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Questions and Answers

Introduction

The answers to some frequently asked questions on debt recovery are listed below.  Should you require any further information about a debt recovery matter, please do not hesitate to contact one of Snedden Hall & Gallop’s experienced debt recovery lawyers.

Q. A company or a person owes me a debt.  What can I do?

A. Debts usually arise from breaches of contract.  As a creditor (someone that is owed a debt), you have the right to pursue payment from the debtor (the person that owes the debt).

There are a number of options open to you in your attempt to recover the debt, such as:

• sending a formal letter of demand.  You may wish to engage a lawyer to send the letter on your behalf;
  
• engaging a debt collection agency;
  
• using the court processes;
  
• registering at a credit reporting agency.

Q. Are there limits to what I can do to collect a debt?

A. There are limitations on informal resolution procedures, including limitations imposed under the criminal law, the Privacy Act, the Consumer Credit Code and the Trade Practices Act.

For example, under section 60 of the Trade Practices Act, a corporation cannot use physical force or undue harassment or coercion for collecting a debt.
By way of another example, the Privacy Act limits what information a credit reporting agency can keep.

Q. When can I use the courts to recover a debt?

A. Generally, you may use the courts to recover a debt as soon as the debt is due and owing.  Consider the following jurisdictions in the Australian Capital Territory:

• ACT Civil and Administrative Tribunal – the ACT Civil and Administrative Tribunal’s jurisdiction is limited to debts of up to $10,000.00.
• ACT Magistrates Court – the ACT Magistrates Court has jurisdiction to hear debt claims greater than $10,000.00 and less than $50,000.00.
• ACT Supreme Court – the ACT Supreme Court has jurisdiction to hear debt claims worth more than $50,000.00.

Q. What do I do if I choose to use the court process?

A. The first step is to file an application at the appropriate court or tribunal.  The application sets out the material facts and the amount claimed.  The court or tribunal will impose a fee for the filing of the application.

If you think the debtor is about to leave the jurisdiction, or is syphoning off assets so that you will be unable to recover the debt, you need to act quickly and should probably seek legal advice.  The court has power in certain circumstances to stop such activity.

Once the application is filed, it is then necessary to serve a stamped copy of the application (i.e., a copy that has been stamped by the court or tribunal) on the debtor.  Generally, it is necessary to serve individual debtors in person and there are service agents that can be engaged to serve documents on your behalf for a fee.  Usually, a corporation can be served by sending the documents to the corporation’s registered address.

Once a debtor is served with a claim, that debtor must file a response within a set period.  Usually, this is 28 days from the date of service.  If the debtor does file a response, then the matter is contested and may go to a hearing.

Often, no response is filed.  If this occurs, the creditor is entitled to apply for a default judgment, which means that the defendant has not defended the debt with the time required and the court has ruled that the debtor is in default.  The court then orders that the debt, plus any costs and interest that the court determines, must be paid.

Q. Once I get a default judgment, how do I make the debtor pay?

A. The process of attempting to recover the debt after default judgment is known as enforcement.  There are various options available to a creditor seeking to enforce a judgement.

• Debtor examination
  The claimant may have the debtor ordered to attend court and examined at court about its/his/her assets.  If a debtor is ordered to attend court but fails to do so, then the debtor is in contempt of court and a warrant may be issued for the debtor’s arrest.
  
• Instalment orde
  A debtor may be ordered, or he/she may seek an order, to pay the debt over a period of time.

• Collection option
  

• Execution of the Court Order
  The sheriff of the court has the power to seize property of the debtor.  Once seized, the property may be sold and the proceeds given to the creditor in satisfaction of the judgment.
  
• Garnishee Order/Debt Redirection Order
  The court may make an order that moneys otherwise payable to the debtor be redirected to the claimant.  For example, a court may order that a debtor’s employer divert part of the debtor’s wages to the creditor until the debt is paid.

• Bankruptcy/Insolvency
  A claimant who has a default judgment in the sum of $2,000.00 or more may seek to have the debtor wound up (in the case of a company) or pushed into bankruptcy (in the case of an individual).

Q. I haven’t got judgment yet and I am concerned that the debtor is disposing of his/her property.

A. If you are concerned that a debtor is disposing of his/her property, it is prudent to make an interlocutory application as a matter of urgency to stop the property being disposed of, or to stop the debtor from leaving a certain jurisdiction.  An interlocutory application is an application made to the court before a hearing.  It is usually made by filing a notice of motion in the court, which is served on all the parties involved, and then presenting a motion (oral argument) in court.

Q. What is a statutory demand?

A. A statutory demand is a document that may be served on a company (and not an individual) demanding the repayment of a debt.  The debt must be $2,000.00 or more.  The statutory demand must be accompanied by an affidavit.

Before issuing a statutory demand, readers are advised to seek legal advice, as there are particular requirements of a technical and legal nature for a statutory demand.  Costs implications arise if a statutory demand is issued improperly.

If a properly issued statutory demand is served, the company must apply to have the demand set aside or pay the outstanding amount.  Failure to do so is treated as an act of insolvency and the company may be wound up.

Q. I am trying to serve a debtor but he/she has been avoiding service.  What can I do?

A. Sometimes, serving a debtor is the most difficult part of the process.  It is usually a requirement that an individual debtor be served personally (i.e., in person and not by post or by some other means).

However, where you can demonstrate to the court that it is reasonably likely that the document that you were trying to serve would be brought to the attention of the debtor if it is left at a certain place, or given to a certain person, the court will grant you an order for substitute service.  Such an order will allow you to serve the debtor through means other than personal service.

Q. Am I entitled to interest and legal costs if I recover a debt through the court process?

A. Legal costs include such things as filing fees, service fees and fees charged by your solicitor.

Generally, a creditor that brings a successful claim is entitled to recover both interest and costs.   The amount of costs that a successful creditor is able to recover is usually less than 100% of the total legal costs.

Where a matter is brought before the ACT Civil and Administrative Tribunal, a successful creditor is likely to be awarded only a very small amount of costs (if any), but will be awarded interest.

The Supreme Court currently allows pre-judgment interest at 9% and post-judgment interest at 11%, but this is subject to change.