Guarding against dead beat debtors
Every business operating in Poland knows all too well that collecting payment is very often more difficult than making the sale itself. The challenges facing business are made more complicated by the lack of reliable information on the creditworthiness of new and even existing clients. Until recently, business has had to rely on information provided directly by a potential client, in addition to information recorded in the National Court Register (NCR), including information on a company's share capital, financial statements and annual reports. However, the problem is that, historically, information contained in the NCR was not always up to date, let alone accurate. To make matters worse, information in the NCR did not include information on pending bankruptcies, nor on the payment history of potential clients. In order to determine if a potential client was indeed facing bankruptcy, a creditor would need to examine the court's case docket to discover if any proceedings were pending against the client. In addition, information on private entrepreneurs could only be obtained by examining the Register of Insolvent Debtors, including bankruptcy information and unpaid court judgments. Even more troubling was the fact that it was almost impossible to obtain objective information on individual consumers. In other words, each business was faced with the time consuming and expensive procedure of investigating the creditworthiness of a potential client.
In response to this lack of reliable credit information, certain business sectors particularly vulnerable to bad debtors, including banks and mobile phone operators, have attempted to create their own internal information databases to identify insolvent and dishonest clients. The problem, however, is that with the exception of the banking sector, such databases often ran foul of the law. Additionally, certain individuals have over the course of the past few years published various lists of 'Dead Beat Debtors' on the Internet, which were not only unreliable, but also illegal.
In an effort to rectify this lack of reliable credit information, the Access to Business Information Act (ABI) was enacted in April of last year. The ABI provides for the creation of highly specialized credit reporting agencies (known as BIG's) to collect and disseminate credit information for both business entities and individual consumers. A BIG may only be established in the form of a joint stock company.
Credit information collected by a BIG is subject to certain restrictions in order to protect against the dissemination of inaccurate information. For instance, the provider of such information must have signed a permanent agreement with the BIG, and the information must include, as a minimum, a description of the debt, the amount outstanding, due date, information on any related court proceedings and, if applicable, information on whether the debt is being challenged by the debtor. Not everyone can submit information to a BIG. With respect to individual consumers, only information relating to a consumer credit agreement may be submitted to a BIG and, moreover, only information from certain sources may be collected, such as banks, insurance companies, telecommunications service providers, housing cooperatives, professional landlords (as opposed to individual landlords) and transportation companies. Moreover, the amount in question must be at least zł.500 with respect to commercial clients, and zł.200 with respect to consumers. In addition, the debt reported to a BIG must be at least sixty days past due, and notice of such payment demand must have been provided to the debtor prior to reporting such information to a BIG.
A BIG will (should) refuse to accept information that is either incomplete or contrary to the above criteria. As a general rule, however, a BIG is not required to verify the accuracy of the information received. The provider of such information is liable for the accuracy of such information, and is subject to a fine of up to zł.30,000 for submitting false information.
If and when a past due debt previously reported to a BIG has been paid, or otherwise declared invalid by a court, the original provider of such information is responsible for having the information deleted from the BIG's records. Failure to demand such removal will lead to the provider of such information also being liable for a zł.30,000 fine. The debtor itself is only entitled to demand that the provider of such information ensure that such information be deleted. If the provider of such information, i.e. the debtor's former creditor, fails to make such a demand, the debtor may approach the BIG directly to remove such information from its files, provided that the debtor is able to produce supporting documentation evidencing the satisfaction of such debt.
Information on a company's credit history may be disseminated by a BIG to anyone. Consumer credit information may only be disseminated to those entities that have entered into a permanent written agreement with a BIG, in addition to the consumer granting his or her written consent to the release of such information. If a consumer refuses to grant his or her consent to release such information, the creditor is free to decline to extend any credit to the consumer, or may impose more
stringent credit terms. Unfortunately, the recipient of such consumer credit information may only rely upon such information to base its decision regarding a particular client for a period of up to 90 days following its receipt. According to the ABI, information more than 90 days old should be deleted and ignored with respect to making any consumer credit decision.
To date, only one BIG company has been established in Poland, Krajowy Rejestr Długów. A few potential competitors are currently preparing to create other BIGs.
