As our economy slows, now more than ever contractors need experienced advisers who provide rapid responses to recover debts from delinquent debtors. Businesses can no longer afford to allow debtors extended credit terms. TGB have a team of experienced lawyers who provide commercial and cost-effective debt recovery solutions to get your debts reduced putting the money back into your business not your debtor's business. The following is a brief overview of debt recovery procedures in South Australia.
The procedure to be undertaken for debt recovery in South Australia in any given situation depends upon:
- whether the debt is genuinely disputed;
- who the debtor is; and
- the size of the debt.
Whether or not there is a genuine dispute is a legal question, and the threshold for the test is low. So, if the debtor can point to any facts that might make out a defence to the debt, even if that defence is weak, then there is a genuine dispute.
If the debt is genuinely disputed the debt must be proven in Court prior to enforcement actions being taken. The procedure to recover disputed debts is the same regardless of whether the debtor is a company or a personal debtor.
The first step to recover a debt is generally to send a letter to the debtor giving them notice of the debt and demanding payment. A letter of demand serves two purposes:
- It warns the debtor of your intention to institute legal proceedings unless payment is made and provides a final opportunity to pay the debt; and
- The letter can be used in later court proceedings satisfying certain requirements that the claim was made and an attempt to resolve was offered.
If the debtor does not respond satisfactorily, then it may be advisable to issue proceedings.
The Court in which proceedings are instituted depends upon the size of the debt.
Debts up to $6,000
Debts of $6,000 or less can be recovered in the relatively informal setting of the Civil (Minor Claims) Division of the Magistrates' Court. Prior to filing, a letter of demand should be sent. In addition to giving notice of the debt, the letter to the debtor must put the debtor on notice that unless they satisfy the debt within 21 days you will institute court proceedings to recover it. The fee to commence proceedings is $93, though further minor costs may be incurred later. Lawyers are not permitted to represent parties in this Court.
Debts above $6,000 and up to $40,000
Debts of above $6,000 and up to $40,000 may be recovered in the Magistrates' Court, but in the Civil (General Claims) Division. The requirements for the letter to the debtor are the same as for the Civil (Minor Claims) Division. The fee for commencing proceedings is $176, though further costs are likely to be incurred later. The proceedings in the General Claims Division are more formal than the Minor Claims Division and the actions are generally conducted by lawyers.
Debts over $40,000
Debts over $40,000 may be recovered in the District Court of South Australia. The requirements for the letter to the debtor are more complex; it must contain an offer for settlement (which may simply be the full amount of the debt) and sufficient details as to how it is claimed the debt arises and is due and payable.
Pursuant to the Court Rules the debtor is required to respond within 60 days. If the response is unsatisfactory, you may issue proceedings to recover the debt after 90 days. If a creditor is not prepared to wait the period of 90 days proceedings may be issued, however if successful the creditor may not recover all costs associated with the proceedings. Due to the formality of the District Court, it is advisable to seek legal advice in regard to such debts prior to commencing proceedings. However, upon obtaining judgment you have a number of enforcement processes available.
For smaller debts, it is common to apply to Court for an Investigation Summons. This requires the debtor to attend Court and explain their financial circumstances. In light of these circumstances, the Court generally will order repayment in reasonable installments. If the debtor does not attend Court, then more drastic measures can be taken such as applying for a Warrant of Arrest, whereupon the debtor will be brought before the Court and a repayment order made.
If the debt is larger, it may be appropriate to apply for a Warrant of Sale. This allows an officer of the Court called a Court Bailiff to attend the debtor's address to seize their property and sell it to satisfy the debt.
Another option may be to apply to the Court for an attachment of debts (garnishee order). This is served on both the debtor and a third party. This order basically precludes the third party from dealing with the monies that relate to your proceedings until the Court has heard them. There can be difficulties in securing orders of this type as bank accounts cannot be attached, nor are wages generally attachable unless the debtor consents.
Finally, the Court may be able to attach a charge to the property of a debtor. This means that once a charge is registered against a specific piece or class of property, that piece or class of property can be sold and the charge holder paid in preference to other unsecured creditors. Alternatively, if the judgment debtor owes more than $2,000, a Bankruptcy Notice can be served.
No Genuine Disputes
Caution must be exercised to ensure that there is no "genuine dispute". The action to be taken then depends upon whether the debtor is a corporate entity or a personal debtor.
If the debtor is a company owing more than $2,000 and the debt cannot be disputed, then sending a Statutory Demand is advisable. The form of the Statutory Demand must comply with the form prescribed by schedule 2 to the Corporations Regulations 2001 and state the debt is to be paid within 21 days. If the response to the Statutory Demand is unsatisfactory, then you may apply to Court to have the company wound up and recover your debt in the winding up.
If your debt is owed by a personal debtor and is not genuinely disputed, you still must issue proceedings in the appropriate Court, which is dependent on the size of the debt as above.
A Bankruptcy Notice requires a debtor to pay the judgment debt or make arrangements for its payment within 21 days. If the response is unsatisfactory, then you can lodge a petition in the Federal Magistrates' Court to have the person declared bankrupt. Lodging a Bankruptcy Petition in the Federal Magistrates' Court costs $350 if you are a natural person and $698 if you are lodging on behalf of a company.
In addition, a Bankruptcy Notice must be filed with the Insolvency and Trustee Service Australia and this costs $400. As can be seen, the procedure is costly and for that reason is not usually undertaken unless the debt is at least $5,000.
This information should only be taken as a general overview of how debt recovery processes operate in South Australia. Each situation is different, and the facts and circumstances of your particular matter will impact on what is the best approach to recover your debt. You should seek specific legal advice on how to proceed further.