What do they mean for you as creditor?
Many creditors have experienced the difficulties involved in obtaining payment from debtors through the Court system. Surely it should be a simple matter of collection once the court makes a judgement for the debt owed to you? Maybe not.
What happens when, as a creditor who has finally obtained a judgment for the debt, you are in the process of enforcing that judgment when you receive a notice from the Court advising it has made an instalment order based on the debtor's application?
What does this mean for you?
The Court can make an order for the payment of the judgment by instalments, payable in such amounts and as such times as specified.
In effect, the application by a debtor to pay by instalments must be supported by an affidavit of financial circumstances (stating assets & liabilities, weekly income & expenditure), regardless of whether the debtor is a person or corporation. The application must also indicate what the debtor proposes to pay weekly, fortnightly or monthly by way of instalments.
It is usually the Registrar of the Court who will deal with the application without any party present. The Registrar, after considering the material in the affidavit, will either make the instalment order or refuse to do so.
If an instalment order is made:
- A copy of the order and affidavit of financial circumstances is sent by the Court to you as judgment creditor and to the debtor; and
- Either party has 14 days from the date of the instalment order or refusal being made to file an objection to the order.
An objection to an order is given a date before the Court for a decision.
Is it likely a court will make an instalment order?
Whether a court will make an instalment order or not really depends on the individual circumstances before it.
The recent case of IceTV v Duncan Ross & Ors before the Supreme Court of NSW, contains some pertinent comments by the judge who heard the case. In relation to the policy behind the making of instalment orders, the judge said;
What will the Court weigh up?
The interests of the creditor and debtor must both be taken into consideration. Case law shows a number of considerations the Court will look at where an instalment order ought not to be made.
- where the judgment debtor's financial means are enough to enable the judgment debt to be paid immediately;
- if it is obvious that the judgment debtor would not be able to comply with the instalment order;
- if the time for payment is unreasonable;
- if it would not result in a net reduction of the judgment debt because of the amount of the interest that continues to run on the judgment debt.
Another factor would be if the judgment creditor would suffer hardship by the amount of time it would take to pay the debt by instalments. No one consideration is prevalent but must be weighed against the others as a whole.
How long is too long?
Our experience is that 12 to 24 months is not an 'unreasonable' time period to pay a debt by instalments. However, again, it would depend on the specific circumstances of the application.
In IceTV v Duncan Ross & Ors, 27 months was not considered an unreasonable period to pay a $50,000 debt by instalments. In another case, Hellier Capital Pty Ltd v Albarran, four years was allowed to pay off a debt of $1.6 million by instalments!
What's the deal with interest running on a judgment?
Interest is payable on the amount of a judgment debt that remains unpaid from the date the judgment takes effect.
Further to this point, legislation also provides that any payment made on a judgment debt is to be applied as follows:
- firstly, towards the part of the judgment debt that is made up of interest payable, and then,
- secondly, towards the balance of the judgment debt.
So, as a creditor objecting to an instalment order, the amount of interest that will accrue over the period of an instalment order may be used as a ground of objection to the order.
A stay while the instalment order is in place and complied with
While an instalment order is in place and the debtor complies with the order, you cannot enforce the judgment (the only exception being enforcement by garnishee on wages as this can be converted to an instalment garnishee order).
However, this automatic stay will not apply if the debtor has previously made such an application in relation to the same judgment debt.
So what should you do in future if you receive notice of an instalment order made?
If the time period is not unreasonable, the debtor has capacity to pay, and it is evident that this is your best chance of getting paid, don't object and wait to see if the debtor complies.
It is something you can closely monitor, without expending further legal costs.
An instalment order can be varied or set aside by application to the court if the debtor's financial circumstances change (such as the debtor coming into a wind fall or securing better or any employment.)
Alternatively, don't be hesitant to object to an instalment order if it is obvious the debtor can afford to pay more, is unlikely to be able to comply, or it would take an unreasonable amount of time to pay. The more grounds of objection you have, the more likely your chances of the instalment order being rescinded.
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.