A client hired Slater Byrne Recoveries in early 2019 to collect on a substantial amount of debt from an automotive salvage company. Our client needs the cash to run his business so he attempted many attempts to a quicker settlement. The debtor, however, was not forthcoming. By July of last year, the client already engaged the services of a solicitor to lodge a statement of claim for the debtor.
What is a statement of claim?
The creditor files the statement of claim in court containing the summary of facts supporting the case. This document will “get the ball rolling,” so to speak, and signifies the commencement of court proceedings. However, if your statement of claim is incorrect, the court or the other party may require you to re-issue your statement of claim. This may cause delays.
Our client’s solicitor detailed the following facts:
- how the client provided the services or supplies and whether the debtor purchased these online or in-store
- if purchased online, are there terms and conditions in the client’s website
- did the terms and conditions on the website change in any way since the debtor placed its orders
- aside from the online terms and conditions, did the client and debtor enter into other written agreements
- when the first contact between the client and the debtor was and when the debtor placed its orders
- when the date the client provided the services and when the client issued the relevant invoices
- did the debtor raise disputes to the invoices on why it has not paid the amounts
The solicitor, at the client’s go-signal, filed the statement of claim in August. The debtor had until mid-September to file a Defence. The expiry date arrived but there was no response from the debtor. The next step will be to proceed with obtaining judgment. The court issues this without having to conduct a hearing. The court only issues this when the defendant has not filed a response to the statement of claim. Because the debt had already taken too long to recover, the client wanted to look at all options available to it that is most efficient and cost-effective.
What are available avenues after Default Judgment?
The solicitor advised the client to pursue a judgment order. Because the debtor has not filed a Defence, what the solicitor planned to do is file a Notice of Motion for Judgment. This notice requires a supporting affidavit evidencing that the client served the statement of claim at least 28 days before the deadline to respond.
The solicitor also advised the client that it can pursue a Creditor’s Statutory Demand based on the judgment order. Once the creditor serves a Statutory Demand, the debtor has 21 days to either pay the amount set out in the demand. The debtor can also reach a compromise for payment or file and serve a court application to set aside the Demand. If the debtor fails to do one of the above options, the debtor will be presumed insolvent. The creditor can use insolvency as a basis for filing a Wind-up Application. The solicitor emphasized the forcefulness of a Statutory Demand, noting that the threat of being put into liquidation is a strong motivation that prompts non-responsive debtors into making a payment.
Aside from the Judgment Order and Statutory Demand, the solicitor also advised the client that it can pursue Examination Order. In this case, a court will ask questions regarding the financial affairs of the debtor to serve as the basis for an application for a writ for levy of a property where a bailiff will seize and sell personal property of the Judgment Debtor. The court will apply the proceeds of the sale to pay off the debts. A third option for the client will be a garnishee order where the court will require a third party to pay the debt of the Judgment Debtor.
Having assessed his options thoroughly, the client proceeded with a Default Judgment. Towards the end of September, the solicitor informed the client that the court has allowed the motion and awarded a Default Judgment for $15,361, including costs and interest. The judgment was forwarded to the debtor, along with an accompanying final demand for payment foreshadowing further enforcement/liquidation action should payment is not received.
Before the Statutory Demand would expire and after sending out a multitude of messages through email, SMS, and telephone, Slater Byrne Recoveries’ debt collection office in Sydney was able to get hold of the debtor. He said he was aware of the debt but disputes the debt, saying an equipment the client supplied is damaged. The time to dispute the debt, however, has now expired, and the debtor’s Defence should have been filed when the Statement of Claim was issued.
The debtor offered $300 per month but the client rejected this as it would take over 6 years for the debtor to pay off his debt with this amount, plus the client also wants a good payment of the court fees, costs, and interest. The debtor did not respond to the Statutory Demand, and the client proceeded with filing a Wind-Up Application.
How long can a creditor recoup a debt in a wind-up proceeding?
There is no definite answer, but Slater Byrne Recoveries believes it will take 6 to 12 months, or even longer, depending on the amount of work the liquidator has to do to recover assets to be auctioned off.
When our client filed the Wind-Up Application, it was still trading, apparently unaware of the winding-up order. The court has appointed a liquidator who has taken steps to secure the debtor’s premises and assets, which appear to be substantial. Before the initial hearing in the Wind-Up proceeding, the debtor negotiated for another payment plan, but the client did not accept this plan. The debtor also engaged its own solicitor to seek an adjournment of the hearing. The adjourned hearing has passed and there is no sound from the debtor. The solicitor advised Slater Byrne Recoveries to hold the client’s file to wait for the initial creditors report to come in.
What can we learn from all these?
Debt recovery can be a simple, or complicated, process, depending on the circumstances of the debtor. We enumerated here a creditor’s basic do’s and don’ts to ensure an effective credit collection system that can work regardless of the situation of the debtor. We also cannot emphasise enough the importance of terms and conditions and gave tips on how to write a good terms and conditions for any business. The main lesson here is: if you are a proactive creditor who has set up good business practices particularly for debt collection, you will have many options available for you to recover not just your debt in full amount, but also interest and costs in pursuing an unwilling debtor.
Slater Byrne was also able to recover full payment from a difficult debtor by obtaining a Judgment to issue a bankruptcy notice and another debtor in a Wind-up Proceeding.