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Slater Byrne Helps Overseas Companies Collect Debts in Australia

Australia is one of the most robust trading economies in the world. Euler Hermes ranked it the 11th country in the world where it is easiest to do business. The country’s open market imposes minimal restrictions on importation of goods and services. Australia also has bilateral free trade agreements with the United States, Chile, New Zealand, Japan, China, Korea, and its 10 ASEAN neighbours. Moreover, the country’s commercial arbitration, electronic commerce, and cross-border insolvency proceedings follow international standards, which further fosters ease in international trade.

Australia spent $187 billion for imports in 2017, with refined petroleum and crude petroleum as the top two commodity imports. The country’s other top commodity imports are cars, computers, broadcasting equipment, delivery trucks, and packaged medicament. Topping all these imported commodities is personal travel. Australia, according to SBS News, spent $28.6 billion in foreign travel and tourism in 2016 to 2017.

This is why many overseas companies choose to work with Australian businesses. While doing business with Australian companies is a breeze, collecting debts can be a challenge. Australia has one of the most sophisticated debt collections guidelines in the world, but Euler Hermes ranked it as one of the countries with a “very high” level of debt collection complexity.

If you plan to collect debts from Australian companies, here are four challenges to keep in mind:

  1. Business context
  2. Debt collection regulations
  3. Court proceedings
  4. Insolvency proceedings

Business Context

The ease, or difficulty, in doing business in another country is the first thing a foreign company must take into consideration. There are various tools available to determine a country’s business environment. World Bank’s Doing Business project measures the ease of doing business across 189 countries, including Australia. The report looks into business regulations or the lack thereof. The report also looks into the ease of creating a company, enforcing contracts, and settling insolvency issues. The Enterprise Surveys project looks into business environment-related issues, including access to finance, corruption levels, infrastructure or workforce availability, and competition across 135 countries.

The findings of these studies may be misleading or conflicting. Businesses should then just use these studies are guides. It is always best to conduct your own due diligence in investigating a prospect partner’s credit situation and financial health before doing business with them. This will save you from getting into trouble later when collecting unpaid debts.

One of the areas in terms of business context is payment culture. In Australia, the average days sales outstanding (DSO) is good. The standard payment term in Australia is more than 30 days. Australia rank high among other countries though in terms of the shortest standard payment term.

Debt Collection Regulations

Part of knowing the business context in the country where your prospective partner is located is studying that country’s debt collection methods and regulations. The international conventions that Australia is a signatory of, however, do not include debt collection protocols. There is no international debt collection standard. Debt collection regulations vary from country to country. In Australia, debts can be collected either through courts or by using a debt collection agency. Contact relating to debt collection is strictly regulated in Australia. Communications by phone and writing are the preferred mode of contacting a debtor. Face-to-face contact is limited to when it is absolutely necessary and reasonable.

Australian privacy laws require that a debtor’s personal information should always be treated with respect and should not be disclosed. The debtor’s information should be secured against misuse, interference or loss, and from unauthorised access, modification or disclosure. Messaging apps, such as WhatsApp, should be used carefully, taking into consideration privacy concerns.

Moreover, the difference in time zones can be a nightmare. The different time zone can also drag the debt collection process further. Australia allows contact with the debtor or third party at reasonable hours, which means from 7:30 a.m. to 9:00 p.m., if by telephone from Monday to Friday, and from 9:00 a.m. to 9:00 p.m., during weekends. No contact by telephone is recommended during national public holidays.

Court Proceedings

Courts operate differently around the world. Australia follows a common law structure, which means there is no one law that governs commerce and trade. There are three courts — state, territory, and federal — in Australia where you can file your debt collection suit. Each of these courts have their own systems.

If an international commercial dispute is resolved by arbitration, it will be governed by a commonwealth act, which is modeled after the UNCITRAL Model Law. Before 2010, parties were free to agree as to what rules will apply to their arbitration. Arbitral awards under the New York Convention are recognised and enforced in Australia as if they are court judgements.

Domestic arbitration is governed by the arbitration act of the state or territory where the seat of arbitration is located. Euler Hermes describes Australia’s court system as complex because of the federal structure and because it provides no proceeding that fast tracks settlement of commercial claims. Euler Hermes noted that while Australian courts are generally efficient, delays and costs can be significant. Moreover, enforcing foreign judgements may prove difficult.

Insolvency Proceedings

Australia ranked 16th in Euler Hermes’ countries with ease in resolving insolvency. Most insolvency proceedings around the world prefer to restructure the company to pay off debts instead of liquidating and selling the company’s assets. Australia’s courts use the so-called “cash-flow test” to assess the ability of a company to pay its debts as they become due and payable. One of the main reasons why a company is no longer able to pay debts on time or in full is because of cash flow problems.

Among other things, the cash-flow test analyses the company’s existing debts, including when they are due. The test also analyses the company’s present and expected cash resources and when these will be received. In a case, an Australian court crafted the “insurmountable endemic illiquidity” threshold where a company has gone past “the point of no return” and is no longer viable to trade. In another case, an Australian court made a checklist with 14 indicators of insolvency. The checklist includes continuing losses, inability to raise further equity capital, and special arrangements with selected creditors.

The Corporations Act 2001 provides circumstances where a company can be presumed to be insolvent, allowing creditors to commence proceedings to have the company wound up on the basis of insolvency. The circumstances when companies are presumed insolvent are: failure of the company to comply with a statutory demand, execution of a process returned wholly or partially unsatisfied, appointment of a receiver, either under the power of an instrument or by court order, and the possession or control by a person of secured property of a company, or a person appointed for this purpose. There is no template to prove insolvency in Australia. The findings will still have to be made by the Court, depending on the facts of each case.

How Can Slater Byrne Help in International Debt Collection?

Slater Byrne has helped clients from around the world, like the U.S., the U.K., Ukraine, Russia, China, Singapore, Hong Kong and The Netherlands. Because we are debt collection agency local in Sydney, we know the ins and outs of Australian legislation and debt collection regulations. We act for any company in the world as long as the debtor company is in Australia.  We offer free consultations to companies around the world via WhatsApp or phone call.

The key advise we give our international clients is to make sure they obtain the ABN or the ACN of the Australian entity. The Australian Business Number (ABN) and Australian Company Number (ACN) are important because these numbers identify who the international client’s trading partner is. The ACN is issued by the Australian Securities and Investments Commission that is registered as a company, while the ABN is issued by the Australian Tax Office (ATO) to monitor business activities and taxes. Knowing who you are dealing with is important in the debt collection process because Australian regulation is strict when it comes to contacting the debtor.

Tapping the expertise of debt collection professionals local in Australia assures international clients of tailored solutions that are in accordance with domestic laws and regulations.