How to Collect Statute Barred Debts

Are you a creditor or a financial controller looking at how to collect statute barred debts?

If so, this may cause a lot of concern for you as a creditor, as dealing with statute-barred debt is a difficult situation to find yourself in and may prevent you from recovering the debt.

In most states and territories in Australia, a debt is statute barred after six (6) years from the date the cause of action arose (three (3) years in NT).

When dealing with any debt, debtors can be problematic or consistently unwilling to pay, which can result in you simply giving up on the debt. Although this is not generally a good decision, business can be difficult and sometimes the decision to cut your losses can be the best one for you at a time.

However, it is important that you understand statute barring and the financial difficulties associated with it, as it can cause some serious issues for you if you decide to pursue the debt after an extended period. But what does it mean for a debt to be statute-barred and how can one go about collecting a debt that has been statute-barred?

In this article our experienced Qld debt recovery solicitors will explore statute-barring law in Queensland and how to manage a debt that has been statute-barred in your business.

If you have ever asked yourself how to collect statute barred debts in Australia, and the limitation date is approaching, then contact our debt recovery lawyers today for a free 30 minute consultation about our debt recovery services

What are Statute-Barred Debts?

The first question that you may have when discussing this topic is what statute-barred debt is.

In Australia, creditors are only permitted a specific amount of time to collect a debt. Once this period has expired, the debt becomes statute-barred, which means that it can no longer be legally recovered (subject to exceptions). The defendant is allowed to plead limitation of actions as a complete defence to any financial claim.

A debt will become statute-barred if a certain amount of time has passed since payment has been made or acknowledged in any sense by the debtor or the creditor, and no legal action has been taken by the creditor to collect the debt.

In Queensland, the period before a debt is statute-barred is generally 6 years, with some exceptions, depending on the type of debt, established by the Limitation of Actions Act 1974. This means that if a debtor has made no payments or acknowledgements towards it for 6 years, and the creditor has not commenced court proceedings to recover the debt, then the debt may become statute-barred.

Section 10 of the Limitation of Actions Act 1974 (QLD) says:

(1) The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action arose—

(a) … an action founded on simple contract or quasi-contract …

However, an action to recover money secured by mortgage or charge or to recover proceeds of the sale of land cannot be after the expiration of 12 years.  Section 26 of the Limitation of Actions Act 1974 (QLD) says:

An action shall not be brought to recover a principal sum of money secured by a mortgage or other charge on property whether real or personal nor to recover proceeds of the sale of land after the expiration of 12 years from the date on which the right to receive the money accrued.

It’s important to note that a debtor making even a small financial payment towards the debt can restart the limitation period. Additionally, not all types of debts are subject to a statute of limitations, as certain debts like student loans, child support, and tax debts often have different rules.

When a debt is statute-barred, it means that the law prevents the creditor from taking legal action to recover the debt, and the debtor can plead this as a complete defence. However, the debt still exists, and the creditor may still contact the debtor to request payment.

When Does the Cause of Action Accrue for Debt?

Gibbs v Guild (1882) 9 QBD 59 is the authority that a cause of action in contract accrues at the time of the breach of the contract (or the date of the missed payment).

In Evans v Baystate Pty Ltd t/as Domaine Plus Real Estate [2020] NSWCATAP 275 A P Coleman SC, Senior Member and M Gracie, Senior Member, citing Gibbs v Guild said at [19]:

It is well established that a cause of action in contract accrues on breach of the contract rather than when damage is suffered: see for example Gibbs v Guild (1882) 9 QBD 59.

So, a breach of financial contract in relation to a debt will usually be upon the failure of repayment, unless it is a loan repayable upon demand.

Debt Repayable on Demand

A debt is considered “repayable on demand” under two circumstances:

1. When no repayment time is specified, implying a legal obligation to repay on demand.
2. When the involved parties explicitly state the debt is to be repaid upon demand.

By default, any debt without a specified repayment term or date is understood to be repayable on demand, qualifying it as an “immediate debt” in legal contexts.

