Debt recovery

Debt recovery is a technical and often complex area to navigate if you are unfamiliar with the relevant processes and court rules. Coulter Legal can assist you by assessing the most effective method of recovering your debt as well as advising on the prospects of recovery. If we feel you can recover the debt without formal legal intervention, we’ll advise you.

There are some common industries and situations where debts occur:

• General consumer and trader matters, including recovery of invoices for goods and services delivered
• Commercial leases
• Other contractual matters
• Building and construction matters

There are a number of ways in which you, the creditor, can pursue the recovery of a debt with varying levels of escalation.

This can include:

1. Issuing a letter of demand.
2. 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.
3. 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 consumer and trader matters, building and construction matters and commercial lease matters

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:

1. 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.
2. Obtain a warrant to seize property (including real property). This allows the sheriff to take and sell items or property from the debtor.
3. 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.
4. Obtain an order for the attachment of earnings. This allows the creditor to take money directly from a debtor’s income.
5. 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.
6. 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.

There are a number of risks people may face when seeking to recover a debt, all varying depending on the method of recovery which is used and whether the debt is disputed.
Some common risks include:

1. 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 a costly exercise.
2. 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.
3. 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.
4. Even if the creditor is successful in obtaining an order that the debtor pay the debt, the debtor may seek to appeal that decision.
5. 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.
6. 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.