Getting paid on time is a regular problem for many businesses. An active credit control system may reduce delays and losses. However, there are times when a business has no option but to begin debt recovery procedures.
At Elliott May we have the skills and experience required to obtain and enforce judgment against defaulting borrowers and customers.
Before starting debt recovery actions the business needs to decide if it is commercially viable to pursue the debt. Some issues to consider:
- What is the total amount outstanding? Would it be better to write off smaller amounts?
- What is the financial status of the debtor? Can it meet any judgment against it?
- Is the debtor a once off client or a long term strategic customer?
- What is the reason for non-payment? Address disputes before involving solicitors.
A corporate debtor refusing to pay and with no genuine dispute about the amount owed, can be served a Statutory Demand. The company then has 21 days to pay the debt or to apply to the court for the demand to be set-aside. If neither actions occur the company will be considered insolvent. The creditor can, thereafter, apply to the court for the winding up of the company and the appointment of a liquidator.
For information about statutory demands and insolvency click here:
Creditors Statutory Demand for Payment of DebtDebt Recovery Proceedings
In the case of an individual or a company with a genuine dispute about the money owing, it is not possible to issue a Statutory Demand. In these situations it is necessary to start debt recovery proceeding via the courts.
Depending on the State or Territory, proceedings usually start with a Claim or Notice of Motion. Once filed with the court they need to be personally served on the debtor. It then typically has 28 days to file a defence or counter claim. If no defence is filed within the given timeframe, the creditor can apply for a default judgment. Alternatively, if a debtor files a defence without any merit, an application for summary judgment may be filed. The reason is the creditor should not bear the costs of trial if the defence is doomed to fail.
If default judgment or summary judgment is not available, then the matter will progress to trial. It is important to remember that even if at trial judgment is entered against the debtor, it will still need to be enforced. This means that the debtor must have assets or income sufficient to pay the amount of the judgment debt, plus any court awarded costs and interest. If not, then they are insolvent and the plaintiff is entitled to issue a Statutory Demand (corporate debtor) or a Bankruptcy Notice (individual creditor).