Damon Mcknight
If someone owes you money in Australia, there are several steps you can take to recover the debt. Firstly, it is recommended to contact the debtor and try to reach an agreement through negotiation or mediation. If that fails, the next step is to send a letter of demand before starting a case in court. This letter informs the debtor of the debt and your intention to recover it. If you decide to proceed to court, you should seek legal advice, and your solicitor will advise you on the best course of action. There are different courts and tribunals available, depending on the amount of debt and the jurisdiction. It is important to act within six years from when the debt arose, as claims made after this period may be considered 'statute barred' or out of time.
| Characteristics | Values |
|---|---|
| First step | Contact the debtor and try to reach an agreement through negotiation or invite them to mediation |
| Next step | Send a letter of demand before starting a case in the Magistrates Court |
| Time limit | You must act against the debtor within six years from the date on which the debt arose |
| Court costs | You will be responsible for your solicitor's fees regardless of whether you recover money from the debtor |
| Court judgment | If the court gives judgment against the debtor, the amount that the debtor has to pay, including court costs, becomes a judgment debt and is payable immediately |
| Enforcing the judgment | You have several options, including an Enforcement Hearing Subpoena, a Debt Redirection Order, or a Seizure and Sale Order |
| Legal advice | You should always seek legal advice before going to court |
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What You'll Learn
Write a letter of demand before starting a case in the Magistrates Court
If someone owes you money, it is important to consider whether you have given the debtor sufficient time to make the payment or respond before starting legal proceedings. Seven to 21 days is considered an ideal response time to a letter of demand. If the debtor fails to respond within this time, you can apply to the court for a default judgment in your favour, which means there is no need for a hearing. However, you must apply within nine months of filing your claim, or the case will be dismissed.
If you decide to proceed with legal action, it is recommended to seek legal advice and draft a letter of demand. This letter should be factual and professional and include proof or evidence of the debt, such as an invoice or agreement. It should also mention the date by which the debt should be repaid, the mode of payment, and the consequences of non-payment. Keep a dated copy of the letter and send it by registered post, requesting a 'signed proof of delivery' card, which you should also retain for your records.
If the debtor still does not pay, you can initiate legal proceedings in the Magistrates Court. You will need to present your case before a magistrate and provide all evidence of the debt, including copies of the letter of demand and receipts from sending it.
It is important to note that you should avoid making any threatening statements in the letter of demand or using tactics designed to embarrass or frustrate the debtor. The letter simply serves as advance notice of your intention to take legal action if the debt is not repaid within the specified time.
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Seek legal advice and consider engaging a solicitor
If you are considering taking someone to court for money owed in Australia, it is important to seek legal advice and consider engaging a solicitor. Here are some reasons why:
Understanding Your Options
The first step is to understand your legal options and the best course of action for your specific situation. A solicitor can advise you on the different avenues available, such as negotiating an agreement, filing a claim, or issuing a demand under the Corporations Act 2001 (Cth) if the debtor is a company. They will guide you through the complexities of the legal system and ensure you comply with any necessary procedures, such as sending a letter of demand before starting a case.
Court Procedures and Tribunals
If you decide to take legal action, a solicitor will advise you on the right court or tribunal to approach. For example, in the Australian Capital Territory (ACT), debts up to $25,000 are typically handled by the ACT Civil and Administrative Tribunal (ACAT). A solicitor will ensure you initiate proceedings in the appropriate legal forum, saving you time and resources.
Statute of Limitations
There are time limitations on debt recovery claims. A solicitor can advise you on the applicable limitations period and ensure your claim is made within the required timeframe. In Australia, you must act against the debtor within six years from the date the debt arose, or your claim may be considered 'statute barred' and rejected.
Enforcing Judgments
If you are successful in court and receive a judgment against the debtor, a solicitor can assist in enforcing that judgment. They can advise on the available options, such as an Enforcement Hearing Subpoena, a Debt Redirection Order, or a Seizure and Sale Order. This ensures that you have the best chance of recovering the money owed to you, which can be a challenging process without legal assistance.
Cost Considerations
Engaging a solicitor comes with financial considerations, and you will be responsible for their fees regardless of the outcome. However, a solicitor can provide valuable insight into whether the cost of legal action is worthwhile, taking into account the amount of debt, the likelihood of success, and the potential costs you may incur if unsuccessful. They can also help negotiate agreements to reduce the amount claimed or arrange payment over time.
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Negotiate an agreement through mediation
If you are owed money, one option is to negotiate an agreement through mediation. Mediation is a voluntary, flexible, and informal process in which a neutral third party, called a mediator, helps the disputing parties negotiate a mutually acceptable agreement. The process is guided by the mediator, who assists the parties in identifying their needs and interests and facilitates open discussion to explore the issues of importance to them. This often includes finding solutions that address their present and future needs, rather than focusing on who was right or wrong in the past.
