If you or your business is owed money, it is crucial to understand your rights and the debt recovery process in NSW. The RMB Commercial Law Division explains.
Letter of Demand
The first and most cost-effective step to recover money owed to you is to send a letter of demand to the debtor. This letter outlines the amount owed, relevant invoice details, and the circumstances under which the debt became due. It also sets a payment deadline and warns of legal action if unpaid. A well-drafted letter often resolves the matter without further legal steps.
Statement of Claim and Litigation
If the debtor does not respond to the letter of demand, the next step is issuing a statement of claim, formally initiating legal proceedings. This document details the claim and must be filed with the Court and served on the debtor (now the defendant). Court action must begin within six years of the debt becoming due.
Once served with the statement of claim, the defendant has 28 days to file a defence. If a defence is filed, the matter becomes contested and will involve evidence presentation and hearings. If no defence is filed, you can seek a default judgment which is recorded on the debtor’s credit file and allows for enforcement.
If the debtor still refuses to pay following judgment, various enforcement methods are available:
Garnishee Orders
A garnishee order from the Court directs third parties such as banks or employers to pay you directly from the debtor’s funds.
Writ for Levy of Property
A writ allows the seizure and sale of the debtor’s assets (money, goods, or real estate if the debt exceeds $10,000) by the Sheriff. Some essential property is exempt.
Bankruptcy
If the debtor is an individual and owes over $10,000, a bankruptcy notice can be issued, requiring payment within 21 days. If unpaid, a creditor’s petition can be filed in the Federal Court, leading to the appointment of a bankruptcy trustee who manages and distributes the debtor’s assets.
Insolvency (Companies)
Under the Corporations Act 2001, a statutory demand can be issued for debts over $4000, requiring payment within 21 days. If unpaid, the company is presumed insolvent, and you can make an application to wind up the company.
Court Judgments are enforceable for 12 years, allowing creditors ample time to recover debts.
If you require assistance navigating the debt recovery process either as a creditor or a debtor, you can contact our Business Disputes team by phone on Freecall 1800 681 211 for a consultation, or use our 'Ask a Question' tool on our website.