific agreement has been concluded by the parties.”

In addition, insolvency legislation in the Middle East is not as sophisticated as in other regions. “Insolvency law does not provide much support when it comes to debt recovery: a debt renegotiation mechanism has been put in place [in the UAE] but in practice it remains largely untested and liquidation prevails, thus leaving no chances of recovery to creditors,” the report said.

However, the World Bank said in November that Saudi Arabia and the UAE were the top two reformers among GCC members, with the Emirates moving up five places to 21st spot out of 190 countries assessed by the Washington-based lender in its 'Doing Business 2018' report.

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The UAE in 2016 enacted the long-awaited Bankruptcy Law, giving greater confidence to companies in that they would be able to restructure their debts and recover should they sink into financial trouble.

Under the law, employees, shareholders and directors of companies undergoing court-led insolvencies can be spared a jail term. However, the law does not offer protection for defaults on personal debt.

“Since insolvent debtors may be sentenced to a prison term, their tendency to disappear when things turn wrong is significant,” the report noted.

In Saudi Arabia, the company rescue culture is “non-existent”, Euler Hermes added, while local legal action is slow, costly and uncertain overall.

Euler Hermes insures debt collector clients against the risk that their debtors are unable to pay their dues. Its research is based on surveys with collectors in 50 countries and its report notes that pockets of complexity occur all across the world.

“The largest economies, most dynamic markets and the less vulnerable countries do not necessarily entail a more conducive business environment,” Euler Hermes said.

“At a global level, it appears that the key factor of complexity are by far local insolvency proceedings, which are not always effective, ie taking into account priority rules and cancellation of prior transactions.”