Mediation gives the parties control over the way their dispute is handled and the outcome. It is empowering as the disputing parties are directly engaged in the negotiation of their settlement, which can enhance the likelihood of continuing their relationship. It is also a confidential process, meaning that information disclosed during mediation may not be used as evidence in any trial or judicial proceeding without consent or as required by law.
The mediator may assist negotiations by asking questions, offering different perspectives, and expressing issues in alternative ways. They may meet with the parties jointly and separately, and further sessions can be scheduled if needed. If an agreement is reached, the details are usually recorded and signed by all parties before the end of the mediation. The parties then notify the court that the case will not proceed, and it is closed.
Mediation is quicker than litigation, with the average mediation lasting only six hours, although this can extend to several weeks for more complex disputes or with multiple parties involved. It is also worth noting that mediation is not a substitute for legal advice, and it is advisable to consult with a lawyer before and during the process, as well as to have them review any written agreement.
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File a document admitting the amount you are prepared to pay
If you've been served with a claim and you owe part of the debt but not the full amount, your solicitor can file a document admitting the amount you're prepared to pay. The creditor may accept this amount, or they may not—in which case, the court will decide. If the creditor does not accept the amount, the court proceedings will continue. The court will send out documents to prepare the case for trial.
The claimant can agree to a judgment on the terms offered by filing a request for judgment. The court will then enter a judgment for payment at the time and rate specified in the defendant's response. If the rate of payment was originally set by a court officer, the defendant's application for redetermination can be decided without a hearing. If the rate was set by a district judge, a redetermination hearing will be held at the defendant's local County Court hearing centre.
If you are the defendant, you must complete a defence form (N9B in the UK) to explain why you do not owe the full amount of the claim. This form is sent to the court with the admission. You must also list your payments to credit debts. A debt adviser can help negotiate lower payments or look into insolvency options. You can submit a financial statement that has been prepared by a debt adviser instead of filling in the boxes on the form.
Before starting a case in court, it's important to try and reach an agreement through negotiation or mediation. Send a letter of demand to the other party, making it clear what the debt is for and when you require payment. If you are a business, make it easy for your customers to pay their bills by offering a range of payment options.
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Enforce a judgment debt
If the court has ruled in your favour and ordered the debtor to pay you, the money owed is now a 'judgment debt'. It is now up to you to enforce the judgment. Many debtors pay up once a judgment has been given, but you may need to remind them to pay the debt. If they do not pay voluntarily, you will have to pay enforcement costs to try to get them to pay.
You have several options to enforce a judgment debt. Your solicitor will advise you on the best course of action. If you are unsure about the debtor's assets or income, your solicitor can issue an Enforcement Hearing Subpoena against them, requiring them to attend court and be examined about their financial position. You can also obtain a Debt Redirection Order, directing the debtor's employer or bank to attach the debtor's wages or other funds due to them.
You may also wish to serve an Investigation Notice (Form 140) on a judgment debtor, requiring them to answer questions relating to their means to pay the judgment debt and produce relevant documents. This will allow the debtor the opportunity to comply and deal with their ability to make repayments informally, and avoid court fees being added to their debt. The debtor has 28 days to send the completed Investigation Notice back to you. If you are able to negotiate a payment arrangement, this can be lodged with the court to make the order using a Form 142 Consent Order for Payment. If no payment arrangement is negotiated, you may lodge an Application to Enforce Form 141.
You can apply for a property seizure and sale order without going through a means inquiry first. This requires a court order, directing a third party (for example, a bank or employer) to have a certain amount of money taken from the debtor. The court can also make an order for a bailiff or sheriff to sell the debtor's property and give the money to you.
There is a time limit for enforcing a judgment debt, which varies between Australian states and territories. In some jurisdictions, it is 6 years, while in others it is 12 years. Even though section 34 of the Limitation of Actions Act 1936 (SA) allows 15 years from the date of the judgment to enforce the debt, rule 201.5 of the Uniform Civil Rules 2020 provides that if a judgment creditor wishes to enforce a debt after 6 years, they must obtain the leave (permission) of the Court to proceed.
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Frequently asked questions
Contact the debtor (the person who owes you money) and try to reach an agreement through negotiation or invite them to mediation. Send a letter of demand stating the debt and your intention to recover it. If you receive a letter of demand, carefully verify the amount demanded and ask for more information if needed.
You can issue a demand under the Corporations Act 2001 (Cth) to place the company in liquidation. Consult a solicitor to determine the best course of action.
You can obtain a Debt Redirection Order to direct the debtor's employer or bank to attach the debtor's wages or other funds. Alternatively, apply for a Seizure and Sale Order for a Sheriff to sell the debtor's goods to satisfy the debt.
Your solicitor can file a document admitting the amount you are willing to pay. The creditor may accept this amount, or the court will decide. Your solicitor can also negotiate an agreement for a lower payment and/or extended payment terms.
Yes, you must act within six years from the date the debt arose, or your claim may be considered 'statute barred', meaning it is no longer valid due to the lapse of time.
