Debt recovery lawyers are legal professionals who focus on legally recovering debts and enforcement of money orders.
Most businesses encounter bad debts or bad paying clients at some stage.
Recovery of these debts can be frustrating if you do not understand how the civil litigation system works in Queensland and you do not use debt collection solicitors.
Debt collection lawyers can provide advice and assistance to creditors who are serious about recovering debts from a debtor.
In a downturn in the economy, such as post-COVID-19, there is a rise in delinquent debts and bad or late payments. This has a knock-on effect.
This article provides you with tips from a debt recovery lawyer to help recover your debts.
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What do Debt Recovery Lawyers do?
Debt recovery lawyers provide advice and assistance to clients who need to recover debts.
Debt recovery solicitors can help with:
- Negotiation with debtors;
- Sending letters of demand;
- Alternative dispute resolution;
- Commencing legal action;
- Enforcing judgments;
- Issuing statutory demands;
- Winding up applications;
- Bankruptcy / creditor’s petitions; and
- Drafting credit contracts.
Debt recovery lawyers are usually commercial litigation lawyers, so we can advise and assist on all commercial litigation matters.
However, in relation to the legal collection of debts, this article will explain the above in more detail below.
Negotiation with Debtors
In the first instance, debt recovery lawyers will usually try to resolve the dispute by negotiation.
Negotiating the payment of a debt is usually the best option as it avoids the cost and stress of going to Court to recover the debt.
Debt Recovery Tip 1 – Leverage
To have a good negotiating position means to have some leverage. This is why debt collection lawyers’ letters are always full of potential things which might happen if the debtor does not pay.
In any good negotiation, you must have some leverage.
Leverage could include waiving interest if they pay now or reducing the debt for an immediate payment.
Alternatively, leverage could mean telling the debtor what can happen if they do not pay the debt, such as winding up, bankruptcy, or a warrant for seizure and sale of the debtor’s real property. Although care must be taken not to foreshadow a cause of action that is not actually available.
Sending Letters of Demand
Part of the negotiation process is to send the debtor a letter of demand.
A letter of demand is a letter setting out the debt dispute, the debtor’s obligation to pay, and the ramifications if the debtor does not pay the debt.
We would always advise engaging a debt recovery solicitor to send a letter of demand.
Send a letter of demand – Letter of Demand
Debt Recovery Lawyers Tip 2 – Send a Without Prejudice Letter of Offer
A without prejudice letter, or sometimes called a Calderbank letter, is a letter of offer usually compromising the debt in exchange for immediate payment.
A Calderbank letter will be marked “without prejudice save as to costs” and is an opportunity for a creditor and a debtor to negotiate in good faith without admission of liability.
A Calderbank letter is a good way to reach a resolution to a debt dispute early. However, there are a number of requirements which must be adhered to, so you should engage a collections lawyer to draft and send the without prejudice Calderbank letter of offer.
Send a Calderbank letter of offer – Send a Calderbank Letter
Negotiation is just one (1) form of alternative dispute resolution (“ADR”) but there are a number of other forms of ADR.
Alternative Dispute Resolution
Alternative dispute resolution is a way of resolving a debt dispute without having to go to Court.
There are a number of different types of ADR including:
- BIFA adjudication (for building payment disputes);
- Conciliation with the debtor;
- Determination of the debt by an expert;
- Expert arbitration with the debtor; and/or
- Mediation with the debtor.
A lot of these forms of ADR may only apply to certain types of legal matters. You should seek legal advice as soon as possible from suitably qualified and experienced debt collection solicitors to get advice about ADR.
Debt Recovery Tip 3 – Stay Out of Court if you Can
In almost all cases a creditor must do everything that they can to stay out of Court if possible.
Good debt recovery solicitors will usually advise that negotiation, letters of demand, offers of compromise, and ADR should be considered first before filing a claim in the Court.
However, in some instances the debtor will just refuse to listen or respond to all reasonable requests, and so there may be no alternative than enforcing your legal rights in the Court with jurisdiction.
Commencing Legal Action
Commencing debt recovery action in Court is done by filing an originating process which in most cases is a claim and a statement of claim.
Commencing debt recovery action in QCAT is done by filing an application for minor civil dispute.
Once these documents are filed and have a seal, the creditor will need to serve the defendant / respondent with the documents.
Once served the debtor will have 28 days to file a defence or a response.
The matter with then proceed to either a trial in Court or a hearing in QCAT. It is a lot more complicated that this, but this gives you the general idea.
Debt Recovery Lawyers Tip 4 – Engage a Debt Recovery Lawyer
If you are going to Court, then it is vital that you engage suitably qualified and experienced debt collection lawyers to prepare the initiating documents.
There can be serious cost consequences if you do not plead your case correctly and in accordance with the Uniform Civil Procedure Rules 1999 (Qld) (“the UCPR”).
It is important that you get it right from the start and engage debt collection lawyers to help you obtain a judgment or enforceable money order.
The purpose of Court or QCAT proceedings is to obtain an enforceable money order which can then be enforced over the property of the judgment debtor.
If you get a QCAT decision, it has to be registered in the Magistrates Court before it can be enforced.
An enforceable money order can be enforced through the Court by obtaining an enforcement warrant. Enforcement warrants can include:
- A warrant for charging orders;
- A warrant for redirection of debts;
- A warrant for redirection of earnings;
- A warrant for seizure and sale of property;
- Order for payment by instalments; and/or
- Regular redirections from financial institutions.
Debt Recovery Lawyers Tip 5 – Do Searches to see if the Judgment Debtor has Property
A judgment creditor, or their debt recovery lawyers, should do some extensive searches to see if the judgment debtor owns any property which can be used to satisfy a judgment debt.
