Corporate debt recovery refers to the process by which a creditor enterprise seeks to reclaim sums of money that have been loaned, advanced, or remain unpaid for goods sold or services rendered. Establishing a legal strategy for corporate debt recovery is an essential requirement for businesses, ensuring that the process is standardised, consistent, and compliant with applicable laws. In practice, this strategy is typically implemented through three primary approaches: negotiation, mediation, or litigation. Such a legal strategy is designed to safeguard the legitimate and equitable interests of the enterprise while minimising risks and potential financial losses. However, what exactly constitutes a standardised and legally compliant debt recovery strategy remains a challenging question for many businesses seeking to recover outstanding debts. This article provides readers with a comprehensive and in-depth perspective on the Legal Strategies For Corporate Debt Recovery: Negotiation, Mediation, Or Litigation?
What are corporate debt recovery and legal strategies for debt recovery?
Corporate debt recovery, also known as commercial debt collection, refers to the process by which an enterprise requests its clients or debtors to make payment for monetary amounts or assets that have become due or overdue in accordance with the prior agreement between the parties, or pursuant to a decision issued by a competent authority, such as a court or commercial arbitration tribunal.
There are various forms of debt recovery, depending on the type of debtor and the internal recovery procedures adopted by each enterprise. Among these, legal debt recovery is a particularly common and effective approach. Legal debt recovery is conducted based on the contractual provisions agreed upon by the parties and in compliance with applicable legal regulations. As the request for repayment constitutes an obligation to perform under a contract, enterprises must adopt a flexible and strategic approach when formulating their legal debt recovery strategy. Such a strategy should be implemented through three principal methods: negotiation, mediation, and litigation. Each method carries different levels of formality and legal intensity, and must be carefully selected based on the nature of the debt, the relationship between the parties, and the desired outcome – ensuring that debts are recovered promptly and assets are safeguarded.
Negotiation method
The negotiation method is the most fundamental approach, grounded in the good-faith intention and mutual agreement between the parties. It is typically prioritised at the initial stage of a legal strategy for corporate debt recovery.
Advantages
This is the stage where both the enterprise and the debtor still have significant scope and opportunity to reach an agreement on the most feasible repayment plan for both sides. Accordingly, this method offers several benefits:
Simplicity: The parties merely need to meet and agree on repayment terms without the need for any complex or formal procedures other than direct communication.
Preservation of business relationships: In most cases, debtors are key business partners such as major clients, suppliers, or service providers. Negotiation demonstrates the enterprise’s goodwill and commitment to maintaining long-term commercial relationships, while still ensuring that debts are recovered in a timely manner.
Disadvantages and potential risks
As with any negotiation process, certain risks and limitations may arise, including:
Dependence on the financial capacity and good faith of the parties at the time of negotiation;
The negotiation skills of the parties, which significantly affect the likelihood of successful debt resolution;
Geographical constraints that may hinder direct meetings between the parties for negotiation;
Lack of enforceability or binding effect on the debtor, as agreements reached through negotiation rely primarily on mutual goodwill rather than legal compulsion.
Mediation method
Mediation is a legally recognised method of dispute resolution provided under Decree No. 22/2017/ND-CP[1], whereby a commercial mediator acts as a neutral intermediary to facilitate or assist in the resolution of the dispute. In other words, mediation involves the parties mutually agreeing to appoint a third party to assist in resolving or facilitating the recovery of outstanding debts.
Advantages:
At this stage, the relationship between the parties remains relatively balanced, combining cooperation and voluntariness, while involving a higher degree of formality and seriousness due to the participation of a neutral intermediary. Similar to negotiation, mediation offers several notable advantages:
Clearly regulated procedures: The process of mediation is governed by the Commercial Law and Decree No. 22/2017/ND-CP (as amended and supplemented by Decree No. 112/2025/ND-CP), providing a clear legal basis for implementation.
Availability of experienced mediators and reputable mediation centres: In practice, there are now numerous professional mediators and established mediation centres capable of persuading and negotiating with debtors, reflecting the growth and sophistication of the commercial market.
