United States

Risk assessment

Slowdown in 2013

Domestic demand, which drove growth in 2012, is expected to stall in 2013. Uncertainties around the discussions between the Obama Administration and the Republicans to try and find a compromise on the fiscal adjustments undermined household and business confidence from the end of summer last year. Household consumption was steady all the same but businesses put the brakes on investment spending. The forecast of 1.5% growth in 2013 is built on a fiscal deficit reduction scenario and on raising the public debt ceiling.

Weak household consumption and signs of movement in residential construction

With the likely drop in household disposable income, private consumption is set to contract, especially as savings, which had built up again in 2010 (5.7% of disposable income), have eroded last year and are due to only increase slightly in 2013. Several factors will have a mixed effect on household spending. First, the unemployment rate: this is expected to stabilise at 7.6% but not enough jobs will be created and the number of precarious jobs will remain unchanged (around 14%) as will the number of long-term unemployed (40% for over 27 weeks). Second, household finances: households have deleveraged substantially (134% of disposable income in 2007 down to 113% in 2012) but this adjustment is primarily the result of personal bankruptcies and limited access to bank credit. There is then little scope for household spending to grow at a robust pace. Finally, whatever the size of the fiscal adjustment, tax hikes and government spending cuts will inevitably affect both confidence and consumption. In contrast, household net wealth is expected to rise thanks to the appreciation of their financial assets (15% increase over one year to end December 2012) and real estate. Since the summer, house prices have edged up slightly (+6.9% from January to october 2012), a trend which is likely to continue in 2013, though to a lesser extent. The Fed’s unconventional policy (quantitative easing 3 in September and December 2012) therefore seems to be bearing fruit by supporting the fall in mortgage and borrowing rates and construction activity. However, employment in this sector remains anaemic, which keeps structural unemployment at high levels.

Deceleration in productive investment and exports

Business confidence eroded in late 2012 and is likely to remain weak into 2013, which will hamper investment growth for the second consecutive year. Despite competitiveness gains (lower energy costs and still favourable exchange rate for the dollar), exports are likely to grow only modestly, as in 2012, in line with subdued external demand. The recession in the eurozone hampers export-oriented companies (15% of total exports), but also affects them indirectly through American companies located in Asia. Adverse effects will also come from Japan (5% of sales abroad). However, despite the persistent trade balance deficit, the current account deficit is expected to narrow thanks to a combination of several factors: the constant increase in profit repatriation by American companies, the balance of services surplus, firm agricultural product prices and the probable drop in energy imports.

The number of company insolvencies is still above pre-crisis levels

Better times appear to lie ahead for the construction sector, benefiting from reconstruction spending in the regions ravaged by hurricane Sandy and the renewed build-up of housing stock. Automotives are expected to have a mixed year with slower output growth and weaker prices. Moderate household consumption will affect clothing and electronics (except new product launching), as well as leisure. The cuts in some public spending items will hit the sectors that depend on public money (defence, health for example). The number of bankruptcies declined by more than 16% in 2012 (compared with 2011), but they are still more than 40% higher than the number recorded before the crisis in 2007.

Payment incident index

Insolvency trends

MEANS OF PAYMENT AND COLLECTION METHODS

Exporters should pay close attention to sales contract clauses on the respective obligations of the parties and determine payment terms best suited to the context, particularly where credit payment obligations are involved.

In that regard, cheques and bills of exchange are very basic payment devices that do not allow creditors to bring actions for recovery in respect of “exchange law” (droit cambiaire) as is possible in other signatory countries of the 1930 and 1931 Geneva Conventions on uniform legal treatment of bills of exchange and cheques.

Cheques are widely used but, as they are not required to be covered at their issue, offer relatively limited guarantees. Account holders may stop payment on a cheque by submitting a written request to the bank within 14 days of the cheque's issue. Moreover, in the event of default, payees must still provide proof of claim.

“Certified checks” offer greater security to suppliers since the bank certifying the cheque thereby confirms the presence of sufficient funds in the account and makes a commitment to pay it.

Although more difficult to obtain and thus less commonplace, “cashiers checks” cheques drawn directly on a bank's own account provide complete security as they constitute a direct undertaking to pay from the bank.

Bills of exchange and promissory notes are less commonly used and offer no specific proof of debt.

The open account system is only justified after a continuing business relationship has been established.

Transfers are used frequently especially via the SWIFT electronic network – operated by the Society for Worldwide Interbank Financial Telecommunication – to which most American banks are connected and which provides speedy and low-cost processing of international payments.

SWIFT transfers are particularly suitable where real trust exists between the contracting parties since the seller is dependent on the buyer acting in good faith and effectively initiating the transfer order.

For large amounts, major American companies also use two other highly automated interbank transfer systems – the Clearing House Interbank Payments System /CHIPS, operated by private financial institutions and the Fedwire Funds Service System, operated by the Federal Reserve.

American law is inspired by the « common law », an Anglo-Saxon inheritance, system based on doctrine, custom and case-law.

Since the American legal system is complex and, especially as regards lawyers’ fees, costly, it is advisable to negotiate and settle out of court with customers wherever possible or else to hire a collection agency.

The parties can also resort to arbitration or Alternative Dispute Resolution (ADR), a relatively informal mediation method, which makes it possible to avoid costly and lengthy ordinary court procedures.

The judicial system comprises two basic types of court: the federal District Courts with at least one such court in each State and the Circuit or County Courts under the jurisdiction of each State.

The Federal Rules of Civil Procedure promulgated by the Supreme Court and regularly amended govern the various phases of civil procedure at the federal level while each State has its own rules of civil procedure.

The vast majority of proceedings are heard by State courts, which apply state and federal law to disputes falling within their jurisdictions (i.e. legal actions concerning persons domiciled or resident in the State).

Federal courts, on the other hand, rule on disputes involving State governments, cases involving interpretations of the constitution or federal treaties and claims above 75,000 US$ between citizens of different American States or between an American citizen and a foreign national or foreign State body or, in some cases, between plaintiffs and defendants from foreign countries.

A key feature of the American judicial system is the pre-trial "discovery" phase whereby each party, before the main hearing, may demand evidence and testimonies relating to the dispute from the adversary before the court hears the case. During the trial itself, judges give plaintiffs and their lawyers a considerable leeway to produce pertinent documents at any time and conduct the trial in general.

This is an adversarial procedure, where the judge has more the role of an arbitrator, ensuring compliance with the procedural rules, although more and more practice enhances the part of the judge in the running of the case.

An amendment to the Civil Procedures Rules, in force since 1^st December 2006, authorizes document submissions in electronic form (e-discovery) like e-mail, real time computer communications, accounting databases, Internet sites, and so on.

The “discovery phase” can last several months, even years, and entail high costs due to each adversary’s insistence on constantly providing pertinent evidence (argued by each party), and involve various means – like examinations, requests to provide supporting documents, the testimony of witnesses, and reports by detectives – before submitting them for court approval during the final phase of the proceedings.

Another feature of the American procedural system is that litigants may request a civil or criminal case to be heard by a jury (usually made up of twelve ordinary citizens not familiar with legal aspects – “twelve good men and true” according to the popular definition of “jury”) whose task is to deliver a verdict based overall on the facts of the case and the evidence produced during the proceedings.

In civil cases, the jury determines whether the demand is justified and also determines the penalty to impose on the offender. In criminal cases, the jury decides on the defendant’s guilt but the judge decides the punishment.

For especially complex, lengthy or expensive litigation, as in the case of insolvency actions, courts have been known to allow creditors to hold as liable the professionals (e.g. auditors) who have counselled the defaulting party, where such advisors have demonstrably acted improperly.