In Young v Queensland Trustees Ltd (1956) 99 CLR 560 the High Court held that in Australia:

A loan of money payable on request creates an immediate debt.

This comes from a long line of precedents in relation to a debt repayable on demand, going back hundreds of years.

In Collins v Benning (1701) 12 Mod Rep 444 the Court decided that:

If the promise were for a collateral thing, which would create no debt till demand, it might be so; but here it is an indebitatus assumpsit, which shews a debt at the time of the promise, therefore the plea is good.

In Norton v. Ellam [1837] EngR 183 Parke B said:

Where money is lent, simply, it is not denied that the statute begins to run from the time of lending.

Re Brown’s Estate [1893] 2 Ch 300 where Chitty J said:

The law is quite settled that, with regard to a promissory note payable on demand, no demand is necessary before bringing an action… [W]here there is a present debt and a promise to pay on demand, the demand is not considered to be a condition precedent to the bringing of the action.

This means that the statute of limitations begins from the date the money was loaned, and not the day of the breach of the contract.

Read more here – When is a Loan Repayable on Demand?

Fresh Accrual of Action

It is possible for the six (6) year limitation period to start again, essentially restarting the clock.

Section 35(3) of the Limitation of Actions Act 1974 (QLD) says:

Where a right of action has accrued to recover a debt or other liquidated pecuniary claim … and the person liable or accountable therefor acknowledges the claim or makes a payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment.

So, if a debtor acknowledges the claim or makes a payment toward the debt, then the cause of action accrues as at that date, essentially restarting the six (6) year countdown.

In Busch v Stevens [1963] 1 QB 1, the Court described this as:

… a notional birthday and on that day, like the phoenix of fable, it rises again in renewed youth—and also like the phoenix, it is still itself.

Like the phoenix, the limitation period can be re-started at any time – even if the original limitation period has already expired.

Acknowledgement of Debt

As we know, the statute of limitation period starts when a debtor last acknowledges the debt. But what does it mean to acknowledge a debt?

Section 36 of the Limitation of Actions Act 1974 (QLD) says:

Every acknowledgment referred to in section 35 shall be in writing and signed by the person making the acknowledgment.

This means that a debtor may acknowledge the debt, but that acknowledgement must be in writing and must be signed.

An acknowledgement of debt is a formal recognition by a debtor of the existence of a debt and the amount owed to the creditor. It can be made through a written agreement, such as a Deed of Acknowledgment of Debt, or through a payment schedule agreement, or simply just in an email.

In Hepburn v McDonald [1918] ArgusLawRp 66, the High Court defined an acknowledgment by reference to the test in Green v. Humphreys and said:

… an admission by the writer that there is a debt owing by him …. In order to take the case out of the Statute there must upon the fair construction of the letter, read by the light of the surrounding circumstances, be an admission that the writer owes the debt.

In Bucknell v The Commercial Banking Company of Sydney Limited [1937] HCA 35, Dixon J said:

The letter upon which the plaintiff depends contains no express promise either conditional or unconditional, restricted or unrestricted. But although a document relied upon as an acknowledgment contains no express promise, it may effect a revival of the debtor’s liability if there is found in it a distinct admission of the debt. The law implies from an acknowledgment of the existence of the liability a promise to discharge it. Words clearly acknowledging that the writer is liable suffice to raise the implication.

In Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71 Gibbs CJ of the Hight Court of Australia said:

… it is no longer necessary that there should be a promise to pay, it is still necessary, in my opinion, that an acknowledgment should admit or recognize the present existence of a cause of action; in other words, where the claim is for payment of a debt, an acknowledgment, to be sufficient, must recognize the present existence of the debt.

Gibbs CJ then agreed with Kerr J in Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565 who said that:

To acknowledge a claim, as a matter of ordinary English, signifies an admission that it is due. There is no acknowledgment of a debt unless there is an admission that there is a debt . . . outstanding and unpaid.

For an acknowledgement of debt, the debtor must:

1. Recognise the present existence of the debt; and
2. Admit that the debt is outstanding and unpaid; and
3. The acknowledgement must be in writing; and
4. Signed by the person making the acknowledgement.

