Alexander and Associates
Solicitors
Suite 12, Level 10
“Leura” Building
809 Pacific Highway
CHATSWOOD NSW 2067

Tel: (02) 9413.2600

Fax: (02) 9419.8872

On-site parking via Brown Street car park entrance.

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Debt Recovery – What You Need To Know

Debt Management

Having an effective system for recovering debts is essential to any business's books.

Credit control practices should be adopted to ensure that accounts are paid on time, and a procedure in place for promptly instigating debt recovery proceedings if those debts are not paid.

We are able to provide advice as to the sorts of terms and conditions that should be in your contract. Some of the key terms that should be included are:

• Exactly what goods or services are being supplied;

• Time for payment;

• Process if goods or services are faulty;

• What happens if payment is not made on time;

• Retention of title, where appropriate; and

• In what circumstances the contract can be terminated

A contract that deals clearly with these and other important issues minimises disputes and, in the worst case scenario, maximises your prospects of recovering outstanding money if there is a dispute.

Where a payment is overdue, typically a final notice is sent to a debtor. If full payment is still not received within a set time, we can assist with debt recovery proceedings, outlined below.

Recovering Your Debt

There are several methods of debt recovery available, depending on whether you are owed money by a person (including a sole trader) or a company, and upon the assets that the party has available to meet your debt.

The first step is generally issuing a letter of demand. This is a letter advising the person or company owing the funds (we'll call them the debtor) that there is money outstanding that is owed to you. The letter should also state when the debt should be paid to you. An effective letter of demand may result in the payment of the debt, and no further cost to you. Sometimes, receiving a letter from a law firm can help the debtor realise you are serious about pursuing the debt.

If the letter of demand is unsuccessful, the next step is legal action.

Minor Claims

If the debt is less than 6 years old and the claim is less than $10,000, it will be dealt with by the Small Claims Division of the Local Court. If the amount is over $10,000, but less than $60,000, it will be handled by the General Division of the Local Court.

To commence proceedings, a Statement of Claim will be issued on your behalf. To effectively draft a Statement of Claim, we will need the following information about the individual or company that owes the debt:

• The debtor's details (full name, address, etc. If you do not have those details however, we are able to assist you with a search of the Electoral Rolls). If the debtor is a company or business, once you provide us with the party's name, we will be able to do a search for you to get the registered company or business address.

• We will need information from you (whether that be correspondence or otherwise) that outlines why the money is owed to you. That information must outline: where and when the debt arose and a brief description about why the debt arose. If possible, we will ask you to provide us with any proof that the debt is owed, for example, unpaid invoices.

Once we have drafted the Statement of Claim, it can be lodged with the Court, and served on the debtor.

If the debtor disputes that the debt is owed, they must file a Defence within 28 days.

If the claim is undefended, a debtor might “confess” to owing the amount in question and organise to pay the sum in full or by ay of instalments.

Alternatively, if the Statement of Claim has been ignored by the debtor and 28 days have expired, you may obtain default judgment against the debtor (as long as the claim is for a set amount).

The judgment can then be enforced against the debtor. In effect this means that the Court officially recognises that the debtor owes you the sum claimed and will use various means at its disposal to help you recover this money. In general these steps will only be successful if the defendant has assets or income available to meet the debt.

Seizing Assets Or Income

The following options are available.

• Seizure and sale of property owed by the debtor, for example a car or electrical equipment.

• An amount to be deducted from the earnings of the debtor

Statutory Demands

If the debtor is a company, once judgement is obtained (and as long as the amount is more than $2000) a Statutory Demand can be served on the company. This allows the debtor 21 days to pay the debt. If the amount is not paid, the company is presumed to be insolvent and an application can be made to have the company wound up and a liquidator appointed. Once this happens, any assets of the company are available to the liquidator to pay any outstanding debts. In reality though, often by this stage there is no money or assets available to meet these debts.

Bankruptcy

A procedure used for individuals where the debt is more than $2000. Similar to the above procedure, the debtor is given 21 days in which to pay the debt. If they fail to do so, and the court is satisfied that an act of bankruptcy has occurred, the debtor hands over control of their property and finances to a trustee.

Some of the debtor's assets or property may be sold to pay the debt. If the debtor's income is over a certain amount, payments must be made to the trustee, which go towards paying the debt. Bankruptcy usually lasts 3 years.

Conclusion

Methods of recovering your debt can often be complex. If you have a debt that is difficult to recoup, please contact us. We can assist you to recover the debt and can also assist you with the prevention of the accruing of future debts with appropriately drafted contracts.

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