When people tell me that they are owed money and ask me what
they can do to recover that debt, I can only tell them half the
story. The other half of the story only they can tell me.
My half of the story
The legal system provides a number of measures to enable you to
try to recover a debt owed to you once it has fallen due.
Generally speaking, if you have exhausted all attempts to
recover the debt by begging, cajoling and sending threatening
letters, you will need the assistance of the court.
You will have heard terms such as statement of claim, statutory
demands, winding up applications, writs, garnishees, bankruptcy
notices and so on. Each of these primary debt recovery tools has
its own pros and cons and chances of succeeding. Which is the best
one for you will depend on the circumstances of your case.
Any lawyer worth their salt knows these measures like the back
of their hand. This is the half of the story that I can tell
Your half of the story
Your half of the story is the answer to my question - what
measures have you taken to help yourself recover this
Consider one specific example: you commence court
proceedings to recover a debt against a company and during that
process the company is placed into administration or liquidation.
This will dramatically reduce your chances of recovering your debt.
If you are an unsecured creditor, you will be forced to line up
with all the other creditors and accept whatever cents in the
dollar are finally paid to creditors by way of a
dividend. Usually this is zero. There are many other such
Here are five measures which you can take to protect
Comprehensive credit check
An obvious precaution is to do a comprehensive credit check
before you do business with any company. This is the most basic
protection against future bad debts. It can help you decide what
terms of trade to extend and whether you want to do business with
the company at all. Surprisingly, many companies omit this simple
Insert a clause in your terms of trade
A properly drafted clause in your terms of trade allows you to
place a caveat over a company or the property of its directors if
the company does not pay its debts.
Retention of title clause
Having a properly drafted retention of title clause on your
invoices will enable you to recover the goods you supplied to the
company if some of those goods were not paid for. Without such a
clause, those goods may well be sold and the proceeds used to pay
Directors' personal guarantees
You have the right to insist that the directors of the company
give you personal guarantees as a condition of doing business with
you. This will mean that you have access to their assets if the
company has none.
Security over an asset
You have the option of taking security over an asset of the
company by a charge or some other means of security. This will
enable you to seize the property which is the subject of the
security, rather than waiting in the queue with the other
Foresight is better than hindsight
These and numerous other mechanisms can make it easier for
you to recover debts when they fall due. But what I cannot stress
enough is how important it is to act in advance, before trading
starts or before the debt falls due, to give yourself the best
protection you possibly can.
Decisive pre-emptive action is by far your best bet when it
comes to recovering the money that you have worked so hard to
Swaab Attorneys was the highest ranking law firm and the
13th best place to work in Australia in the 2010 Business Review
Weekly Best Places to Work Awards. The firm was a finalist in the
2010 BRW Client Choice Awards for client service and was named the
winner in the 2009 Australasian Legal Business Employer of Choice
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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