For a fantastic overview of all of the relevant principles, I invite you to read the decision of Porter KC DCJ in Commercial Images (Aust) Pty Ltd (in liq) v Manicaros [2023] QDC 77 from paragraph [53] onwards.

There can also be a fresh accrual of action when a payment is made toward the debt.

Making a Payment Toward the Debt

Any payment toward the debt starts the six (6) year limitation period again, except for payment of a part of the rent or interest due.

Where a debt relates to a number of different invoices, each invoice has its own separate date and therefore cause of action and therefore has its own limitation period.

A running account is a type of account that is used continuously, accumulating debts over time as new charges are incurred. In such an account, payments are applied to the overall balance rather than to individual invoices. This approach can extend the limitation period for the account as a whole, rather than for each separate invoice.

When it is proven that a debtor has a running account with a creditor, any partial payment made towards this account can acknowledge the debt. This acknowledgment has the effect of resetting the limitation period, which then starts anew from the date of the most recent payment.

If a running account is confirmed to exist between a creditor and a debtor, the creditor can use the date of the last payment made on the account to determine when the limitation period will expire.

In Re Footman Bower & Co Ltd [1961] Ch 443, the Court said:

When, as in the present case, there is an account running between the parties which to the knowledge of both parties is of that kind and kept in that way, then, if the debtor makes a payment ‘generally on account’ it appears to me that he must be taken to be making it on account generally of whatever is owing on the balance of the account. A payment ‘on account’ imports an acknowledgment of a liability for a larger sum.

So, if a debtor acknowledges the debt or makes a payment toward that debt, then the 6 year time limit restarts. This is how a creditor can collect statute barred debts.

If you have ever asked yourself how to collect statute barred debts in Australia, and the limitation date is approaching, then contact our debt recovery lawyers today for a free 30 minute consultation about our debt recovery services

What is the Limitation Date on Judgment Debts?

If judgment is entered against the debtor in Queensland, then the creditor has a statutory limit of twelve (12) years to enforce the judgment debt.  This includes six (6) years without leave of the Court, and a further six (6) years with leave of the court.

Section 10(4) of the Limitation of Actions Act 1974 (QLD) says:

An action shall not be brought upon a judgment after the expiration of 12 years from the date on which the judgment becomes enforceable.

Also, in Queensland rule 799 of the UCPR states:

(1) An enforcement creditor may start enforcement proceedings without leave at any time within 6 years after the day the money order was made.

(2) In addition to another law requiring a court’s leave before an order may be enforced, an enforcement creditor requires a court’s leave to start enforcement proceedings if—

(a) it is more than 6 years since the money order was made

Can you Collect Statute Barred Debt?

You may be able to collect statute-barred debt in some circumstances. As we know, statute barring prevents a debtor from collecting a debt under the law. It does not, however, prevent debtors from making payments toward the debt, nor does it extinguish the debt in question (except in New South Wales where section 63 of the Limitation Act 1969 (NSW) extinguishes the debt, meaning legal recovery of the debt is no longer possible).

Everywhere else but NSW, provided a debtor voluntarily offers to make the payment, and you do not foreshadow legal action if they do not pay, you may still accept payments toward the debt. If they do make a payment toward this debt, then pursuant to Section 35(3) of the Limitation of Actions Act 1974 (QLD) this would amount to a fresh accrual of action, and the creditor can then commence legal action to recover the debt.

Further, if a debtor gives you a written acknowledgment of debt, which:

1. Recognises the present existence of the debt; and
2. Admits that the debt is outstanding and unpaid; and
3. Is in writing; and
4. Signed by the person making the acknowledgement.

Then pursuant to Section 35(3) of the Limitation of Actions Act 1974 (QLD) this would amount to a fresh accrual of action, and the creditor can then commence legal action to recover the debt.

Extreme Care Should be Taken

If you want to recover statute barred debts then extreme care should be taken so as not to engage in conduct that is unconscionable or that is misleading or deceptive.

