The Enforcement Gap: Winning a Judgment vs Collecting the Money

Obtaining a favourable court judgment or arbitral award is a significant legal achievement, but it does not, by itself, place money in a creditor's account. The enforcement gap – the distance between a binding decision and actual recovery – is one of the most consequential and least-discussed risks in international commercial disputes. Understanding where that gap arises, why it persists, and what can be done to close it is essential for any business or fund engaged in cross-border transactions.

Why Winning Is Only the Beginning

Courts and arbitral tribunals decide liability. Enforcement machinery – the process of compelling a debtor to pay – is an entirely separate legal exercise, governed by different rules, different institutions, and, in cross-border situations, different jurisdictions entirely. A creditor who has succeeded on the merits can still face years of procedural obstacles before seeing any recovery on an unpaid invoice.

The enforcement gap is not a single problem but a cluster of interconnected challenges: the debtor may have moved assets, the jurisdiction where assets are held may not recognise the original decision, insolvency may have intervened, or the procedural requirements for enforcement may be demanding and time-consuming. Each of these risks deserves independent analysis before and during litigation, not as an afterthought once judgment has been obtained.

The Legal Framework for Cross-Border Enforcement

International enforcement of judgments rests on a patchwork of instruments rather than a single unified regime. The principal frameworks include:

• Bilateral and multilateral treaties on recognition and enforcement of judgments. Many states have concluded treaties that oblige them to recognise and enforce each other's court judgments, subject to defined grounds for refusal – typically public policy, lack of proper jurisdiction, or procedural irregularity in the original proceedings.
• The Hague Convention on Choice of Court Agreements. For parties who have agreed to an exclusive jurisdiction clause, this instrument can facilitate enforcement across contracting states by establishing a clear obligation to recognise and enforce the resulting judgment.
• The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). For arbitral awards specifically, the New York Convention remains the most effective global enforcement tool, with a broad membership and a presumption in favour of enforcement subject to a narrow set of grounds for refusal.
• EU instruments within the European Union. Within EU member states, the Brussels Recast Regulation establishes a streamlined regime for the mutual recognition of civil and commercial judgments, largely abolishing the need for separate exequatur proceedings between member states. The European Payment Order procedure provides an additional mechanism for straightforward debt collection claims across borders within the EU.
• National law where no treaty applies. Where no treaty or convention governs, a creditor must rely on the domestic law of the jurisdiction where enforcement is sought. Some states will recognise foreign judgments on the basis of comity or reciprocity; others require the creditor to re-litigate the claim from the beginning.

The practical significance of this patchwork is that the enforceability of a judgment depends substantially on where it was obtained and where the debtor's assets are located. These two factors should inform the choice of forum at the outset of any dispute, long before proceedings begin. Our analytical guide on choosing between litigation and arbitration for debt recovery explores this strategic dimension in greater depth.

Asset Freezing and Interim Measures: Acting Before Judgment

One of the most effective ways to close the enforcement gap is to act before judgment is delivered. Asset freezing orders – known by various names across jurisdictions, including freezing injunctions, Mareva orders, and saisie conservatoire – allow a creditor to restrain a debtor from dissipating or concealing assets while proceedings are ongoing. The purpose is precisely to ensure that a successful judgment does not become worthless because assets have disappeared by the time enforcement is sought.

The threshold for obtaining such relief varies by jurisdiction, but the applicant typically needs to demonstrate a good arguable case on the merits, a real risk of asset dissipation, and that the balance of convenience favours granting the order. Courts are mindful of the potential for abuse and ordinarily require the applicant to give a cross-undertaking in damages.

In cross-border situations, the position is more complex. An asset freezing order granted in one jurisdiction may need to be recognised or replicated in another jurisdiction where the assets are actually held. Within the EU, the European Account Preservation Order provides a specific mechanism for freezing bank accounts across member states in civil and commercial matters. Outside that framework, a creditor must typically pursue parallel applications in each relevant jurisdiction – an exercise that is costly but often indispensable.

The timing of such applications is critical. Evidence of asset dissipation, unusual corporate restructuring, or the transfer of assets to related parties can all signal that urgent interim relief should be sought. If you are facing a situation where a debtor appears to be moving assets, we encourage you to contact us promptly at info@ferrazwhitmore.com or through our contacts page to discuss the options available.

Practical Obstacles After Judgment Is Obtained

Even with a valid, enforceable judgment or award in hand, the practical process of collection typically involves several stages, each of which can generate delay and additional cost.

• Exequatur or recognition proceedings. In many jurisdictions, a foreign judgment must be formally recognised by a local court before enforcement proceedings can begin. Although these proceedings are typically not a re-examination of the merits, they involve procedural requirements, service of documents, and waiting periods that can take months or longer.
• Identification of attachable assets. A payment order or enforcement writ is only as useful as the assets to which it can be directed. In many jurisdictions, creditors have access to mechanisms for compelling debtors to disclose their assets, but these tools vary considerably in scope and effectiveness. Where the debtor is a corporate entity with a complex group structure, tracing assets across jurisdictions may require separate legal and investigative work.
• Priority conflicts with other creditors. Where the debtor has multiple creditors, the order in which enforcement steps are taken can affect the outcome significantly. Security interests, statutory preferential creditors, and insolvency proceedings can all affect a creditor's ability to recover from available assets.
• Late payment interest accrual and its limits. Many jurisdictions provide for late payment interest to accrue on unpaid debts and judgment debts, but the rate, the point from which interest runs, and the debtor's ability to challenge the interest claimed vary by jurisdiction and applicable contract terms. In cross-border situations, the governing law of the contract and the law of the place of enforcement may not align.
• Enforcement against sovereign or state-linked entities. Where the debtor is a state entity, immunity from enforcement – as distinct from immunity from jurisdiction – may apply to certain categories of assets, adding a further layer of complexity.

