Regular cashflow is essential for any organisation and without it sustaining a viable business is not possible. Chasing unpaid debts is a major time and money waster for business owners and account managers. We can assist with recovering your unpaid debts or with legal disputes regarding the payment of money. We have expertise in:
- Alternative Dispute Resolution, negotiations, and mediation
- Issuing letters of demand and communicating with debtors
- Preparing and serving Statutory Demands
- Applications to set aside a Statutory Demand
- Issuing Statements of Claim
- Enforcement proceedings including Summons for Examination, Warrants to Seize Property, Attachment of Debt and Earnings Orders and Instalment Orders
Using the correct process to recover unpaid debts
Various factors will determine the most appropriate process used to recover an unpaid debt. An informed decision must be made that considers:
- the legal entity of the debtor – whether that is an individual, partnership, company or other structure;
- the total amount outstanding and how long it has been overdue;
- the likely costs of attempting to recover the debt – legal fees, court filing fees, service and agency fees;
- whether the debtor has raised a dispute regarding the unpaid amount;
- the likelihood of the debtor being able to satisfy any court orders to pay the debt – recourse to personal assets of individual debtors / sole traders, company assets;
- if the debtor is a company, whether the directors have caused the company to trade whilst insolvent or whether the directors have given personal guarantees for the debt;
- the appropriate court in which to start proceedings, should this become necessary and whether the recovery process is governed by specific legislation.
We will step through these factors to propose a strategy that is likely to deliver the most efficient and cost-effective outcome in the circumstances.
Letter of Demand
A letter of demand is often the first step in persuading a slow debtor to take action. The letter of demand should clearly state the amount owed, the goods or services to which it relates, and how the outstanding amount should be paid. The letter should threaten legal action (including a claim for the recovery of legal fees) if the debt is not paid by a specified date.
After a statutory demand is served on a company, a ‘presumption of insolvency’ arises if, after 21 days the debt remains unpaid, or the company is unable to have the statutory demand withdrawn by the creditor or set aside by a court.
The Corporations Act 2001 prescribes the correct format and procedures that must be adopted when preparing and serving a statutory demand. Failure to follow these processes can be costly for a creditor and may lead to costs orders being made.
The demand must state that payment be made within 21 days and specify where the debt may be paid. Unless a judgement has been issued in favour of the creditor, the demand must be supported with an affidavit attesting to the existence of a specified debt that is due and payable.
Defending a Statutory Demand
If you are a director of a company which has been served with a statutory demand, you should obtain urgent legal advice. The consequences of failing to deal with a statutory demand can be significant, as inaction can result in the creditor commencing winding up proceedings to have the company placed into liquidation.
Generally, after being served with a statutory demand, a debtor company has three options:
- pay the amount, if it is owing;
- negotiate with the entity issuing the demand to reach an agreed solution;
- apply to have the statutory demand set aside under the grounds specified in the Act which generally include a genuine dispute regarding the debt, an offsetting claim, or, in some circumstances, that the demand is defective.
When you are already incurring loss because of slow payers, it is essential that the debt recovery process used is efficient, cost effective and delivers a sound commercial outcome.
We provide practical debt recovery solutions focused on minimising further loss and getting quick results. We are experienced negotiators and avoid expensive litigation wherever possible. If court proceedings are necessary however, we are strong advocates and can represent our clients in all courts and jurisdictions in Australia, for a range of debt recovery matters.