Part 2, Division 2 of the ASIC Act sets out a number of prohibitions:

1. Section 12DA (prohibiting misleading or deceptive conduct).
2. Section 12DB (prohibiting false or misleading representations).
3. Section 12DJ (prohibiting physical force or undue harassment or coercion).
4. Sections 12CA and 12CB (prohibiting unconscionable conduct).

 It is vital that you do not fall foul of these things, especially if you are a lawyer or a debt collectors, as your license to practice could be on the line (in extreme cases).

Collection House Ltd v Taylor Case

Collection House Limited v Taylor [2004] VSC 49 is a pivotal example of a case relating to collecting statute barred debts. In this case, a debtor, Taylor, was contacted by Collection House about a debt that was statute-barred.

The court found that the conduct of Collection House in this instance was unconscionable. The court’s judgment focused on the pressure exerted on the debtor and the lack of disclosure about the debt being statute-barred.

Although the court in the Collection House case did not make a final decision on whether the statement made to Taylor (that the debt could still be pursued despite being statute-barred) was misleading or deceptive, it was critical of Collection House’s arguments. The court was not persuaded by Collection House’s justification for their statement.

The case underscores the importance of transparency in debt collection practices. Misleading a debtor about the nature of their debt, especially regarding its statute-barred status, can lead to legal challenges and findings of unconscionable conduct.

Read this ASIC report that implies that debt collectors should avoid practices that could be construed as misleading or deceptive, particularly in relation to the collection of statute-barred debts. This includes being clear about the status of the debt and not implying legal actions that are not feasible due to the debt being statute-barred.

Can Silence be Misleading and Deceptive Conduct?

In certain situations, failing to share information or remaining silent can be seen as an act of deception or misrepresentation. It’s not always necessary for the behaviour to suggest explicitly or implicitly something untrue; rather, it becomes an issue if it has the potential to confuse or mislead a consumer.

When evaluating whether silence or a lack of information disclosure amounts to deceptive or misleading behaviour, the Courts apply an objective standard. This involves assessing whether there was an anticipated need for disclosure under the specific circumstances.

If such an expectation existed, then the behaviour in question might be considered deceptive or misleading. Nonetheless, the Courts do not universally require individuals or corporations to disclose information in every business dealing or scenario. Instead, they decide if deceptive or misleading conduct occurred on an individual case basis.

Key Takeaways

Dealing with statute-barring regarding your debts can be a difficult and stressful process. This is why prevention is a better solution than remedy!

It is important that, as a creditor, you take the necessary precautions to prevent a debt from becoming statute barred. If you are concerned about a debt or have had a debt statute barred, it is wise to seek the advice of a lawyer to advise you on your options and next moves.

It is possible to collect statute barred debts, but extreme care should be taken before you contact the debtor.  We advise to always seek legal advice.

If you have ever asked yourself how to collect statute barred debts in Australia, and the limitation date is approaching, then contact our debt recovery lawyers today for a free 30 minute consultation about our debt recovery services

Useful Links

All the states and territories limitation dates for debt are:

1. Australian Capital Territory – 6 years – Section 11 of the Limitation Act 1985(ACT)
2. New South Wales – 6 years – Section 14 of the Limitation Act 1969 (NSW)
3. Northern Territory – 3 years – Section 12 of the Limitation Act(NT)
4. South Australia – 6 years – Section 35 of the Limitation of Actions Act 1936(SA)
5. Tasmania – 6 years – Section 4 of the Limitation Act 1974(TAS)
6. Victoria – 6 years – Section 5 of the Limitation of Actions Act 1958(VIC)
7. Western Australia – 6 years – Section 13 of the Limitation Act 2005(WA)

How to Collect Statute Barred Debts FAQ

Welcome to our comprehensive FAQ section on how to collect statute barred debts in Australia. This resource is designed to provide clear and concise answers to some of the most common questions regarding the collection of debts that have reached or exceeded the limitation period under Australian law.

Whether you are a creditor seeking to understand your rights and responsibilities, or a debtor wanting to know more about your obligations and options, these FAQs offer valuable insights into the legal landscape of debt collection in Australia.

