Debt recovery is the process of recovering unpaid debts by contacting the debtor through calls, emails, messages or personal contact. In case of a debt remaining unpaid for a long time, you can formally engage the debt recovery action which is the legally prescribed course of action, regulated by the Australian Competition and Consumer Law.
Debt recovery has several prescribed processes. Businesses can choose to engage a debt collection agency to help retrieve payments. Another option is to engage a debt recovery lawyer who can help you navigate the entire process. Our team at Lazarus Legal have drawn up a simple guide for businesses to learn about the debt recovery process.
Issue a Letter of Demand
The first step in the process is to issue a letter of demand. This letter is a formal written document to the debtor requesting the payments to be made. They include details of the amount owed and the time frame the payment should be made (after which you, as the creditor, can pursue legal action).
Often, this letter leads to some form of contact from the debtor who might make the payment or request a renegotiation of the payment terms. If both parties can discuss and agree upon a new payment plan, they can put forth a new agreement and schedule for payments.
Debt collection agencies can help during this stage of the process only. If the letter goes ignored, you will have to engage in legal action where you will require the services of a debt collection lawyer. Engaging a lawyer even at this stage can be helpful as a letter issued from a legal firm is likely to be taken more seriously. It indicates that the creditors mean serious business and demand prompt payment.
Initiate Claims in Court
If the letter of demand goes ignored, you can proceed and file a claim in court. However, before you do so, it is advised that you carefully consider the strength of your claim. The reason being is that if your claim proves to be unsuccessful, you may be instructed by the courts to pay a portion of the other party’s legal costs.
Once you choose to proceed with filing a claim, the court proceedings will begin. You, as the creditor, will file a claim in court with a statement of claim on the debtor. The purpose of this statement is to detail the debt claim and provide proof supporting your claims along with the reason for taking legal action. The debtor will file and serve a defence that states whether they accept or deny the claim made. The defendant has a period of 28 days from the service of the claim to respond.
The defendant may at this point decide to pay to settle the claim. In this case, you can withdraw the statement of claim and opt for an out of court settlement. If they fail to respond, the dispute proceeds to court for judgement.
If the debtor has a claim against the creditor, they can file a cross-claim against the creditor. The creditor will have to file a defence and there will be an exchange of proof and a hearing before the court.
Judgement
If the case proceeds to a court judgement, the court will require both parties to submit documents and proof. Subpoenas may be issued to collect phone records, bank documents and other communication evidence.
Before a court proceeding, both parties are offered a chance to engage a mediation process. Informally, the two parties can come together to negotiate and settle – this is facilitated by a third-party mediator. Importantly, mediation will only work if the other party seeks to reach an outcome and is willing to be flexible. A risk of mediation is that it can be expensive if it drags on for a long time and parties are unwilling to concede.
If mediation fails, then a trial will follow. Each party will have their arguments heard and a judgement will be issued. Trials can be a long and costly process, therefore, it may be beneficial for both parties to reach a conclusion through mediation.
Enforcing the Judgement
The court’s judgement can be put into action in the following ways:
- Writ for the levy of property -This is a court order that authorises the sheriff to seize and sell the debtor’s property to fulfil the debt obligations.
- Garnishee order – This order directs the debtor’s money to the creditors to pay off the debt. This is done through any existing bank accounts or income streams of the debtors.
- Examination notice – This order requires the debtor to disclose financial details and position to be given to the court. These are shared with the creditor who can choose the most effective way to recover their debts.
- Court declared bankruptcy – This is when the judgement awarded is over $10,000. However, this enforcement is often complex and expensive and often avoided.
Issue a Statutory Demand on a Company
Under the Corporations Act 2001, if the debt reaches the statutory minimum (amended to $4,000 in July 2021) the creditor may serve a formal statutory demand on a company. The demand should be in writing, signed by the creditor or on their behalf. It should state the debtor’s name, registered office, and the total amount of the debt owed. You should also specify a place in Australia where the debt can be paid such as your office or the solicitor’s office.
A statutory demand can become ineffective if the debtor has it set aside. This can happen if they make a counterclaim that reduces the debt amount to below the statutory amount or if the debt is disputed.
Key Takeaways
- As a creditor, you have several options available for debt recovery.
- You can start the debt recovery process by issuing a letter of demand, bring claims in court, receive a judgement.
- For debt recovery, you can choose to work with a debt collection agency or hire a debt recovery lawyer.
Looking for a lawyer?
If you’re looking to recover your debts, a legal expert can help you identify the best course of action depending on what stage of the debt recovery process you are on.
Debt recovery lawyers can help you negotiate with the other party, draft and file legal documents and claims, and offer sound legal advice. If you need assistance, connect with one of our lawyers at Lazarus Legal to discuss your concerns. Whether it’s just to review your legal documents or representing you in the debt recovery procedure, our solicitors are well qualified to solve your business conflicts.
You may also like
Mark Lazarus
Mark Lazarus, the visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.
1 thought on “Debt Recovery: What are Your Options?”
Central Credit Control (aka Partners in Credit) in Barrie, Ontario has repeatedly violated the Collection and Debt Settlement Services Act. They use threatening, intimidating & abusive language, they apply excessive and unreasonable pressure on you to pay the debt, and they add unjustified and illegal amounts of interest on top of the debt owed.
Please complain to Better Business Bureau (BBB), the Financial Consumer Agency of Canada and your provincial consumer affairs:
Ontario Consumer Protection Ontario Ministry of Public and Business Service Delivery 77 Wellesley Street West PO Box 450 Toronto (Ont.) M7A 2J6 Telephone: 416‑326‑8800 Toll Free: 1‑800‑889‑9768 Phone (TTY): 416‑229‑6086 Phone (TTY) 2: 1‑877‑666‑6545 Email: consumer@ontario.ca Website: http://www.ontario.ca/page/consumer-protection-ontario
The following employees have used shady and illegal practices against clients: Bradley Rice Lisa Asselin Nicole Rowe Nicole Mitchell Lynn Tomkinson Ivy Zhang Carmen King