The Issue

A security services company contacted the Slater Byrne Recoveries team in Sydney in September last year to collect a $19,000 debt. The Debtor was a company in the hospitality industry, managing several restaurants and venues. Before engaging us, the Client was trying to collect the debt on its own. The Debtor, however, was on minimal staff operations due to COVID-19. No one was in their office manning the business email for accounts.

Moreover, the Debtor was only willing to pay 50 cents on the dollar because they were claiming financial hardship. The Client made it clear that it was not in the position to accept the 50% proposal. They provided labour and have already paid the wages and other associated on-costs.

The Client though was willing to accept a payment arrangement over time, even if the period runs for three to six months. The Client’s only request was that the Debtor opens its lines of communication and commit to making a down payment. The Client also acknowledged that COVID-19 was affecting everyone, including the Debtor. Therefore, the Client was willing to give some added time to the Debtor to pay.

The Solution

Initially, Sandra Chary, the SBR account manager assigned to the case, sent a letter of demand to inform the Debtor that it has outstanding payable against the Client. That demand letter also notified the Debtor that we have been appointed as the debt collection agency.

The debt collection process in this case was fairly straight forward. The letter indicated that the Debtor had within 7 days from the date SBR issued the demand letter. The Debtor was adamant again that they could only pay 50% of the outstanding debt. The Client reiterated, they would be flexible, but the debt needed to be paid in full.

Before the expiration of the demand letter, SBR, after discussions with the Client, sent the Debtor a notice of impending legal action. That notice includes a fixed date for filing a Statement of Claim (“SOC”) against the Debtor in the appropriate court.

After a SOC is issued, should the Debtor not file a defense within the time frame required, the Client’s solicitors intend to proceed with Default Judgment. Following this, the Client can then enforce the Judgment. The Client may also add associated costs to the debt.

The Debtor can choose to engage a solicitor to represent them and lodge a defense within 28 days after being served with the SOC.

Is it possible to lodge default notices against the directors as well as the company?

The Client raised this question during the debt collection process. Unfortunately, Slater Byrne cannot lodge default notices against the directors of the Debtor because the unpaid debt is not a personal debt. If the directors owe the debt in their personal capacity, the Client will need to take legal action to be able to affect the credit rating of the directors.

Notice of intention to sue expired without further response

Because it was not appropriate to lodge default notices against the directors, SBR’s option was to wait for the Debtor’s response on the notice of intention to sue. SBR made several phone calls to follow up on the Debtor. The Debtor insisted that it was having difficulty addressing the outstanding debt.

Because the Client is not happy to accept a reduced payment, the Client decided to proceed with a SOC. Once the Client serves the SOC, the Debtor will have 28 days to respond by either paying the debt in full + costs, entering a suitable arrangement, or filing a defense.

If the Debtor files a defense, the Client may need to pay further hearing and solicitor fees. The solicitors though were not envisioning a defense as the Debtor did not dispute the debt. The Debtor was simply trying to get a discount on the total amount payable.

Things to consider before serving a SOC:

1. Obtaining the correct ACN for the client,
2. Ensuring a Contract is in place, and
3. The various costs that may be payable during the proceeding, including a hearing allocation fee.

As we were unable to issue a Statutory Demand here due to Covid-19 restrictions with legislation, we advised our client to commence with legal proceedings instead through a Statement of Claim.

Once The claim was issued, we received a formal offer from the debtor to settle. This was rejected and they ended up providing another offer to pay the debt in full.

Debtor was attempting to get a reduction of up to 50% of the debt hereby claiming financial hardship due to the Covid-19 pandemic. They failed to substantiate any evidence of this prior to our client commencing legal action.

Sandra Chary, Slater Byrne Recoveries accounts manager

The Outcome

The SBR team was anticipating taking the legal route to recoup the full amount of the debt. However, we were surprised to receive a letter from the Debtor saying it has conferred with its executives and has decided to pay the outstanding amount in full, including any interest and legal fees.

This debt collection case was straightforward but was compounded with the hardship companies experienced because of the COVID-19 pandemic. Ultimately, the Client collected the full amount of debt that it was owed, and the Debtor was spared the costly litigation expenses.

The post How Slater Byrne Collected Full Amount of Debt appeared first on Slater Byrne Recoveries.

1. temporary debt relief measures ended on 1 January
2. JobKeeper is extended until 28 March
3. new insolvency process
4. supplier payment times, and
5. HomeBuilder extension.

