Recovering an unpaid debt can be a time-consuming, costly and stressful process with no guarantee of success. At Valorum Law Group, we understand that steady flows of income are vital to all businesses so failures to pay debts can have detrimental impacts on a creditor’s business.
The Debt Recovery Process
Step 1: Reminders
A relatively simple initial step to recovering a debt is providing a courtesy reminder to the debtor about the debt remaining outstanding, such as by sending an email or posting a letter. In many cases, the debtor may have forgotten about the debt or there may have been an administrative error so providing a courtesy reminder may be the most simple and cost-effective method of recovering a debt.
Step 2: Letters of Demand
If the debtor has not paid the debt despite multiple reminders, a formal letter of demand may be provided, which clearly sets out details of the outstanding debt, a deadline for paying the debt and stating that legal proceedings will be commenced if payment is not received before the deadline. We can assist you in drafting legally sound and effective letters of demand.
While letters of demand may successfully convince the debtor to repay the debt or may lead the debtor to concede that a debt is owing, it may however lead to an escalation of the issue, with the debtor possibly engaging lawyers and commencing their own proceedings in response.
Step 3: Alternative Dispute Resolution or Court Proceedings
As legal proceedings are costly and time-consuming, it may be desirable to consider methods of resolving the dispute that do not involve commencing legal proceedings before commencing legal proceedings. This may involve you making an offer to resolve the dispute for less than the debt or commencing negotiation or mediation to assist in the resolution of the issues.
However, if such is not successful and there are legal issues relating to the debt, you may need to commence legal proceedings in the correct court or tribunal, who can resolve these issues and determine the exact amount of debt owing between the parties.
Once that is completed, or if there are no legal issues in dispute but the debtor continues to refuse to pay the debt, you can utilise enforcement mechanisms to recover the debt.
Step 4: Statutory Demands and Other Enforcement Devices
There are many different ways of enforcing the debt. Choosing the correct method of enforcement ensures that you have the highest probability of recovering the debt in the most efficient manner, and we can assist you by providing advice as to the most effective course of action.
Where the debtor is a corporation, statutory demands are the usual first step in enforcement. They are documents which state that a debt remains outstanding and which are prerequisites to winding up proceedings. More information about statutory demands can be found here. If winding up proceedings are successful, the debtor corporation ceases to exist as a company and its assets are liquidated.
Where the debtor is an individual, the equivalent document is a bankruptcy notice. This is a document stating that a debt remains owing and that failure to pay the debt within a certain period of time is an ‘act of bankruptcy’ which entitles you to commence bankruptcy proceedings. If bankruptcy proceedings are successful, the debtor is declared bankrupt and their assets will be liquidated.
There are other alternative methods of recovering your debt that do not involve bankruptcy of an individual debtor or the winding up of a debtor corporation:
- Garnishee orders allow for a debtor’s income, such as through their wages, dividend payments or interest payments, to be used to pay off their debt automatically
- Charging orders may be used to place security interests in the debtor’s property
- Writs for the levy of property authorise the Sheriff’s Office to seize property owned by the debtor (other than land) to be sold to repay the relevant debts
- Writs for possession of land are only granted if writs for the levy of property do not raise enough funds to repay the relevant debts and there are no other methods of raising funds to repay the debt. They allow for possession of land to be sold to repay any remaining debts
All of these above processes are highly technical and errors may lead to serious consequences for you. We can assist in these processes to recover the debt in the most efficient manner.
How We Can Help
We have much experience in helping our clients recover unpaid debts. We provide commercially-focussed and sound advice, weighing up the size of the debt and the probability of recovery with the time and cost of doing so. We can help clients work towards solutions that make the most sense and to make the choices which provide the best chance of them recovering their debts.
We can provide a range of debt recovery services, including:
- Advice on formal and informal processes of debt recovery, including the best course of action for your individual and unique circumstances;
- Drafting letters of demand as a simple and relatively inexpensive method of recovery;
- Engaging in alternative dispute resolution processes on your behalf such as negotiation or mediation;
- Drafting statutory demands for small debts that are not in dispute;
- Acting in court proceedings to recover the debt generally;
- Acting in court proceedings during the bankruptcy process;
- Acting in court proceedings to wind up companies or pursue director guarantees; and
- Acting in court proceedings for garnishee orders.
We can also assist with caveats, which operate to prevent dealings in land without the caveator’s consent, in the context of debt recovery. More information on caveats can be found here.
In addition, we can assist you if another party has wrongly stated that you owe them a debt, are served a letter of demand or statutory demand, or had legal proceedings commenced against you.
If you have any queries, please do not hesitate to contact us at admin@valorumlaw.com.au or voregan@valorumlaw.com.au. Our commercial lawyers will be on hand to assist you.
The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.
Contributors: Harry Chen
