Do you need to collect debts or money owed to you?
You can recover debts or money owed in the following ways:
- Negotiating with the debtor;
- Mediation or alternative dispute resolution;
- Filing a claim in the Court with jurisdiction;
- Filing a claim in QCAT or another tribunal;
- Issuing a statutory demand on an insolvent company;
- Enforcing the judgment with an enforcement warrant;
- Enforcing the judgment with bankruptcy or liquidation.
This article will explain each of the above and give you information on the best way to recover debts or money owed by a person or debts or money owed by a company.
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Negotiating with the Debtor
In the first instance, when trying to recover debts or money owed, we recommend trying to resolve the debt matter by negotiating with the debtor.
Non-payment of debts or money owed to you is very likely a breach of contract, and as such you will be entitled to legal (or equitable) remedies. You can certainly highlight those remedies and foreshadow any relief that you will be entitled to as leverage on your side of the negotiation process.
Be mindful not to foreshadow relief that you are not entitled to!
You can’t tell the debtor that you will issue a statutory demand if the amount of the debt is below the statutory minimum.
Likewise, you cannot foreshadow bankruptcy if any future judgment would be less than the statutory minimum for a bankruptcy notice … and so on.
This is essentially what we do in a letter of demand.
Compromise or Settlement
As in any negotiation, there is an element of compromise. To reach a resolution, you may be prepared to compromise for the debt and accept a lesser amount.
The rationale for this is because if you are forced to go to Court or engage a solicitor, then an award of costs (if any) will likely not cover the actual costs that you have spent, leaving a gap which you will be out-of-pocket.
If this gap is $2,000.00 for example, then you may be prepared to accept something up to $2,000.00 less than the debts or money owed in an attempt to resolve the matter early.
If the debtor accepts a $1,000.00 reduction in the debts or money owed, then this should not be seen as a $1,000.00 loss, but a $1,000.00 win because you are not put to the cost, stress, and time of commencing legal proceedings.
Part of the job of a debt recovery lawyer is to advise our clients on the commercial realities of their debt recovery matter.
These compromise negotiations are conducted on a without prejudice basis. See our article here on settling matters early.
Mediation or Alternative Dispute Resolution
If negotiations fail, or do not yield a satisfactory result, then you can attempt to mediate or attempt another form of alternative dispute resolution.
Mediation is a good way of attempting to resolve disputes without resorting to litigation through the Court system and incurring those costs.
A mediation is a structured process where an objective third-party mediator assists to resolve the disputes over debts or money owed.
The objective of the mediation is to reach an agreement and get the parties to sign a legally binding mediated agreement.
Of course, the debtor still needs to pay the debts or money owed after the mediated agreement is made. If the debtor has breached one agreement by not paying the debts or money owed, then you should be mindful that the debtor could quite easily breach the mediated agreement too.
Filing a Claim in the Court with Jurisdiction
If all else fails, then you are able to commence legal action in the Court with jurisdiction.
The Courts have a monetary jurisdiction for debts or money owed:
- Magistrates Court – up to $150,000.00
- District Court – from $150,000.00 to $750,000.00
- Supreme Court – over $750,000.00
Proceedings to recover debts or money owed are commenced by filing and serving a claim and statement of claim.
If the debtor does not respond to your claim by filing and serving a defence within 28 days, then you can get judgment in default and commence enforcement proceedings.
If the debtor attempts to defend your claim or counterclaim, then you will likely be involved in protracted litigation unless you can obtain a summary judgment, or the parties agree to settle the matter and discontinue the proceedings.
The objective is to get a judgment or enforceable money order which you can enforce on the judgment debtor to force the debtor to pay their debts or money owed to you.
Another way to get an enforceable money order is to register a QCAT decision in the Magistrates Court.
Filing a Claim in QCAT or Another Tribunal
If you have a minor debt of under $25,000.00 then you can file a proceeding in the Queensland Civil and Administrative Tribunal (“QCAT”).
Similar to proceeding in the Courts, you must file and serve an application on the debtor. If they respond, then it goes to a mediation and/or a hearing and the QCAT Member will decide on the amount of debts or money owed to you.
If the debtor does not respond, then you are able to obtain a decision in default.
The main advantages of commencing proceedings in QCAT are:
- It is a lot less expensive than commencing in the Court;
- The process can be a lot faster than the Court; and
- QCAT is designed for self-represented people.