We are seeing in January the start of a range of real problems for small business that are still pretty sluggish, and haven’t recovered at this point.

– Kate Carnell, Australian Small Business and Family Enterprise Ombudsman

Temporary debt relief measures ended on 1 January

As of 1 January 2021, temporary debt relief changes have ceased.

The bankruptcy threshold was also amended to the following:

• the minimum amount of debt that can trigger bankruptcy is $10,000, down from $20,000
• an individual has to respond to a bankruptcy notice 21 days, reduced from six months
• temporary debt protection allows for 21 days relief from creditors, instead of six months.

With the temporary amnesty lifted, creditor’s statutory demands against debtors will revert back to a $2,000 minimum debt. Debtors will have 21 days to comply with these statutory demands.

JobKeeper is extended until 28 March

The government has extended JobKeeper until 28 March.  Some of the important provisions are the following:

• actual GST turnover declined in the December 2020 quarter relative to the same period in 2019
• tier one rate for employees who satisfy the 80-hour threshold will be $1,000 per fortnight
• tier two rate will be $650 per fortnight for those working fewer than 20 hours per week

Businesses who are already receiving JobKeeper payments need not re-enrol. They do need to declare their revenue and pay their employees the new JobKeeper amounts. They also need to continue to complete monthly business declarations.

You can read detailed provisions of the extended JobKeeper here.

Businesses that still qualified for JobKeeper – because turnover was still down 30 per cent – risked losing staff who decided to take jobs at full pay in more buoyant parts of the economy, Ms. Carnell told The Australian Financial Review. Those that lost JobKeeper would not only have to pay staff in full but would also lose rent and utility relief, which could also force layoffs, Ms. Carnell added.

There would soon be a “purge” of defunct businesses that should have failed last year.

Marcus Ayres, managing director for restructuring at Duff & Phelps

“We’ll also see businesses that held on too long being wound up immediately – as opposed to restructuring either formally or informally – but it won’t be of a scale predicted by doomsayers,” Mr. Ayres added.

New insolvency process

The new insolvency process for small businesses is effective from 1 January. Among the notable features of the process are:

• transition from ‘creditor in possession’ model to ‘debtor in possession model’
• businesses with liabilities of less than $1 million stay in control of their business
• a restructuring practitioner can help insolvent businesses create a plan

With small businesses staying in control of their business, they can continue to trade while reorganizing their debts. Only at least 50% of creditors need to vote in favor of the plan for it to be approved. If the creditors do not approve the plan, the company may be placed into liquidation. Another alternative would be placing the company in voluntary administration.

Supplier payment times

Addressing delayed payment times, which adversely affects the cash flow of SMEs, the government rolled out, effective January 1, the Payment Times Reporting Scheme (PTRS). Those affected by the PTRS are businesses with a total yearly income of more than $100 million.

Here are some of the changes expected to happen alongside the rollout of the PTRS:

• businesses will detail their supply chain financing arrangements including reverse factoring in an online register
• a regulator will publish the first public report in the online register in July
• SMEs can opt in or out of a small business identification tool, which helps larger businesses find out who their suppliers are
• civil penalties will kick in for large businesses that fail to report or give false information to the regulator after 12 months

HomeBuilder extension

The government extended the HomeBuilder program to 31 March. Changes to the program include:

• $15,000 grant for building contracts signed between 1 January and 31 March, inclusive
• applications can now be submitted up until 14 April
• extension to the construction commencement timeframe from three months to six months
• increase to property price cap for new build contracts in NSW and VIC to $950,000 and $850,000, respectively, where the contract is signed between 1 January and 31 March, inclusive

Failing to plan is planning to fail, or so the famous saying goes. Every year brings us new challenges, some unexpectedly worse than others. We cannot completely predict all that would happen to our businesses this year, but for situations that are within our control (e.g. regulatory compliance), it is best to prepare as early as now given we already have a guide on policy changes SMEs need to know this 2021.

If you are a business who is struggling to collect on delinquent accounts, we advise you to lodge your debts before the real pain in the economy starts to happen.

The post Top 5 Policy Changes SMEs Need to Know This 2021 appeared first on Slater Byrne Recoveries.

On those times, the client agreed to delayed payments because the debtor always paid anyway. The relationship, however, turned sour in 2019 when the debtor paid later than usual. By this time, the debtor had $184,000 in unpaid debt. The client, no longer able to tolerate this business relationship, decided to lodge a debt with Slater Byrne Recoveries. A call to our Sydney office started the debt collection ball rolling.

