DEBT RECOVERY IN IRAN

The Civil Code

In the Islamic Republic of Iran, relations between private individuals are mainly governed by the Civil Code, a legal instrument inspired by Napoleon but based on Islamic law and the principles of the Shiite Imamite school of law. 
The codification of Iranian civil law began in 1928 and has undergone numerous amendments, culminating in the modern Civil Code, consisting of 1,335 articles. The Code is divided according to the tripartite structure of European codes, into THINGS (regulated by Book I), PERSONS (regulated by Book II), and ACTIONS (regulated by Book III).
As will be seen below, it is not a given that the contract governing the commercial relationship with the Iranian party will be governed by local law. However, if a dispute were to be brought before the Iranian judicial authorities for the recovery of the debt, the law applied by the judge in the proceedings could only be local law, as the application of foreign law in ordinary proceedings is not permitted in Iran. 
Preliminary requirements
This section outlines the conditions applicable if an Iranian debtor has not fulfilled a commercial debt.
First, it is necessary to correctly identify the debtor's actual company name. In fact, Iranian companies operating abroad often have two names: an official name registered with the Companies Register (in Farsi) and an international name (in Latin characters), used solely for commercial and marketing purposes.
It is important to note that only the official name is valid for legal purposes and is the only one that should be used for any type of legal activity, including debt collection. 
Secondly, in the case of a contract for the supply of goods, it is necessary to ensure that the entity appearing in the customs documents as the recipient of the goods is indeed the debtor. Often, when the customer does not have the necessary import licenses to bring foreign goods into the country, they rely on an importer, who is named on the customs documents, including invoices. In such cases, from a formal point of view, the importer is not the party to the contractual relationship and therefore cannot be the recipient of debt collection activities. It is therefore important not to confuse the importer with the customer: only the latter is to be considered the actual debtor.
Once the debtor has been correctly identified, it will be necessary to send them a legal warning, demanding payment of the amount due within a peremptory deadline, generally 15 days.
The legal warning can be issued directly from any European country or from Iran. 
Considering that certified email does not exist in Iran and that international couriers (such as DHL) do not operate in the country due to the US embargo, if the warning is sent from Europe by international registered mail, the delivery time will be particularly long. It is therefore advisable to send the warning to the debtor in advance by email and fax.
If the warning letter is sent from Iran, on the other hand, it is possible to make use of the so-called ‘judicial warning letter’, which allows the creditor to order the debtor to comply through the Iranian judicial authorities, even if no legal proceedings have yet been initiated. This type of warning letter will be served by the judicial authorities themselves.

Legal proceedings

If the formal notice sent has no effect and the debtor continues to default, the option of initiating legal proceedings to recover the debt must be considered. 
If a written contract has been signed between the parties, it is necessary to first check whether it specifies a forum for the resolution of disputes, which may be a court (e.g., the Court of Tehran or the Court of Milan) or an arbitration tribunal (e.g., the Lugano Chamber of Commerce). In this case, it will be necessary to initiate proceedings at the designated court; otherwise, the judge may declare a lack of jurisdiction.
If, on the other hand, there is no written contract, it will be necessary to assess where to initiate proceedings, whether in the European country where the creditor is based or Iran, depending on the type of service agreed between the parties. 
All foreign natural and legal persons have the right to access local justice: it should be noted that, unlike in the vast majority of countries, access to the courts can also be obtained independently, i.e., without the assistance of a lawyer, but this practice is now almost abandoned and in any case not recommended. 
The Iranian judiciary is exercised by the courts of justice on the basis of both national legislation and Islamic principles and is characterized by three levels of jurisdiction.
The first level is represented by the common courts of first instance, which have jurisdiction over all civil and criminal disputes.
The second level of jurisdiction is the common courts of appeal, one for each of Iran's 30 provinces, which have jurisdiction over the decisions of the courts of first instance.
The final level of jurisdiction, which operates only in cases provided for by law, is that of the Supreme Court, which has three different branches (one in Tehran, one in Qom, and one in Mashhad), which are responsible for reviewing the legality of judgments handed down by lower courts. Civil cases with a value exceeding Rial 20.000.000,00 (approximately Euro 400,00) the case may be referred to the Supreme Court for judicial review. 

Credits guaranteed by Iranian checks

In European countries, the delivery of a check by the debtor to the creditor as security for a debt is contrary to mandatory rules, and in view of this, the guarantee agreement underlying the delivery of the check is unlawful and void. 
In Iran, on the other hand, the issuance of a check by the debtor, to be returned only if the latter correctly fulfills their obligation <remaining in the meantime in the possession of the creditor as an enforceable title to be exercised in the event of non-fulfillment or incorrect fulfillment>, is a fully legitimate and frequent practice, especially when it comes to contracts involving significant amounts.
Obviously, the check will be drawn on an Iranian bank and the amount will be in Rial currency. 
If the European creditor has received an Iranian check as security and the demand for payment has not been met, he or she may, either independently or through a representative, take it to a local credit institution for collection.
Under Iranian law, insufficient funds in the drawer's account can have very serious consequences, both civil and criminal. 
Specifically, all current accounts held by the debtor in the country will be frozen and the debtor will lose the right to receive bank loans. Furthermore, the unpaid check constitutes an enforceable title for the creditor, which can be immediately brought before the judicial authorities.
From a criminal point of view, issuing an unpaid check can result in imprisonment for up to two years for the debtor and a ban on leaving the country. 

Practical tips

In Iran, there is no statute of limitations, so it is possible to claim a debt at any time. However, if the debt is secured by a check, it must be cashed within five years of the date stamped on the check. Criminal liability for an unpaid check, on the other hand, can be enforced within six months of the date on the check.
In any case, regardless of whether the debt is secured by a check, it is crucial to act as soon as possible, given the frequent fluctuations in the Iranian currency, which is often subject to devaluation.