In our last note about chasing money owed by a customer, we looked at where and how judgment for a debt could be obtained.
However, the reality is that getting judgment is just the first step – you then need to get paid.
This next note looks at the different options available to enforce your judgment.
Bankruptcy If the debtor is an individual and the debt they owe is over $5,000, you can issue the debtor with a bankruptcy notice for the judgment debt. The debtor has 21 days from service of the bankruptcy notice to pay the debt before you can take action in the Federal Circuit Court to bankrupt the debtor and have an insolvency practitioner appointed to their assets.
Winding up / liquidation If the debtor is a company, you can issue it with a creditor’s statutory demand for the judgment debt. The debtor company has 21 days to deal with the statutory demand before it’s presumed to be insolvent and you can take action in either the Federal Court or a Supreme Court to have a liquidator appointed to the company.
Enforcement hearing This option is available in respect of both individual and corporate debtors, and is typically the precursor to other enforcement options being pursued. Broadly, the debtor is summoned by the court to appear and give evidence as to their financial position. With the information obtained under oath during the hearing, you can decide the best course of action to continue pursuing the debtor for payment.
Instalment order This option is available if the debtor is either an individual or a company, and results in the court making orders about the debtor paying the debt in fixed instalment amounts. No further enforcement action can be taken against the debtor while the instalment order is in place, although you can seek review of the order if the debtor fails to comply with the order.
Earnings or debt redirection order If the debtor is an individual, you can apply for orders that the debtor’s employer redirect some amount of the debtor’s salary or wages to you over time to pay the judgment debt. As with an instalment order, no further enforcement action can be taken against the debtor while the redirection order is in place, although you can seek review of the order if the employer defaults in redirecting payments. Orders can also be sought that funds belonging to the debtor be redirected from a particular financial institution to you to pay the debt. A debt redirection order may be made by a court to a financial institution directing the institution to transfer funds from the debtors’ account to a creditor in part or whole satisfaction of a debt.
Seizure and sale of assets This option is available if the debtor is either an individual or a company, and involves the court’s sheriff attending the debtor’s premises to seize assets for sale to pay the debt.
Upon specific application, the court may order that land belonging to the debtor be seized for sale. However the sheriff can only sell the debtor’s equity in the land, and the warrant issued by the court for seizure and sale doesn’t outrank a secured creditor’s pre-existing interest in the land (for example, a bank’s mortgage over the land).
Working out which option to take
There’s no one option that’s the right one. It all depends on:
- You, for example, what you ultimately want (for example, money, to send a message to your other customers or to take a serial pest out of the market), your budget to pursue the debtor and your stomach to continue the chase;
- The debtor, for example, what sort of entity they are and what assets you can find out they have.
The decision will probably come down to a commercial cost/benefit analysis.
In our experience, taking steps to enforce a judgment can also be the (final) motivation for the debtor to pay up or come to the negotiating table to deal with the debt.
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 will 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:
(02) 6279 4444 or info@MVLawyers.com.au.