Australia: How the courts can help you recover your debts

In brief - Legal proceedings to recover a debt should be seen as a last resort

In an age where a significant proportion of small and medium businesses are dealing with issues of cash flow, global economic uncertainty and a lack of demand, non-payment of debts can destroy a business. It is important to know the legal process that you can follow if someone owes you money.

You don't want to start legal action if there is any way to avoid it

It is often cheaper and more practical to try to negotiate a payment plan under which the debt can be paid off in instalments, rather than to bring legal proceedings. This can also be the best method to maintain what in the long run may be a profitable trading partner, customer, or even friend.

Interest and any legal costs incurred to date are often included in repayment agreements, so that the creditor will eventually be put back into the position they would have been in if the debt had been paid when it was due.

Written evidence that the debt exists

The paper trail is significant in the eyes of the law. So before you do anything, check to see if you have written evidence - a contract, an invoice, correspondence, a scrawled note on the back of a napkin - anything that suggests an obligation on the part of someone to pay you in return for the provision of goods or services.

If you don't have anything in writing, send a friendly email to the debtor so that they might reply acknowledging that the debt exists.

Armed with your documents but prior to commencing proceedings, it is strongly advisable to have your lawyer send a letter of demand to the debtor, stating how much is owed and giving them a time in which to respond. Using a lawyer will show the debtor you are serious about getting your money back.

Beginning legal proceedings to recover the debt

If the letter of demand is unsuccessful, the next step would be to be to dive head-first into proceedings. Please check for rocks before this though; proceedings often involve significant legal costs and filing fees. A statement of claim which sets out the elements of the debt will need to be prepared, filed and served.

The debtor can then, if it chooses to do so, file a defence. If a defence is filed, the matter will then follow a particular process towards a hearing. This will involve the preparation and filing of evidence, at least one pre-trial conference and probable attempts to settle the matter. Hopefully the 28 days pass without sign of any defence and you can proceed to the next step: default judgment.

To obtain default judgment, a notice of motion needs to be filed. The preparation of this will again involve legal costs, but there is no filing fee and it does not have to be served. The matter is then listed before a Registrar, who gives judgment usually within a week.

The hard part - enforcement of a judgment

Once you have a judgment against a debtor (either by default or after a trial), there are a number of enforcement options available to you, though you should keep in mind the old truism that you can't squeeze water from a stone. You can get an order from the Court for a sheriff to seize the debtor's tangible property and sell it. You can also get a garnishee order which you can serve on third parties that owe the debtor money so that their debt is instead payable to you. These can be served on banks or even employers.

Time to bankrupt or liquidate?

Finally, you also have the option of bankrupting the debtor if they are an individual, or lodging a creditor's petition to have a company wound up if they are a company – but only if the debt is for over $2,000.

In these situations, either a trustee or a liquidator may be appointed over the person's or company's property. The trustee or liquidator may then sell assets or collect income to pay back the debt. However, it is very rare for the creditor to get their money back in full in either of these situations - in fact they may not receive anything at all.

Negotiation is always preferable to litigation

There are some who might say that things were easier under Roman law, when a creditor could legally hold as a bond-servant or even cut to pieces a debtor who did not pay their debts.

Times do change however. As a creditor, you need to understand the nature of the process so as to balance what may be gained against what may be lost. It is always better to negotiate if at all possible and treat legal proceedings to recover a debt as a last resort.

For more information about insolvency and reconstruction, please see the website of Colin Biggers & Paisley or contact Damian Barlow at or Peter Harkin at

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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