What is a debt?
A debt arises when there is a clear legal obligation for an individual or entity to pay or repay a specified amount of money, and the debtor has subsequently failed to fulfill this obligation. This situation typically occurs when the debtor has not met their financial commitments to the creditor, despite the established liability for payment. Such circumstances create a formal debt relationship, wherein the creditor is entitled to seek recovery of the outstanding amount through various means.
Why do I need a lawyer for my debt recovery matter?
While many debt recovery issues can be managed without legal help, seeking advice from a lawyer is often beneficial. A lawyer can navigate the complexities of the law, safeguard your rights, and work towards the best possible outcome.
Key areas of debt recovery
- Letter of demand;
- Statutory demand;
- Debt collection agencies; and
- Court proceedings.
Letter of demand
Before initiating court proceedings, creditors are generally required to issue a letter of demand to the debtor. This letter serves as a formal request for payment of the outstanding debt and explicitly states that legal action will be pursued if payment is not made. This step ensures that the debtor is given a final opportunity to settle the debt before formal legal action is taken.
Statutory Demand
A statutory demand is a formal request made by a creditor to a company for payment of a debt. This process, which is governed by the Corporations Act 2001 (Cth), is similar to a general letter of demand but carries specific legal authority under the Act.
Issuing a statutory demand may be appropriate in situations where there is no genuine dispute regarding the debt’s validity, the relationship with the debtor has deteriorated beyond repair, and you are not concerned about the potential impact on your business’s market perception. It is important to note that a statutory demand can only be issued if the debt owed totals at least $4,000, which may comprise one or more invoices. Debts totalling less than this amount do not qualify for a statutory demand.
The Corporations Act mandates that a statutory demand be in writing and include several key elements: the precise amount of the debt, a requirement for the debtor to pay the amount within 21 days of the demand’s issuance, a signature from the creditor, and an affidavit affirming that the debt is due and payable. Once these conditions are satisfied, the statutory demand must be properly served on the company in question.
Debt collection agencies
If you are unable to recover the debt through direct means or by sending a legal letter, consider engaging a collection agency. Utilising a collection agency can be a cost-effective alternative to abandoning the debt entirely, allowing your business to redirect its resources to more productive areas.
While it is possible that you may not recover the full amount of the debt, employing a collection agency can help mitigate financial losses. Additionally, if the agency is unable to recover the debt, they can report it to the debtor’s credit report.
Court Proceedings
Starting court proceedings should be considered as a last resort for any business seeking to recover a debt. This step often involves additional financial outlay and does not guarantee that payment will be received, even if the court rules in your favor. Debt recovery through the courts entails not only costs but also the risk that the debtor may still not fulfill their payment obligations.
Initiating court proceedings may be necessary when a debtor disputes the payment or refuses to settle the debt despite prior demands. A court judgment serves as a binding decision that specifies the debtor’s obligation to pay the outstanding amount.
The appropriate court or tribunal for initiating proceedings depends on the specifics of the case. In Victoria, for instance, the Victorian Civil and Administrative Tribunal (VCAT) handles disputes related to non-payment for goods or services but does not cover general debt recovery matters. For broader debt recovery cases, the appropriate court depends on the amount claimed, with different courts having jurisdiction based on the debt’s value.