Some of these searches include:
- Searches of the database at the land titles office to see if the debtor owns real property;
- Searches of the Personal Property Securities Register to see if there is encumbered property in their name;
- Facebook and online searches to see vehicles (cars, boats, jet skis); or
- Engage a private investigator to conduct searches of other databases.
If searches come up empty, then you will need to summon the judgment debtor to an enforcement hearing.
If the judgment debtor is a company then an alternative enforcement option is to issue the company with a creditor’s statutory demand.
Issuing Statutory Demands
A statutory demand is a demand by a creditor on a company to pay its debts.
Apart from the temporary legislation enacted because of COVID-19, usually a debtor company will have 21 days to do one of the following:
- Pay its debts;
- Secure or compound for the debt; or
- Make an application to set the demand aside.
If they do not do these things within the required time, then the company will be presumed to be insolvent, and with this presumption of insolvency assisting a judgment creditor can apply to wind up the company.
Debt Recovery Lawyers Tip 6 – Negotiate a Payment Plan
The legal presumption of insolvency last for three (3) months from non-compliance with the statutory demand.
The statutory demand has already done its job, so during this time you are free to negotiate with the judgment debtor to reach a resolution without extinguishing the statutory demand.
The threat of the foreshadowed winding up application is great leverage to get the debtor to pay the debt and some costs.
If they do not pay the debt by around two (2) months and two (2) weeks, then you can make the winding up application.
You need to get advice from an experienced lawyer before doing this as there are some downsides (unfair preference payments, for example).
If the company debtor does not pay the debt, then you can make a winding up application.
Winding up Applications
This is incredibly serious for the debtor company and the directors of the company, who may be personally liable for the debt in some instances.
Once the winding up order is made then a liquidator is appointed to the company, and it is slowly brought to a close, payments made to creditors (if any) and finally the company is deregistered.
Debt Recovery Lawyers Tip 7 – Give Information to the Liquidator
Director’s of companies in liquidation are not always honest with the liquidator.
If you have any information which may assist the liquidator the you should pass it on to then to assist then to realise as much money as possible.
If the judgment debtor is a real person and not a company then you can also start the bankruptcy process for an insolvent person by issuing a bankruptcy notice.
Issue a Bankruptcy Notice
Bankruptcy is commenced by issuing the judgment debtor with a bankruptcy notice.
Similar to a statutory demand, a bankruptcy notice is a demand for money giving the judgment debtor 21 days to do any of the following:
- Pay the debts contained in the bankruptcy notice;
- Enter into an arrangement to pay the debt; or
- Make an application to set the bankruptcy notice aside.
If they do not do these things, then they will have committed an “act of bankruptcy” allowing a judgment debtor to present a creditor’s petition in the Federal Circuit Court.
Debt Recovery Lawyers Tip 8 – Do not Enter into an Arrangement before 21 Days
A bankruptcy can be satisfied by entering into an arrangement with the creditor for payment of the debt.
However, it is the entering into the arrangement which satisfies the bankruptcy notice, and not the adherence to that arrangement.
In Deputy Commission of Taxation v Catanese (1999) 42 ATR 247 Kenny J said:
I accept that, if a creditor and a judgment debtor enter into an arrangement to the creditor’s satisfaction for the settlement of a debt prior to the time limited for compliance by a bankruptcy notice, the creditor cannot rely on the bankruptcy notice to found an act of bankruptcy … That is so whether or not the judgment debtor subsequently honours the arrangement.
The act of bankruptcy lasts for 6 months, so wait until after the 21 days and then start negotiating.
If the judgment debtor still does not pay, then before the expiration of 6 months of the “act of bankruptcy” you can present a creditor’s petition in the Federal Circuit Court.
A creditor’s petition is the initiating document to commence bankruptcy proceedings.
A creditor’s petition must also be supported by a number of affidavits attesting to searches of the Court records, and to the fact that the debt is still outstanding and unpaid.
If the judgment debtor does not try to set the creditor’s petition aside, the Court will make an order that the debtor’s estate be sequestered, and a bankruptcy trustee appointed.
The trustee’s job is to realise as many assets as possible and attempt to make a payment to creditors of the bankrupt.
Debt Recovery Lawyers Tip 9 – Give Information to the Bankruptcy Trustee
Bankrupts are not always honest with the trustees. In fact, I read this morning that a bankrupt was sentenced to two (2) years in prison for providing the trustees a fraudulent Statement of Affairs.
Any information about the bankrupt’s financial affairs will greatly assist the bankruptcy trustees and may result in more money being realised.
Of course, most of the above may be avoided with correctly drafted credit contracts.
Drafting Credit Contracts
Debt recovery solicitors can also draft credit applications and loan / credit contracts.
A credit contract must contain as a minimum the following:
- A clause providing for default interest;
- A clause providing for default and breach;
- A clause providing for legal & debt collection costs upon default;
- A clause providing for personal / director’s guarantees; and
- A clause providing for security for the debt.
If you have a well drafted contract when entering into an agreement with a debtor, then you can save time and money on Court action; recover more than you would; simply realise security; and make a director or third-party personally liable for the debt.
Debt Recovery Lawyers Tip 10 – Always have Well Written Contracts
As debt recovery lawyers, we see daily the problems associated with not having good legal instruments, or not having contracts at all.
It is vitally important that you have proper legal documents protecting you if something goes wrong.
Visit – Contract & Credit Application
Debt Recovery Lawyers in Queensland
This article gives you basic fundamental information in relation to legally recovering debts.
FIXED FEES – FAST RECOVERY – PROVEN RESULTS
OR CALL: 1300 545 133 FOR A FREE PHONE CONSULTATION