What is a statute-barred debt in Australia?

A statute-barred debt in Australia refers to a debt that has surpassed the legal time limit within which a creditor can enforce collection through the court system. In most Australian states and territories, this period is six years from the date the cause of action arose, and three years in the Northern Territory. Once this period lapses, the debt becomes statute-barred, meaning it cannot be legally recovered, with certain exceptions.

When does the limitation period for a debt start?

The limitation period for a debt typically starts from the date of breach of contract, which is usually the date of the missed payment. For debts that are repayable on demand, the limitation period begins from the date the money was loaned. This period is crucial in determining the statute-barred status of a debt.

Can the limitation period for a debt be restarted?

Yes, the limitation period for a debt can restart. This happens if the debtor acknowledges the debt or makes a payment towards it. The acknowledgment must be in writing and signed by the debtor. Any such acknowledgment or payment effectively resets the limitation period, starting a new six-year countdown.

What happens if a debt becomes statute-barred?

Once a debt becomes statute-barred, the creditor is legally barred from using the court system to enforce the debt. However, the debt still exists. The creditor can request payment from the debtor, but cannot threaten legal action for recovery. In New South Wales, the debt is extinguished and cannot be recovered.

Is it legal to collect a statute-barred debt?

While it’s legal to request payment on a statute-barred debt, creditors must not mislead or deceive the debtor about the nature of the debt. Creditors can accept voluntary payments but cannot imply that legal action can be taken for statute-barred debts, except under specific circumstances where the limitation period has been reset.

How does a debtor’s payment affect a statute-barred debt?

If a debtor makes a payment towards a statute-barred debt, it can restart the limitation period. This means the creditor may then have a new six-year period to legally pursue the debt. However, this does not apply to partial payments of rent or interest due.

Can a creditor enforce a judgment on a statute-barred debt?

If a creditor has obtained a judgment against the debtor before the debt became statute-barred, they generally have up to twelve years to enforce the judgment in Queensland. This includes six years without the court’s leave and an additional six years with the court’s leave.

What should a creditor do if a debt is nearing its limitation date?

If a debt is nearing its limitation date, a creditor should consider taking legal action to recover the debt before it becomes statute-barred. It’s advisable to seek legal counsel to understand the best course of action and ensure compliance with legal standards and ethical practices.

What is considered an acknowledgment of debt?

An acknowledgment of debt must be a clear admission by the debtor of the debt’s existence and must be in writing and signed by the debtor. This acknowledgment can take various forms, such as a written agreement, a payment schedule, or even a signed email.

Can a creditor contact a debtor about a statute-barred debt?

Yes, a creditor can contact a debtor about a statute-barred debt to request payment. However, the creditor must not mislead the debtor about the legal status of the debt or imply that legal action can be taken for its recovery when it cannot.

What are the risks of trying to collect a statute-barred debt?

Attempting to collect a statute-barred debt carries risks, especially if the creditor engages in unconscionable, misleading, or deceptive conduct. Such actions can lead to legal challenges, reputational damage, and potential penalties under Australian consumer law.

Does the statute of limitations apply to all types of debts?

Most types of debts are subject to a statute of limitations, but there are exceptions. Certain debts, like student loans, child support, and tax debts, often have different rules and may not be subject to the standard limitation periods.

What is the limitation period for debts in different Australian states?

The limitation period for debts varies across Australian states and territories. It’s generally six years in the Australian Capital Territory, New South Wales, South Australia, Tasmania, Victoria, and Western Australia, and three years in the Northern Territory.

Can a debtor dispute a debt after the limitation period has passed?

Yes, a debtor can dispute a debt after the limitation period has passed by raising the defence that the debt is statute-barred. This defence, if valid, prevents the creditor from enforcing the debt through the court system.

Should a creditor seek legal advice for collecting old debts?

Yes, it’s highly advisable for creditors to seek legal advice when dealing with old debts, especially those nearing or beyond the limitation period. Legal counsel can provide guidance on the complexities of debt collection laws and ensure that the creditor’s actions are compliant and ethical.