Recovering unpaid debts can be difficult, especially when the party who owes the debt (the debtor) becomes hard to reach, relationships between the parties begin to sour and/or an agreement cannot be reached between the parties about what debts are due and owing.
It is important with any debt recovery action to act as quickly as possible. Action should be taken as soon as the debtor shows signs of non-compliance with agreed payment terms. Some signs to look for include:
The debtor is consistently late making payments;
The debtor regularly makes excuses as to why they are unable to meet the payment deadline;
The debtor makes attempts to renegotiate the terms of payment or to reduce the agreed payment amount;
The debtor questions the validity of the original agreement and/or the terms of payment;
The debtor fails to return phone calls and becomes hard to reach.
Some options for debt recovery that may be available to you are outlined below.
LETTER OF DEMAND
The first step in recovering a debt should always be negotiation, as it is often in the best interest of both parties to settle the debt without litigation. If parties are unable to come to an agreement, the debt recovery process may be escalated by sending a letter of demand to the debtor. This letter does not have to be drafted by a lawyer, though sending a letter of demand on the letter head of a law firm can convey to the debtor the seriousness of their non-compliance. Also, lawyers who specialise in this field often produce letters that are more impactful, due to their specific knowledge around debt recovery. The letter should outline how much remains due and owing, what the debt is for, when and to whom the outstanding amount must be paid, and the consequences if payment is not made on time.
If a debtor does not make payment as per the terms of the letter of demand and the amount owing is less than $25,000 and the debt originated in Queensland, the matter may be taken to the Queensland Civil and Administrative Tribunal (QCAT). QCAT may impose a mediation between the parties, facilitated by an impartial mediator. If the matter cannot be successfully mediated, the tribunal will hear the matter. Once a judgement is made by QCAT, it can be made enforceable by the Magistrates Court, allowing for the sale and/or seizure of the debtor’s property in order to pay the outstanding debt. Whilst the QCAT system is quite comprehensive and provides for parties to be self-represented, a lawyer can certainly assist with many of the QCAT processes.
If a debtor owes monies in excess of $25,000, proceedings may be initiated in the Queensland Courts. This can be done by drafting a Statement of Claim and serving it upon the debtor. Once proceedings have been commenced, the Courts will often impose a mediation in another attempt to resolve the matter. If mediation is unsuccessful, the matter may be heard in the Courts and any judgement made as a result is enforceable. We recommend seeking legal advice before initiating Court proceedings.
WHAT IF THE DEBTOR IS A COMPANY?
If the debtor is a company and they have not responded to the letter of demand, a Creditor’s Statutory Demand may be served upon the debtor company which is accompanied by an affidavit affirmed by the entity to whom the debt is owed (the creditor). If after 21 days the debtor company has not complied with the demand, the creditor may apply to the Courts to have the debtor company wound up in insolvency. Once a company becomes insolvent, the appointed liquidators may seize and/or sell the debtor company’s property in order to pay outstanding debts. Again, it is best to seek legal advice before making the decision to act against a company so that you are aware of your rights and obligations once the process is commenced.
Ideally, the best way to deal with bad debts is to prevent them. At Axia Litigation Lawyers, we can work with you and your business to create strong foundations that minimise the potential of bad debt whilst protecting your interests as the relationship with your debtors develop.
* The information above is for general purposes only. For tailor-made advice to suit debt recovery and debt management needs, please contact us at Axia Litigation Lawyers, because every move matters.