The main disadvantages of commencing proceedings in QCAT are:
- The minor debt jurisdiction is mostly a no costs jurisdiction. This means that you will not be able to recover your costs save for a few designated items;
- Legal representatives do not have an automatic right of appearance. This means that if you want us to appear at a QCAT hearing, you will need the leave of the tribunal, which is not always given.
Once you obtain a decision in QCAT, you can register that decision in the Magistrates Court and it becomes an enforceable money order which can be enforced on the judgment debtor.
Enforcing the Judgment with an Enforcement Warrant
If you get an enforceable money order, then you can attempt to enforce that order with one of a number of different enforcement warrants. The most common types of enforcement warrants are:
- Enforcement Warrants for Seizure and Sale of Property;
- Enforcement Warrants for Redirection of Debts; and
- Enforcement Warrants for Redirection of Earnings.
I will explain these in a little more detail below
Enforcement Warrants for Seizure and Sale of Property
A warrant for seizure and sale of property allows the Court bailiff to seize and sell personal and real property of the enforcement debtor.
The warrant relates to vehicles and real property predominately. There are some strict requirements when applying for this type of enforcement warrant, and the bailiff is unable to seize exempt property.
Enforcement Warrants for Redirection of Debts
A warrant for redirection of debts directs a third party to make payment that are due to be paid to the enforcement debtor to the enforcement creditor.
Again, there are strict requirements for this type of warrant and it is best to obtain legal advice.
Enforcement Warrants for Redirection of Earnings
A warrant for redirection of earnings is a warrant directed at the enforcement debtor’s employer. It orders that the employer direct the ordered amount of the enforcement debtor’s salary to be paid to the enforcement creditor as payment of the debts or money owed under the judgment or money order.
Again, there are strict requirements for this type of warrant and it is best to obtain legal advice from a suitably qualified debt recovery lawyer.
Enforcing the Judgment with Bankruptcy
If your debtor is a person (not a company) and you have a judgment of over $5,000.00 which is less than six (6) years old, then you can apply to the Official Receiver – the Australian Financial Security Authority (“AFSA”) for a bankruptcy notice.
The debtor has 21 days to comply with the bankruptcy notice or he/she would have committed an “Act of Bankruptcy”.
The bankruptcy process involves the appointment of a bankruptcy trustee to administer the bankrupt estate of the debtor in an attempt to recover the debts or money owed to creditors.
The bankruptcy usually lasts for three (3) years. In this time the bankruptcy trustee can void transactions and attempt to realise assets to pay a divided to creditors.
Issuing a Statutory Demand on an Insolvent Company
The it is a company that has the obligation to pay the debts or money owed, and the debts or money owed is over $2,000.00 then you can issue a creditor’s statutory demand on the debtor company.
A creditor’s statutory demand is a demand for payment pursuant to section 459E of the Corporations Act 2001 (CTH).
You do not need a judgment to be able to issue a statutory demand, however if there is a genuine dispute about the debt, or the debtor company has an offsetting claim, then a statutory demand without a judgment could be set aside.
The debtor company has 21 days after being served with the statutory demand to do any of the following:
- Pay the debt or debts in the statutory demand; or
- Secure or compound for the debt in the statutory demand; or
- Request that the demand is withdrawn; and/or
- Apply to set the demand aside.
If the debtor company does not do any of these things, then they are presumed to be insolvent and you can apply to wind the debtor company up in insolvency to recover the debts or money owed to you.
We offer professional advice and assistance in all things related to statutory demands
|Issuing Statutory Demands||Setting Aside Statutory Demands|
Enforcing the Judgment with Winding Up & Liquidation
As mentioned above, non-compliance with a statutory demand raises the legal presumption of insolvency. This presumption assists a creditor with an application to wind up the company in insolvency.
The winding up application process is very complicated with strict timelines and needs to be provided by a debt recovery and insolvency lawyer.
The process includes making the application with a supporting affidavit, other affidavits, notices to ASIC, and a consent of the liquidator.
If the application goes unopposed then it is likely that you will get the order winding up the debtor company in liquidation.
The liquidator will bring the company to an end and attempt to realise an many of the assets as possible, including voiding any voidable transactions, to make a payment of the debts or money owed to company creditors.
DEDICATED FOCUS – COMMERCIALLY MINDED – PROVEN RESULTS
OR CALL: 1300 545 133 FOR A PHONE CONSULTATION