The debt recovery process in Australia can be technically challenging and complex. For this reason, it is usually, as well as most efficiently and easily, navigated by lawyers specialising in this area of law. If you are already owed money, the last thing you want is to incur unnecessary additional costs!
The following article explains some key elements of judgment debts, one of the possible outcomes of the debt recovery process.
What is a judgment debt?
A judgment debt is another term for an order of a Court or Tribunal that requires a person or company to pay money owed to another person or company. The person or company who owes the money is known as the “judgment debtor”, and the person or company who is owed money is known as the “judgment creditor”.
How do I obtain a judgment debt?
In order to obtain a judgment debt, a creditor must apply to the relevant Court or Tribunal for an order to be made against the debtor. In New South Wales, a creditor can commence proceedings in the Local, District or Supreme Courts, depending on the quantum of the debt. In the ACT, a creditor commences proceedings in the ACT Civil and Administrative Tribunal, or the Magistrates or Supreme Courts, again depending on the quantum of the debt.
Once proceedings are commenced, debtors are occasionally sufficiently frightened by the prospect of legal proceedings to pay the debt. Alternatively, debtors can ignore the proceedings, in which case a creditor can obtain a default judgment against the debtor, or the debtor can dispute the claim, and the matter can be decided after hearing.
If the Court or Tribunal is satisfied that the debtor owes a sum of money to the creditor, it may make an order requiring the debtor to repay the creditor. Accordingly, a judgment debt is created.
What happens after I have obtained a judgment debt?
Most people assume that the debt recovery process ends once a court order has been issued. Ordinarily, the judgment debtor is allowed 28 days to pay the judgment debt. If they do this – great!
In our experience, however, debtors may, for various reasons, fail to pay the judgment debt when it is due. Unfortunately, the Courts or Tribunals will not, of their own volition, take steps to enforce payment of a judgment debt. Rather, the onus is on the judgment creditor to commence enforcement proceedings.
What sort of enforcement options are available?
Fortunately, while enforcement of judgment debts requires further Court processes, it is usually faster and cheaper than the Court processes associated with obtaining the judgment debt. Costs of such enforcement are usually recoverable (to some extent) from the judgment debtor.
NSW and the ACT have different terms for the enforcement options available to judgment creditors. They are:
- Garnishee Order (NSW)/Debt Redirection Order (ACT)
- A Court order that money to be directed from the judgment debtor’s wages, bank account or others who owe money to the judgment debtor to the judgment creditor
- Writ for Levy of Property (NSW)/Seizure and Sale Order (ACT)
- A Court order that the Sheriff take and sell the judgment debtor’s property, with the proceeds of the sale being used to pay the judgment debt
- Commencing bankruptcy proceedings (see our Insolvency/Bankruptcy page for more information)
In determining which method of enforcement is most appropriate, judgment creditors, in consultation with their lawyers, should consider which method will produce the most efficient and commercially viable outcome.
It is also important to consider the financial situation of the judgment debtor. For example, if a judgment debtor is known to have a number of expensive cars, a writ for levy of property/seizure and sale order may be appropriate. If a judgment creditor knows that the judgment debtor earns a regular income or has cash assets in the bank, a garnishee/debt redirection order may be more effective.
If a judgment creditor has limited or no knowledge as to the judgment debtor’s financial capacity, they can make a further application to the Court to have the judgment debtor brought before the Court to be examined as to their financial position. In NSW this is called an “Examination Notice” and in the ACT and “Enforcement Hearing Subpoena”. The judgment debtor will be compelled to provide specific information in relation to its financial status which will enable the enforcement creditor determine the best way to obtain the judgment debt.
Tips for the debt recovery process
Ultimately, whatever the amount of the debt and the nature of the dispute, the debt recovery process is, in most cases, successful and worthwhile. Some importance factors that influence the process include:
- The judgment debtor’s financial capacity to repay the debt;
- The willingness of the judgment debtor to engage in the proceedings;
- Whether the judgment creditor has obtained legal assistance; and
- The capability of the judgment creditor’s legal representative.
Unfortunately, many professional service providers do not use experienced professionals for debt recovery, overlooking the most important requirement for debt recovery success: experience. Timely and decisive debt recovery action is crucial, and it is for this reason that we encourage creditors to seek legal advice before commencing proceedings.
Recently, we successfully recovered approximately $40,000.00 from a company for our client. The debt had been outstanding since mid-2013. Until the client engaged our legal services, the debtor company had been promising to pay, but never actually made any payments. The entire debt recovery process lasted just over two months, but the first repayment was made by the debtor company within the first month. Our client’s total legal costs were only about $1,000.00. In this instance, we firstly assisted the client to create an appropriate basis for debt recovery, which then resulted in timely and costs effective recovery of the money owed.
The same client had also been owed money by a different company for years. In this instance we were engaged too late, because the debtor company had already been wound up and all of its assets sold. Therefore, it is very important that debt recovery is commenced as soon as possible. Creditors should also be aware that, in Australia, there is a time limitation to debt recovery actions. In most states, that is 6 years from the date the cause of action arose.
If you are experiencing trouble recovering debts owed to you by an individual or a company, elringtons lawyers can help.
For further information in relation to debt recovery:
elringtons lawyers regularly provide legal advice in relation to a range of debt recovery matters. Please contact our Litigation and Dispute Resolution Team for more information or to make an appointment.