Insolvency as a Complicating Factor

Insolvency proceedings fundamentally alter the enforcement landscape. When a debtor enters bankruptcy or restructuring, an automatic stay typically prevents individual creditors from pursuing enforcement actions outside the insolvency process. The creditor must instead file a proof of debt and participate in the collective procedure, where recovery depends on the overall asset position of the debtor and the applicable priority rules.

In cross-border insolvency situations, the interaction between the insolvency proceedings and any ongoing enforcement actions is governed by a further layer of rules. Within the EU, the Recast Insolvency Regulation establishes a framework for recognising main insolvency proceedings opened in one member state across other member states, and for coordinating secondary proceedings where the debtor has an establishment elsewhere. Outside the EU, the UNCITRAL Model Law on Cross-Border Insolvency has been adopted in a number of jurisdictions and provides comparable – though not identical – mechanisms.

A creditor who is aware that insolvency proceedings are a realistic possibility should consider whether to accelerate enforcement steps, whether to seek security for their claim, and whether the available restructuring framework offers any prospect of a negotiated resolution. Our work in bankruptcy and restructuring regularly involves advising creditors on precisely these strategic choices.

Jurisdiction-Specific Considerations

The enforcement gap is not uniform across all jurisdictions. Some legal systems have developed efficient enforcement machinery, with well-resourced courts, electronic asset-tracing tools, and clear procedural timelines. Others present a more challenging environment, whether because of institutional constraints, complex procedural requirements, or a legal culture that favours debtors.

For creditors whose debtors or assets are located in specific jurisdictions, it is important to obtain an early assessment of the local enforcement environment. Factors to consider include:

• The average duration of recognition and enforcement proceedings in the relevant jurisdiction.
• The availability and effectiveness of asset disclosure procedures.
• The interaction between local enforcement law and any applicable international treaty.
• The risk of parallel insolvency or restructuring proceedings being commenced by the debtor.
• Any restrictions on the transfer of funds abroad once recovery has been achieved.

For businesses with counterparties or assets in Cyprus, for example, the local legal framework presents specific procedural characteristics that are worth understanding before proceedings are commenced. Our team can provide guidance on debt collection and enforcement in Cyprus within that context.

Strategic Recommendations for Creditors

The most effective approach to the enforcement gap is to treat enforcement as a consideration from the very beginning of a commercial relationship, not as a problem to be solved after a dispute has already been lost. The following strategic points are worth internalising:

• Choose the forum with enforceability in mind. Before agreeing to a jurisdiction clause or arbitration seat, consider where the counterparty's assets are likely to be located and how readily a judgment or award from the chosen forum can be enforced there. Arbitral awards under the New York Convention generally offer broader geographic enforceability than court judgments in jurisdictions without a dense treaty network.
• Secure the debt contractually where possible. Guarantees, letters of credit, retention of title clauses, and security interests over specific assets all reduce dependence on enforcement proceedings after the fact. A secured creditor is in a materially stronger position in both enforcement and insolvency scenarios.
• Monitor counterparty risk during the life of the relationship. Changes in a counterparty's ownership structure, credit position, or asset base can signal increasing enforcement risk. Early action – whether to renegotiate terms, seek security, or accelerate a debt collection process – is generally more effective than late action.
• Act promptly once a dispute arises. Delay in commencing proceedings and seeking interim relief can allow a debtor to reorganise its affairs in a way that complicates enforcement. Limitation periods also impose hard deadlines that cannot be extended by agreement once they have passed.
• Plan for multiple jurisdictions. In complex cross-border situations, enforcement may require coordinated action in more than one jurisdiction simultaneously. This requires a team with the capacity to manage proceedings across different legal systems and to advise on the interaction between them.

If you are assessing your position in a dispute where recovery is uncertain, or if you are structuring a transaction and want to understand the enforcement implications of your choices, our team is available to discuss your specific situation. You are welcome to reach out at info@ferrazwhitmore.com or visit our contacts page.

The Outlook: Gradual Convergence, Persistent Gaps

The international legal landscape for enforcement has improved significantly over recent decades. The expansion of the New York Convention's membership, the development of EU enforcement instruments, and the growing adoption of the UNCITRAL Model Law on Cross-Border Insolvency have all contributed to a more predictable environment for creditors operating across borders.

Nevertheless, significant gaps persist. The enforcement of court judgments – as distinct from arbitral awards – remains far less uniform at the global level. The proposed Hague Judgments Convention of 2019 offers a potential framework for broader multilateral recognition of court judgments, but its practical impact will depend on the pace and scope of ratifications over the coming years.

At the national level, differences in the effectiveness of enforcement institutions, the availability of asset-tracing tools, and the treatment of foreign creditors in insolvency proceedings continue to produce material disparities in recovery outcomes. For sophisticated creditors, awareness of these disparities is a competitive advantage: structuring transactions and disputes with enforcement in mind can make the difference between a paper victory and actual recovery.

Understanding the enforcement gap is not merely an academic exercise – it has direct consequences for how commercial relationships are structured, how disputes are resolved, and how value is ultimately protected. If your business faces an unpaid invoice, a disputed debt, or a judgment that has not yet been satisfied, we would welcome the opportunity to analyse your position and discuss the practical options. Please contact us at info@ferrazwhitmore.com or through our contacts page.

Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.