Enforcement denial compensation is a crucial issue in debt and credit disputes. This compensation arises when debts subject to enforcement proceedings are contested unjustly, causing delay or obstruction to the creditor.
What Is Enforcement Denial Compensation?
In personal, business, or commercial interactions, debts often arise after transactions between individuals or organizations. When these debts are not paid, creditors may initiate enforcement proceedings. If the debtor then lodges an unjustified objection to the enforcement, the concept of enforcement denial compensation comes into play. Debtors sometimes object to enforcement not to dispute the claim on its merits but to intimidate the creditor or to gain time to postpone payment. When a debtor’s objection is found to be baseless and the creditor brings a lawsuit to annul that objection, the court may order the party who filed the objection to pay compensation.
Because it is meant to punish and deter bad-faith objections, this compensation is often called bad-faith compensation. The aim is to prevent misuse of enforcement procedures to delay collection. When a creditor suffers harm due to an unjustified objection and successfully seeks relief, the court can award compensation to remedy the creditor’s loss.
What Are the Conditions for Enforcement Denial Compensation?
The conditions for enforcement denial compensation define when the court can award such damages. Key requirements include:
- An enforcement proceeding must have been initiated through an application to the execution office without a court judgment (non-judicial enforcement). In other words, denial compensation generally applies to non-judicial enforcement for monetary claims; it does not typically apply in enforcement based on a court judgment. The rule is intended to address abuses of non-judicial enforcement procedures.
- The debtor must have filed an objection to the payment order within the prescribed time during the enforcement process. When an objection is timely filed, the creditor may bring an action to annul that objection.
- The action to annul the objection must be brought within one year. If the creditor seeks annulment within this one-year period and succeeds, the debtor may be ordered to pay enforcement denial compensation. If the one-year period for filing the annulment action elapses, compensation cannot normally be awarded.
- The creditor’s lawsuit must expressly request enforcement denial compensation in the complaint. Compensation can be claimed alongside the annulment action challenging the substance of the debt. If this request is not made, enforcement denial compensation cannot be pursued as a separate standalone claim.
- Finally, the court must determine that the debtor’s objection was unjustified. Only after finding the objection baseless in the annulment action can the court order payment of compensation.
How Is Enforcement Denial Compensation Calculated?
The calculation of enforcement denial compensation follows the principles set out in Article 67 of the Enforcement and Bankruptcy Law. When the court finds the debtor’s objection unjustified and determines the debtor acted in bad faith during the enforcement, it may order compensation in favor of the creditor. The compensation typically cannot be less than forty percent of the principal amount claimed in the enforcement proceeding.
Thus, the amount of enforcement denial compensation is set at no less than 40% of the total enforced debt. The upper limit is decided by the court based on the specifics of the case, including the nature of the dispute and the creditor’s proven material and moral damages resulting from the debtor’s unjust objection.