If you are not being paid for your work and the debt collectors are not having any luck collecting this debt, you may need to commence proceedings in Court to recover bad debts from a non-paying client.
This article explains the procedures and hits you with the realities of legal debt recovery.
Jurisdiction
You will have to establish what Court has jurisdiction to hear your matter. The civil jurisdiction in debt recovery matters is established by the amount of the debt. Check to see which of the following have jurisdiction in your State to hear your matter:
1. Civil and Administrative Tribunal or Small Claims Court
2. Magistrates Court or Local Court
3. District Court
4. Supreme Court
Time Limits
Don’t leave it for too long! All states will have a limitation period, after which you are statute barred from bringing the action. In Queensland the Limitation of Actions Act 1974 limits an action founded on simple contract to six (6) years. Check the limitation period in your State.
Action Commenced by Claim
An action for debt recovery is commenced by Claim and Statement of Claim (“Pleadings”). There are rules around what should be included in pleadings and how it should be pleaded. It is very important that you get this document drafted by an experienced litigation lawyer specialising in debt recovery.
Default Judgment
A large percentage of Claims go undefended. The debtor uses the “head-in-the-sand” approach to dealing with their obligation. If your debtor does not defend your claim within 28 days (in QLD) then the Court will award judgment in your favour.
Important Considerations
Before going down this path there are some important things to know.
1. You still may not see any money. If you are suing a “one dollar company” with no assets, and have no personal guarantees, the company may be liquidated with no dividend payable. Or, suing a person with no real property or other valuable property it might not be commercially viable to continue.
2. It may take over twelve (12) months or even longer to get to the end. If they defend the action, it could be drawn out all the way to a trial. This could end up costing you upwards of $15,000.00. Even then, they could have other creditors, they can go bankrupt etc.
How to Maximise Your Chances
If you want to maximise your chances of recovering bad debts from a debtor, then there are a few things to remember:
1. Always have a written contract. Sounds crazy, but we see a large amount of clients who do not have a contract or written terms.
2. If your client is a company, get personal or directors guarantees, from all of the directors.
3. Have good default clauses – a charging clause for example may allow a caveat to be lodged over the debtor’s real property.
Debt recovery can be very complicated and if done incorrectly may make you liable for a costs order.
Wayne Davis is a solicitor practising in civil litigation, commercial litigation, insolvency and specialising in Australian debt recovery. Outside of work, Wayne practices mindfulness meditation and enjoys surfing, fishing, cooking and time with his family. Wayne also trains in mixed martial arts, kickboxing and jiu jitsu
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This article explains the procedures and hits you with the realities of legal debt recovery.
Jurisdiction
You will have to establish what Court has jurisdiction to hear your matter. The civil jurisdiction in debt recovery matters is established by the amount of the debt. Check to see which of the following have jurisdiction in your State to hear your matter:
1. Civil and Administrative Tribunal or Small Claims Court
2. Magistrates Court or Local Court
3. District Court
4. Supreme Court
Time Limits
Don’t leave it for too long! All states will have a limitation period, after which you are statute barred from bringing the action. In Queensland the Limitation of Actions Act 1974 limits an action founded on simple contract to six (6) years. Check the limitation period in your State.
Action Commenced by Claim
An action for debt recovery is commenced by Claim and Statement of Claim (“Pleadings”). There are rules around what should be included in pleadings and how it should be pleaded. It is very important that you get this document drafted by an experienced litigation lawyer specialising in debt recovery.
Default Judgment
A large percentage of Claims go undefended. The debtor uses the “head-in-the-sand” approach to dealing with their obligation. If your debtor does not defend your claim within 28 days (in QLD) then the Court will award judgment in your favour.
Important Considerations
Before going down this path there are some important things to know.
1. You still may not see any money. If you are suing a “one dollar company” with no assets, and have no personal guarantees, the company may be liquidated with no dividend payable. Or, suing a person with no real property or other valuable property it might not be commercially viable to continue.
2. It may take over twelve (12) months or even longer to get to the end. If they defend the action, it could be drawn out all the way to a trial. This could end up costing you upwards of $15,000.00. Even then, they could have other creditors, they can go bankrupt etc.
How to Maximise Your Chances
If you want to maximise your chances of recovering bad debts from a debtor, then there are a few things to remember:
1. Always have a written contract. Sounds crazy, but we see a large amount of clients who do not have a contract or written terms.
2. If your client is a company, get personal or directors guarantees, from all of the directors.
3. Have good default clauses – a charging clause for example may allow a caveat to be lodged over the debtor’s real property.
Debt recovery can be very complicated and if done incorrectly may make you liable for a costs order.
Wayne Davis is a solicitor practising in civil litigation, commercial litigation, insolvency and specialising in Australian debt recovery. Outside of work, Wayne practices mindfulness meditation and enjoys surfing, fishing, cooking and time with his family. Wayne also trains in mixed martial arts, kickboxing and jiu jitsu
Subscribe to this Blog for more Small Business news and tips.
Share this article:Fundamentals of Debt Recovery in Small Business
Over to You. What do You Think? Post Your Comments Below. [Note to those seeking a free ride on our google ranking, blog spam will be deleted,but genuine contributions will be happily published.]
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