Our client, a geotechnical engineering company had engaged Slater Byrne to pursue a debt which had fallen over the 120+ day overdue mark. The team found an initial problem — the debtor had previously been issued with a Court Wind-up application. Slater Byrne saw this as an opportunity to advise our client to proceed down the Statutory Demand process, in turn, prompting the debtor to pay the full amount of $54,351, plus costs.
We have emphasized the importance of doing an Australian Business Number (ABN) search prior to doing business. An ABN search of the debtor company revealed that they had previously gone through Wind-up proceedings, most importantly to note, the proceedings had been dismissed. The Australian Tax Office (ATO) requires all businesses in Australia to identify under an ABN. This unique 11-digit number allows a business to be recognized by the community as well as allowing the Government and business owner to monitor business activity and taxes. As a business owner, you can require your client to provide their ABN in your credit application prior to trade or through your terms and conditions.
When a company has Wind-up proceedings filed against their entity, unsecured creditors are unable to file lawsuits against said company. If an unsecured creditor has a pending lawsuit against the debtor company, that lawsuit will be stayed, unless the court permits the continuance. Also, in Wind-up proceedings, the liquidator has the power to sell assets of the company, if assets are recovered and use the proceeds to pay creditors. The court may also approve a payment plan where creditors are ranked in accordance to priority, with unsecured creditors such as our client ranking last. In short, in this case, there was already a long list of creditors ahead of our client who were also trying to collect debt from the debtor.
Having to deal with an insolvent company can be difficult because you may not be the only creditor trying to get paid. There will be many of you in the same situation and all of you will be clamouring to get your fair share of the pie, after all, you have already made good of your side of your contract – you have already provided the services or the product.
Slater Byrne’s recovery process runs for a period of 30 days. But of course, there are instances where this process can be minimized like in this case where an ABN search revealed prior proceedings to be dismissed. The wind-up proceeding became an opportunity to allow our client to fast-track our general debt collection process. The debtor promised to pay by the end of the month but did not confirm this in writing. One of the basic rules of thumb we ask all creditors to do, if possible, is to put everything in writing so that there will be documentation of all transactions between you and the debtor. When the initial demand letter expired, Slater Byrne did not hesitate to issue our final demand, placing the debtor company on notice that we intend to seek instructions from our client to escalate the debt by way of legal proceedings and a credit default.
After expiry of our final demand, Slater Byrne quoted the client for credit default. The client instructed the team to proceed. A credit default can be lodged on an undisputed debt and essentially places a black mark against a company’s credit rating.
This black mark is effectively what can knock back finance or loan applications submitted by the debtor company. Slater Byrne believes there are two, even more, sides to a story so we contacted the debtor and advised that we have the instructions from our client to proceed down the statutory demand path.
A statutory demand is a precursor to the wind-up application. The statutory demand is a notice which is served on a debtor company advising them they have 21 days to pay the debt in full. In essence, to prove solvency by paying the debt. If the debtor takes no action within the time frame allowed, the debtor will be deemed insolvent. The debtor we were dealing with was, of course, already familiar with this process as they had already previously dismissed a Wind-up application.
After notifying the debtor of our client’s intention to issue a Statutory Demand, Slater Byrne received an email from the debtor offering a payment plan of $15,000 upfront with the remaining balance to be paid within 25 days. The first payment came through but the team never received the balance. Due to this default and with the client’s go ahead, we issued a statutory demand and subsequently on expiry, wind up proceedings.
The debtor ended up making a payment prior to the date of the hearing after multiple discussions back and forth to settle. The debtor paid the principal debt in full, including additional costs.
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