The litigation and dispute resolution team at Coulter Roache provides a full range of debt recovery services to assist our clients (both individual and commercial) in securing payment of money owed as quickly and cost-effectively as possible.
How can a debt arise?
Debts can arise in a number of different contexts. For example, some of the areas in which we commonly see debts arise are:
(a) general consumer and trader matters, including recovery of invoices for goods and services delivered;
(b) commercial leases;
(c) other contractual matters; and
(d) building and construction matters.
The best method and correct forum for recovering a debt will often depend on the context in which it has arisen.
How can I recover a debt?
There are a number of ways in which a creditor can pursue the recovery of a debt, including, for example:
(a) issuing a letter of demand;
(b) engaging in negotiation, mediation, or conciliation. These are alternative forms of dispute resolution which sit outside of the formal litigation process and can often provide a more timely, efficient and cost-effective way of recovering a debt;
(c) instituting and conducting recovery proceedings. Depending on the size and the nature of the debt, it may be appropriate to commence proceedings in the following forums:
(i) Magistrates’ Court – the Magistrates’ Court can deal with debt recovery matters up to the value of $100,000. If the claim is less than $10,000 it will be referred straight to arbitration rather than a trial, which is a less formal form of dispute resolution that allows the matter to be dealt with more efficiently. At arbitration, the ability to recover legal costs is limited. This is the case because the parties are encouraged to reach a resolution at an early stage without incurring significant legal costs which are likely disproportionate to the amount claimed;
(ii) County Court or Supreme Court – the County Court and the Supreme Court both have unlimited authority to deal with debt recovery matters and have no monetary cap on damages. Proceedings seeking to recover amounts more than $100,000 will likely be brought in these forums.
(iii) Tribunals – in Victoria, whilst the Victorian Civil and Administrative Tribunal (VCAT) does not have a general jurisdiction to hear debt recovery matters, it has jurisdiction which enables it to hear specific debt matters such as, for example, in relation to consumer and trader matters, building and construction matters, and commercial lease matters.
(d) if the debtor is a Company, issuing a statutory demand. A statutory demand is a notice that can be issued if certain criteria are met, for example:
(i) the debt is not disputed;
(ii) the debt is over the statutory minimum (which is currently $20,000).
Whilst issuing a statutory demand is not technically recognised by the courts to be a debt collection tool, it is widely used an effective and efficient method for collecting debts as, if a statutory demand is not complied with within a certain time, that non-compliance can result in the company being wound up.
What is the most appropriate method for seeking to recover a debt?
The most appropriate method for recovering moneys owed will depend on a number of factors, including but not limited to:
(a) the nature of the debt, for example, if the debt arises pursuant to a building and construction contract, there are certain avenues under the Building and Construction Industry Security of Payment Act 2002 (Vic) which are available to the creditor to recover the debt which fall outside of the traditional recovery processes set out above;
(b) the size and/or quantum of the debt;
(c) whether there is security for the debt, including by way of charge, mortgage or guarantee;
(d) whether the debt is disputed or contested;
(e) the business structure of the debtor, for example, whether they are an individual, a partnership, a company etcetera;
(f) the enforcement methods which may be available to recover the debt; and
(g) the likely costs involved in seeking to recover the debt.
We provide expert, tailored advice to creditors at the outset to ensure you recover your debt quickly, and cheaply.
How do I enforce the debt?
If a creditor is successful in obtaining an order from a court (or tribunal) for payment of a debt, there will often be a number of avenues available to the creditor to enforce the debt. For example, depending on the jurisdiction in which the order was made, the creditor may be able to:
(a) issue a summons for oral examination – this requires the debtor to attend court and give details on oath about their financial circumstances, including, but not limited to their assets, income and debts. Such information will inform the creditor as to the debtor’s asset position and how best the debt may be enforced;
(b) obtain a warrant to seize property (including real property) – this allows the sheriff to take and sell items or property from the debtor;
(c) obtain an order for the attachment of debt – this allows the creditor to recover money owed to the debtor by a third party, including bank accounts;
(d) obtain an order for the attachment of earnings – this allows the creditor to take money directly from a debtor’s income;
(e) if the debtor is an individual, issue a bankruptcy notice and subsequent bankruptcy proceedings in the Federal Court of Australia which, if successful, will result in either a negotiated resolution or the appointment of a trustee in bankruptcy in which case the creditor may receive a dividend from the bankrupt’s estate;
(f) if the debtor is a company, issue a statutory demand and subsequent winding up proceedings in the Federal Court of Australia or the Supreme Court which, if successful, will result in either a negotiated resolution or the appointment of a liquidator in which case a creditor may receive a dividend from the company in liquidation.
What are the risks of pursuing a debt?
There are a number of risks people may face when seeking to recover a debt. Whilst the risks involved vary depending on the method of recovery which is used and whether the debt is disputed, some common risks include the following:
(a) that, if the debt is for a relatively small amount, the legal costs incurred in seeking to recover the debt and the limited ability to recover costs in some jurisdictions may make debt recovery an uncommercial exercise;
(b) that the debtor may seek to make a counterclaim in relation to the dispute in which case the creditor could be required to defend that claim whilst seeking to recover payment of the debt;
(c) that the creditor may be unsuccessful in its claim, in which case it may be ordered to pay the debtor’s legal costs of any proceedings;
(d) that, even if the creditor is successful in obtaining an order that the debtor pay the debt, the debtor may seek to appeal that decision;
(e) that, even if the creditor is successful in obtaining an order that the debtor pay the debt, the debtor may not have sufficient assets to satisfy the debt; and
(f) that, if the debtor pays the debt and then subsequently enters into bankruptcy or liquidation, a trustee in bankruptcy (if the debtor is an individual) or a liquidator (if the debtor is a company) may seek to recover payment of the debt.
Do I need a lawyer?
Debt recovery is a technical and often complex area to navigate if you are unfamiliar with the relevant processes and court rules.
Coulter Roache can assist clients by assessing the most appropriate method of recovering a debt as well as advising on the prospects of recovery. We have extensive experience in debt recovery and can assist our clients in streamlining the process to ensure that debts are recovered quickly, consistently and cost effectively.
We can also conduct litigation in all jurisdictions with considerable experience in recoveries arising out of a variety of commercial arrangements.