The benefits of the new system will not be readily apparent for a while, as it will take time for the number of BIGs to grow and the amount of information collected to attain such a mass to be reliable and complete. However, in the long run, the creation of more BIGs should have a positive impact on Polish business, providing quick and accurate information on a potential client's creditworthiness. And, more importantly, the dissemination of such information should reduce the risk to business, and ultimately lead to lower borrowing costs for both consumers and business.
Wojciech Langowski is an attorney with Miller Canfield W. Babicki & Partners
In response to this lack of reliable credit information, certain business sectors particularly vulnerable to bad debtors, including banks and mobile phone operators, have attempted to create their own internal information databases to identify insolvent and dishonest clients. The problem, however, is that with the exception of the banking sector, such databases often ran foul of the law. Additionally, certain individuals have over the course of the past few years published various lists of 'Dead Beat Debtors' on the Internet, which were not only unreliable, but also illegal.
In an effort to rectify this lack of reliable credit information, the Access to Business Information Act (ABI) was enacted in April of last year. The ABI provides for the creation of highly specialized credit reporting agencies (known as BIG's) to collect and disseminate credit information for both business entities and individual consumers. A BIG may only be established in the form of a joint stock company.
Credit information collected by a BIG is subject to certain restrictions in order to protect against the dissemination of inaccurate information. For instance, the provider of such information must have signed a permanent agreement with the BIG, and the information must include, as a minimum, a description of the debt, the amount outstanding, due date, information on any related court proceedings and, if applicable, information on whether the debt is being challenged by the debtor. Not everyone can submit information to a BIG. With respect to individual consumers, only information relating to a consumer credit agreement may be submitted to a BIG and, moreover, only information from certain sources may be collected, such as banks, insurance companies, telecommunications service providers, housing cooperatives, professional landlords (as opposed to individual landlords) and transportation companies. Moreover, the amount in question must be at least zł.500 with respect to commercial clients, and zł.200 with respect to consumers. In addition, the debt reported to a BIG must be at least sixty days past due, and notice of such payment demand must have been provided to the debtor prior to reporting such information to a BIG.
A BIG will (should) refuse to accept information that is either incomplete or contrary to the above criteria. As a general rule, however, a BIG is not required to verify the accuracy of the information received. The provider of such information is liable for the accuracy of such information, and is subject to a fine of up to zł.30,000 for submitting false information.
If and when a past due debt previously reported to a BIG has been paid, or otherwise declared invalid by a court, the original provider of such information is responsible for having the information deleted from the BIG's records. Failure to demand such removal will lead to the provider of such information also being liable for a zł.30,000 fine. The debtor itself is only entitled to demand that the provider of such information ensure that such information be deleted. If the provider of such information, i.e. the debtor's former creditor, fails to make such a demand, the debtor may approach the BIG directly to remove such information from its files, provided that the debtor is able to produce supporting documentation evidencing the satisfaction of such debt.
Information on a company's credit history may be disseminated by a BIG to anyone. Consumer credit information may only be disseminated to those entities that have entered into a permanent written agreement with a BIG, in addition to the consumer granting his or her written consent to the release of such information. If a consumer refuses to grant his or her consent to release such information, the creditor is free to decline to extend any credit to the consumer, or may impose more
stringent credit terms. Unfortunately, the recipient of such consumer credit information may only rely upon such information to base its decision regarding a particular client for a period of up to 90 days following its receipt. According to the ABI, information more than 90 days old should be deleted and ignored with respect to making any consumer credit decision.
To date, only one BIG company has been established in Poland, Krajowy Rejestr Długów. A few potential competitors are currently preparing to create other BIGs.
The benefits of the new system will not be readily apparent for a while, as it will take time for the number of BIGs to grow and the amount of information collected to attain such a mass to be reliable and complete. However, in the long run, the creation of more BIGs should have a positive impact on Polish business, providing quick and accurate information on a potential client's creditworthiness. And, more importantly, the dissemination of such information should reduce the risk to business, and ultimately lead to lower borrowing costs for both consumers and business.
Wojciech Langowski is an attorney with Miller Canfield W. Babicki & Partners
