It’s an unfortunate fact that in business life, at some stage a customer will owe you money for the goods or services you supplied them.
When talking to clients about their instructions to chase a debt, we often find they’re surprised at the number of steps involved and the length of time it could take to see any money.
What you can do to get your money first depends on who the customer is and the amount of debt owing. After that, it’s a commercial decision about how much you’re prepared to spend to chase the debt and what assets may be at the end of the chase to collect from.
Here’s a run down on what debt can be chased where and how.
Working out who’s the customer and what’s the debt
We’ve previously written about the importance of identifying your customer. As we’ve said, you can’t win any chase for a debt against the wrong debtor.
It’s also necessary to understand the legal basis of the debt you say you’re owed, how much is owing and how you can chase it. For example, if you’ve got a written agreement with the customer, there should be something that says:
- What your customer must pay for the goods or services;
- When payment must be made;
- Whether interest applies to late payment; and
- How the customer is to be notified of the debt.
In a perfect world there’ll be one document that sets out all the terms of trade. However, the reality is there may be multiple documents or verbal agreements. These things don’t mean you can’t chase the debt – they just mean it may take more time to work out who you’re chasing, for what and why.
In every case, the terms of the agreement between you and your customer about notifiying and recovering debts must be followed. Once that process is exhausted, you can turn to legal action.
Chasing the debt
Debts up to $25,000 For any debt up to $25,000 owed by an individual or company, a claim can be filed in the ACT Civil & Administrative Tribunal. If the debt relates to NSW, the claim is filed in the Small Claims Division of the NSW Local Court if the debt is up to $10,000 and in the General Division of the Local Court if the debt is up to $100,000.
Alternatively, if the debt is owed by a company, is due and payable, is over $2,000 and undisputed, then the Corporations Act 2001 (Cth) permits a statutory demand to be issued to the debtor. A debtor served with a creditor’s statutory demand has 21 days from service to either pay the debt or apply to a court to have the demand set aside, before the debtor company is presumed to be insolvent and you can apply to wind it up.
A note of caution though, a creditor’s statutory demand is not the way to pursue a debt if the debt is disputed in any way and no matter whether you disagree with the grounds of dispute.
Debts up to $250,000 Claims for debts in the ACT up to $250,000 are made in the ACT Magistrates Court. In NSW, claims up to $100,000 are made in the General Division of the Local Court, and claims for debts up to $750,000 are brought in the NSW District Court (there’s scope to increase this amount).
Again, a creditor’s statutory demand may be used to pursue an undisputed debt against a debtor who’s a company.
Debts over $250,000 Claims for debts in the ACT over $250,000 are made in the ACT Supreme Court. In NSW, debts over $750,000 are pursued in the NSW Supreme Court. A creditor’s statutory demand remains available for use against a debtor company on an undisputed debt.
In any court, a claim against multiple parties can be made for the same debt. For example, the debtor company may be sued for payment of outstanding invoices in respect of goods supplied, and the directors of that company also sued for the debt under personal guarantees they gave for the company.
After service of the sealed court documents, the debtor will have a court-specified number of days to respond to the claim by either filing a defence disputing the claim or paying the debt. If a defence is filed, the case will progress through the various steps to get to hearing before a judicial officer. If a defence is not filed within time, you can apply to the court for default judgment against the debtor.
Don’t forget alternative dispute resolution
At any stage during the dispute, you can negotiate with the customer to settle the debt. For example, you can enter into a payment plan with the customer to pay off the debt over time and have them on “stop credit” until then, or you can agree to take a lump-sum lesser amount and perhaps not trade with them in the future.
Settlement negotiations can be either before or during debt-recovery litigation, and can be informal between the parties, or through lawyers or with an independent third-party mediator. Whatever the method, if you can reach a mutually acceptable compromise with a debtor, you’ll invariably save the time, money, angst and uncertainty of litigation.
The talented team at Meyer Vandenberg can help you with any of the issues discussed above, just call…
For more information contact the Commercial Dispute Resolution Team: