Tag: Debt Recovery

Debt Recovery Against Companies – Statutory Demand

Posted onAuthorImogen Thomas

A Statutory Demand is a formal written request for payment of debts owed by a company, issued pursuant to the Corporations Act 2001 (Cth) (“Act”).  Under the Act companies are prohibited from trading insolvent and incurring further debts.

The Statutory Demand is an initial step in the winding up process against an insolvent company. Thus, the Statutory Demand is a very powerful tool in recovering debts against companies, as ignoring it may result in the company being liquidated.

Once the Statutory Demand has been served upon a company, within 21 days the company must either:

(a) pay the debt(s) which is the subject of the Statutory Demand; or

(b) apply to have the Statutory Demand set aside.

Should the company fail to take either of those actions within the 21-day period, it will be presumed insolvent and any further operations by the company may be in the breach of the Act. If a Statutory Demand is not set aside, the creditor can make an application to the court that the company be wound up. The presumption of insolvency can be rebutted by the company, but it is not easily achieved and it is usually costly. Therefore, it is prudent not to ignore a statutory demand once served on the company.

Grounds for setting aside the Statutory Demand – Genuine dispute

Although the Statutory Demand is a useful tool for creditors to recover outstanding debts against companies, a debtor company can apply to have the demand set aside if there is a genuine dispute about the existence or amount of the debt. It is not a “high bar” to show that a genuine dispute exists – generally it will be sufficient to shoe that there is a “plausible contention requiring investigation”, in the sense that the dispute is put forward in good faith and that the grounds for alleging the existence of a dispute are not spurious, illusory or hypothetical.

Therefore, creditors should only issue a Statutory Demand if there is no genuine dispute about the debt, or consider withdrawing the demand once the debtor company raises the issue of a genuine dispute. If the creditor does not withdraw the demand and the company successfully obtains a court order to have the demand set aside, the creditor may need to pay the company’s costs in making the application. Given the potential consequences it would be prudent for the creditor to obtain legal advice prior to issuing a Statutory Demand.

There are other grounds for setting aside a Statutory Demand, such as:

  • the amount of the debt claimed is less than the statutory minimum;
  • the amount of the debt is unspecified;
  • the Statutory Demand does not comply with the prescribed form (Form 509H);
  • the Statutory Demand is not clear and fails to include the warning about the 21-day period;
  • the accompanying affidavit verifying the existence of the debt is not a proper affidavit;
  • the demand was not properly served on the company;
  • the company has a genuine off-setting claim against the creditor; and/or
  • the Demand is defective and will cause substantial injustice if not set aside

Case study

Here at elringtons, we have lawyers specialising in debt recovery against companies and individuals. This ensures that our clients are provided with quality legal advice and professional support.

Recently, we managed to recover a significant sum from a company for one of our clients. The debt related to invoices which had been outstanding for over 6 months and there was no genuine dispute regarding the debt owed. Our client had been chasing payment for quite some time and the debtor company had started to dodge their calls! An initial letter of demand from our office resulted in part of the original debt being repaid, but over $20,000 remained due and owing. A Statutory Demand was issued and the debtor company was left with only two choices: pay the debt or be wound up. They chose to pay.

Whilst the Statutory Demand is a very powerful tool for recovering debts against companies, it must be done properly. Failure to do so may result in costly and prolonged legal proceedings with, sometimes, the opposite effect.

If you’ve been served with a Statutory Demand, or are having trouble recovering debts owed to you by a company, elringtons can help.

For more for advice and assistance please contact our Civil Litigation team:

p:  +61 2 6206 1300 | e:  Info@elringtons.com.au

Recovery of judgment and non judgment debts

Posted onAuthorMatthew Bridger

Debt recovery process in Australia is somewhat technical and complex. Because of that, in most cases, that is done by lawyers specialising in this area of law.

Most people assume that once a court order has been issued that is the end of their process. Practice however, is sometimes different, as debtors may, for various reasons, fail to pay the judgment debt when due. One of the reasons for this is because Australian courts do not have a mechanism to enforce their own judgments, but enforcement of same is left to the judgment creditor.

Recovery of judgment debts

Judgment debt recovery is also a part of the Court process, although in most cases faster and cheaper than the Court process which led to obtaining the judgment. Enforcement creditors in consultation with their lawyers should decide on the best and commercially most viable way to enforce the judgment. Costs of same are usually recoverable from the debtor. However, the amount that can be recovered may be limited to some extent.

Whatever the case may be, the debt recovery in most cases is successful and worthwhile. Some of main factors affecting the process are:

  • Debtors’ (financial) ability to repay the debt;
  • Whether the Enforcement creditor has obtained legal assistance; and
  • Capability of the Enforcement Creditor’s legal representative.

All three things can be equally important. Unfortunately, many professional service providers do not use experienced professionals for debt recoveries, overlooking the most important requirement for a successful debt recovery professional, which is experience. Timely and decisive debt recovery action is often crucial, regardless whether or not they are judgment or non-judgment debts.

Debt recovery against companies

Debt recovery against companies is in most cases different to debt recoveries against individuals. Process is somewhat different and a solicitor undertaking the debt recovery must be aware of relevant laws that apply. This is because even a small mistake may be costly to his/her clients. Of course, if everything is done properly and other relevant things fall into place, the process can be very cost and time effective.

Thus, recently we managed to recover circa $40,000.00 from a company, for our client. The sum had been outstanding since mid 2013. Until the client engaged us, the debtor company had been promising to pay, but never made any payments. The whole process lasted just over two months, but the first payment was made 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 another company which had owed our client money 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 done as soon as possible. Another thing that creditors need to be aware of is 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 arouse.

For more information please contact our debt recovery team:

p:  +61 2 6206 1300 | e:  Info@elringtons.com.au

How long am I to be declared a bankrupt?

Posted onAuthorMatthew Bridger

The term of bankruptcy generally lasts for a period of 3 years. However under certain circumstances, the term can be extended.

For example:

  1. If a bankrupt fails to follow their trustee’s directions, or obtains credit of more than $5.000.00 without disclosing the bankruptcy, the term of bankruptcy can be extended to 5 years.
  2. In more serious cases, when the bankrupt intentionally tries to deceive their trustee or act with the intention to defraud their creditors the period of bankruptcy can be extended to 8 years.

The message is clear – a bankrupt must act honestly and openly with his or her trustee or risk extension of time in bankruptcy.

For further advice regarding bankruptcy, please contact:
Matthew Bridger | e: mbridger@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg

The importance of business records in managing debt

Posted onAuthorKerin Cotchett

Maintaining up to date records of business transactions, although tedious, is extremely important for all companies. This is particularly true where companies sell their goods and services using credit. Where this system of payment is utilised the company will become a creditor.

Generally the process of debt collection is simple. A customer will obtain a good or service, on credit, and therefore will become a debtor. The creditor will request payment from the debtor and generally the debtor will make payment.

However, a problem arises when the creditor company becomes insolvent.  In circumstances where up to date records are not kept, debtors may dispute the debt or attempt to evade paying where they believe that the insolvent creditor has limited resources to enforce payment.

It is, of course, easier to enforce debts when a good has been obtained as there is tangible evidence of the transaction. The real problem will arise where services are provided and poor, or no records are kept, as it is extremely difficult to demonstrate that an amount is owing on an intangible transaction.

Examples of what companies can do to assist in the recovery of debts include:

  • Ensure records are clear and detailed;
  • Ensure that both paper and computerised records are kept up to date;
  • Regularly invoice customers and record when payments have been made;
  • Ensure that customers who owe a debt can be identified. This requires regularly checking that customer contact details are correct;
  • Where a contract has been executed for a project to be undertaken, maintain a list of what work has been completed. Do not rely on the person supervising the project to know what has been done.

Taking such simple steps can prevent any complications when debt collection occurs.  It also reduces the chance of a creditor having to write off debts as uncollectable.

For information regarding recovery of a debt please contact:
Matthew Bridger | e: mbridger@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg