Debt Collection

Prevention Or Cure!

It is a sad fact of life that all of us have 20/20 hindsight and can recognise problems and "warning signs" after it is too late. Obviously prevention is, and always will be, better than cure and this is particularly so in the case of avoiding being in a position to 'chase' debts.

How can you be sure that the person or business that you are dealing with is financially stable? There are never any certainties but there are a number of precautions you can undertake to give some peace of mind. There are costs involved in undertaking searches and for this reason you should consider their commercial viability.

Examples of searches which could be undertaken include:

1. Credit Reference Enquiry;
2. Bankruptcy search;
3. Company search; and
4. Court searches.

It may also be prudent to obtain guarantees from individuals you are dealing with or alternatively from the Directors of the Companies you may be dealing with. This is of course a question of "appropriateness" in fostering a good "business relationship". It is a fact of commercial life that people nowadays are expected to provide guarantees for some trading accounts.

The Chase?

If you are unsuccessful in obtaining satisfaction of a debt, then you need to consider your options. There are a number of options which range from the 'usual' letters of demand to the commencement of proceedings in a Court.

The letter of demand is often the first step. In this letter the debtor is placed on notice of the steps you intend to take should the debt not be paid. It is often the case, particularly if this letter is sent from a Solicitors office, that it is sufficient to "encourage" a debtor to pay.

To The Courts

If a letter of demand proves fruitless in getting payment the next logical step is to go to the appropriate Court. What is the appropriate Court is a question that is dependant entirely upon the size of the debt. In Queensland the relevant Court jurisdictions are:-

1. Small Claims Tribunal - claims up to $5,000.00.
2. Magistrates Court - claims up to $40,000.00.
3. District Court - claims from $40,000 to $200,000.00.
4. Supreme Court - claims over $200,000.00.

It is important to remember that where the claim is less than $5,000.00 you have a choice as to whether to commence a "small claims" action or alternatively one in the Magistrates Court. The advantage of a small claims action is that it is relatively cost effective and quick. It also does not generally permit the parties to have legal representation at the time of hearing which further reduces cost. A judgement obtained in the small claims tribunal can be enforced as if it were a judgement of the Magistrates Court.

The Court System Generally

Although the different Courts have different rules and procedures they all follow the same general system. Proceedings are commenced by preparing and filing at the Court a document which sets out the particulars of your claim. There is a filing fee incurred which varies depending upon the debt that is sought to be recovered and which Court you are pursuing your claim in.

After the document is filed it is served on the debtor (who is referred to as the 'Defendant'). This is usually done by a process server who charges a fee for his service. This fee depends upon the distance which has to be travelled and the time spent in locating and serving the debtor. It is in your best interests to provide as much information to assist your Solicitor and the process server. If the debtor is a company it is necessary to undertake a search at the Australian Securities Commission to determine the companies registered office. It is at that address the company will be served with all legal documents.

After service the debtor has a period of time in which to file a defence to the action. This defence must set out all the grounds upon which the debtor intends to defend your claim. If the defendant does not file such document within the time limit required then you are able to enter a judgement for the full amount of your claim plus legal costs and interest.

If The Debtor Defends?

If a defence is entered within the time period then in a "worse case scenario" the matter will take longer while all steps leading up to a Court trial are undertaken. These possible steps are many and varied and are used to clarify the matters in dispute prior to the hearing date. Whether any or all of these steps are used depends on the facts and circumstances of each case.

One exception to this position is where a defendant files a defence to your action and the defence filed is on the face of it, groundless or cannot be substantiated. It is possible in this case to bring what is known as a 'judgement summons' whereby the debtor is in effect called upon to appear before the Court to show that he does have a good defence to the claim made. If he cannot then a judgement can be entered on the spot. A judgement summons will only be successful if the Court believes that there is no defence at all. If the debtor can raise even slight doubt the Court will normally refuse to decide the issue and will send the matter to trial.

Enforcement Of Judgement?

Assuming that you have been successful in obtaining judgement the next step is to force the defendant to pay. There are a number of ways in which a judgement can be enforced.

1. Obtaining an 'oral examination' of the debtor. This is a step where the debtor is ordered to appear before the Court to answer questions under oath regarding his financial status. This step provides information which will enable you to make a decision whether it is worthwhile to pursue the matter further. If at the time of the oral examination the Court considers the debtor is capable of making some form of payments then an order can be made to that effect.
2. Warrant of Execution. This is where the Court bailiff is authorised to seize and sell whatever goods or other property the debtor may own and pay out the judgement debt from the proceeds. Property which can be seized is quite broad and includes land, cars or any other property of value but does not include necessities for living or tools of trade needed to provide a livelihood. It does not include items which are subject to lease or hire purchase agreements.
3. Garnishee proceedings. This option is particularly useful where the debtor is an employed person. A court order may be obtained to repay the debt by way of a direct deduction from the debtor's wage.
4. Bankruptcy proceedings. These proceedings are particularly powerful although somewhat expensive. Proceedings can only be brought where the original debt owed by an individual is in excess of $1,500.00.
5. 'Winding Up' proceedings. These are similar to bankruptcy proceedings but apply to "Corporations". Where the debt is in excess of $1,000.00.

Costs

If the matter goes to a trial and you are successful the general rule of thumb is that "costs will follow the event". This means that the party which has lost will be ordered to pay the successful party's costs. It is important to note that not all of your own costs will be recoverable following such a Court order and that generally such an award will only cover approximately 1/2 to 3/4 of your overall actual costs.

The reason for the shortfall in costs is that the Court orders the costs which are recoverable as being those which are incurred in the direct running of the case. There is a very strict interpretation as to what is involved in the 'direct' running of a case. You will not be entitled to recover your necessary but 'peripheral' costs incurred in pursuing a matter. It is unfortunately your responsibility to pay your costs over and above those which the defendant has been ordered to pay, or if no money can be obtained from the defendant you are liable for your total costs.

To Sue Or Not To Sue?

It should always be a question of commercial viability whether or not to commence litigation. If you have to spend $100.00 to get $50.00 what do you gain?

Further Information

This brochure is intended as a general guide only and should not be used as an "instruction manual" in running a case or dealing with a dispute. If you find yourself in the position contemplating or of being involved in any form of litigation you should seek legal advice to clarify your position. Your legal adviser can at that time also advise you of relevant costs and fees which are applicable to your matter.