Successful Debt Collection During the Pandemic for NZ Client

Client recovers full amount, plus legal costs and fees

Debt collection during the pandemic presented Slater Byrne Recoveries with a different set of challenges. A New Zealand client contacted us in late April seeking help in collecting a substantial amount of debt from a domestic company. The client provided services to the company, which were terminated earlier this year. The client took upon himself to collect the payables but, after several unreturned calls, emails, and letters, the client had to get us on board to chase the debts for him. By the time the client hired us, COVID-19 has reached a pandemic level presenting additional difficulties.

Debt Collection During the Pandemic
Volleying the ball until a team wins, very much like a debt collection case.

The Issue

Collecting debt is always a challenge, no matter the global economic status. The past few months, however, were more challenging in the debt collection industry as governments rolled out creditor relief, which curtailed debt collection efforts. In New Zealand, for example, they imposed a business debt hibernation for businesses who struggled financially because of the lockdowns. Fortunately, our client started the debt collection process just before the NZ government rolled out the reliefs. There still remained another obstacle: the debtor was also on the hunt for additional funding for its business. At the onset, the debtor was candid enough to tell us that if it fails to obtain more funding it won’t be able to pay our client.

The Solution

We started the debt collection process with a letter of demand. This is to confirm our engagement and to instruct the debtor to contact us. We usually expect payment seven days after sending the demand letter. In this case, the debtor asked for a three-week extension before it can commit to paying our client. In short, the debtor was saying that it cannot pay after the seventh day. By the time we send out the first demand letter, our clients no longer interact with their debtor. They leave all communications to us. As part of our communications strategy, we always ask the debtors to put their positions into writing so that we can avoid relaying the wrong message to our clients. In this case, we specifically asked the debtor for a written payment plan and timeline.

Our client, however, did not accept the requested 3-week extension. We then suggested that we proceed with issuing a statutory demand. The client agreed so we had a solicitor draft and serve the StatDemand. This will give the debtor 15 business days to pay the debt in full. Without payment, the debtor is at the risk of a wind-up application to be filed against them. A wind-up application could force the debtor into liquidation. Because of our insistence that the client will escalate the matter by pursuing legal proceedings, the debtor promised to make an interim payment of $10,000. The debtor, however, was silent as to the remainder of the debt.

By this time, the debt collection process has dragged on because the debtor promised to pay but never did. The client has also informed us that he did not want the company to go under; he just wants to the company be repay him for the services he has already rendered to the debtor. With this in mind, the client asked for the possibility of working with a longer-term repayment plan, while the wind-up application is pending in court.

The Outcome

A pending wind-up application does not prohibit the parties to come up with a payment arrangement. The wind-up proceeding though serves to force the debtor to pay up, or else its business will cease to operate. Constant and clear communications between Slater Byrne and the client, on the one hand, and Slater Byrne and the debtor, on the other hand, proved effective in helping the two parties agree to a reasonable solution to deal with the debt.

Ultimately, while the client was waiting for the court to schedule the hearing on the wind-up application, the debtor paid the debt in full, plus legal costs. Following the payment in full by the debtor, the client agreed to a full and final settlement and also agree to file a notice of discontinuance of the proceedings.

Photo by Wan San Yip on Unsplash

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