Maintenance of goodwill and flexibility: Mediation allows the parties to maintain good faith, cooperation, and flexibility throughout the process of resolving outstanding debts.
Disadvantages and potential risks
Despite its advantages, mediation also entails certain limitations and risks that should be considered when incorporating it into a corporate debt recovery strategy, such as:
Dependence on the debtor’s financial capacity: The additional costs associated with mediation procedures may increase the financial burden of debt recovery and discourage debtors from participating in the process.
More complex procedures: Mediation is procedurally more formal and structured than negotiation, and must strictly comply with the applicable legal framework throughout its implementation.
Litigation method
Litigation is typically the final measure within a corporate debt recovery strategy. It involves subjecting both the enterprise and the debtor to civil litigation before the court, or to arbitral proceedings (if agreed by the parties), and relies on the judgement or award of a competent authority to enforce the repayment of the debt.
This method is generally pursued only when negotiation and mediation have failed to achieve a satisfactory outcome.
Arbitral Proceedings: Under the law, both the enterprise and the debtor must have an arbitration agreement in place-either before or after the dispute arises-for arbitration to be applicable[2]. Moreover, the debt dispute must arise from commercial activities, such as the sale of goods or the provision of services. An arbitral award is final and binding, meaning it cannot be appealed. Therefore, once an enterprise obtains an award ordering repayment, it may proceed to enforcement to recover the debt. Arbitration offers several advantages, including faster dispute resolution.
Court Proceedings: Where the parties have no arbitration agreement, the enterprise may initiate a lawsuit before a competent court to demand repayment of the outstanding debt.
Following first-instance and appellate proceedings, the court’s judgement becomes legally effective, allowing the enterprise to request enforcement to compel the debtor to make payment in accordance with the decision rendered.
Both arbitration and litigation share the advantage that the enterprise may request the court or arbitral tribunal to impose interim emergency measures to secure payment or ensure the enforcement of the debtor’s repayment obligations. However, these methods also entail procedural complexity, requiring thorough evidence collection and documentation in accordance with the Civil Procedure Code and the Law on Commercial Arbitration. Most importantly, pursuing litigation or arbitration often carries the significant risk of terminating business relationships with the debtor. For these reasons, litigation should always be considered the final recourse in a company’s legal debt recovery strategy, to be employed only when all amicable settlement measures have been exhausted..
Legal Strategies for corporate debt recovery: Negotiation, Mediation or Litigation?
From the above analysis, it is clear that there is no single “best” legal strategy, nor is there any method that proves universally effective in all circumstances. Each approach has its own advantages and limitations, depending on the specific context and practical conditions of the enterprise. Accordingly, businesses should develop a tailored legal strategy for debt recovery, ensuring compliance with legal principles and regulations, while maintaining flexibility in applying various tools and measures.
A few guiding principles for selecting and implementing appropriate methods include:
Negotiation and mediation should be employed where the debtor demonstrates good faith and willingness to cooperate in discussing repayment terms;
Litigation should only be pursued where the debtor shows no intention to repay or to reach a new settlement..
The chosen method should be based on an assessment of the debtor’s solvency, good faith, repayment priority, and the value of the debt to the enterprise.
The method of recovery should correspond to the nature and severity of the case, while remaining cost-effective and proportionate to the potential recovery amount.
In conclusion, an effective legal strategy for debt recovery is both an urgent and essential requirement for enterprises in the current economic environment. A well-structured and pragmatic strategy not only helps streamline internal debt management and contract handling, but also strengthens the enterprise’s relationships with debtors and business partners. Ultimately, the ability to choose the most suitable method — negotiation, mediation, or litigation — in line with the practical circumstances will serve as the key to successful and efficient debt recovery.
The above is an overview of Legal Strategies For Corporate Debt Recovery: Negotiation, Mediation, Or Litigation. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms in Vietnam with highly specialised teams in top legal fields such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing customers with optimal and effective service.
[1] Clause 1 Article 3 of the Decree No. 22/2017/ND-CP
[2] Article 5 of the Law on Commercial Arbitration