The Issue

The case involved several challenges:

1. The client was an overseas client collecting debt from an Australian debtor.
2. Both the client and the debtor had an agreement before the client hired us.
3. The coronavirus pandemic prompted courts across Australia to postpone civil cases. The Australian government also extended insolvent trading relief to 31 December.

Following the onboarding of the client, the client supplied Slater Byrne with documents relevant to its debt collection case. SBR’s Account Manager in Sydney communicated to the debtor that the client hired us to collect the debt. Together with this notice, our Accounts Manager gave the debtor seven days to settle the debt or legal action could be commenced. If the debtor does not file any defense within 28 days of issuing legal action, the client will proceed with a default judgment.

The debtor was adamant that the client already accepted the term that it would pay 50cents on the dollar. The client, however, felt pressured to accept the settlement because they were on the belief that the debtor was on the brink of liquidation. When they had the chance to seek advice, they decided to reject the agreement. The client felt the terms were unfair. The client also was unable to probe into the financial status of the debtor to check the veracity of its insolvency claim.

The Solution

From Slater Byrne’s point of view, our goal is to collect the money owed in the quickest time possible. Should the matter be more complicated than usual, we will provide suitable advice on what we fell can get the quickest result. We advised our client that we can issue a credit default warning giving the debtor additional seven days for payment or offer a reasonable settlement offer. Another alternative would be to start legal action by issuing a creditor statutory demand for payment.

Ultimately, the client, with legal advice and after weighing up the costs involved for litigation, decided to file a statement of claim. A Statement of Claim sets out the overdue invoices which are unpaid and outlines the details supporting the facts. Helping overseas clients collect debts in Australia is not impossible but may take some time as in this case. Australian courts have online filing systems. However, because the client was an overseas entity, it needed to file documents physically.

The Outcome

How Slater Byrne used garnishee order to collect debt

While the case was already scheduled for a hearing, Australian courts postponed hearings on all civil cases due to COVID-19, which further scuppered our client’s debt recovery attempts. Our client was also concerned with the government regulations on insolvent trading relief, which, fortunately, did not affect our client’s court proceeding.

Eventually, the court issued a decision in our client’s favor, directing the debtor to pay $185,000. However, we still needed to recoup the actual money from the debtor.

We used a garnishee order to collect the judgment debt. Our client did not have the debtor’s bank account details but a simple search in the debtor’s online shop showed that their bank account details were publicly available. 

After almost a year to the day the client engaged our services, the debtor finally processed the payment. Our client was able to recoup the full amount. Despite the challenges and the COVID-19 pandemic, we were able to use a garnishee order to collect debt for our overseas client.

The post Using Garnishee Orders to Collect Debt for Overseas Client appeared first on Slater Byrne Recoveries.

In early September, the Morrison government extended trading relief to 2021 in a bid to prevent further job losses. Payment terms, according to CreditorWatch, have improved since the announcement of the extension of the trading relief. More businesses took the business administration route in September before the further extension of the trading relief laws. Businesses finally made the decision that they are no longer viable, even with government relief. At best, JobKeeper and other stimulus packages gave a mere life support.

“The fact that payment times remain so high and above their 2019 levels, gives the game away while falling administration rates show that government stimulus packages have created a backlog of companies holding on to survival.

“When this support is withdrawn next year, we expect many of these businesses to shed their camouflage and shut up shop because they do not have the cash flow to survive on their own two feet,” CreditorWatch chief executive Patrick Coghlan said.

RBA expects thousands of extra business bankruptcies

The Reserve Bank said the new government supports had reduced the number of business failures by about 4,600 and would rescue more than 10,000 firms in total. However, the current federal budget, which shifted away from supporting unviable firms and instead offered tax relief for businesses that have a better prospect of surviving in the new COVID-19 economy.

Industry experts say thousands of small businesses could still collapse because they are unlikely to be able to pay employee entitlements required under the Morrison government’s proposed new insolvency restructuring laws, the Australian Financial Review said.

The RBA’s biannual review has estimated that if the aggregate 3 per cent decline in 2019–20 revenue fails to recover in the current financial year, a further 5,200 businesses will fail in addition to the typical 15,000 to 20,000 firms that collapse each year.

“Business failures will increase, although there is a high degree of uncertainty about the magnitude and timing,” the RBA said.

“It will depend on the strength of the economic recovery, which will be influenced by the duration and severity of future COVID-19-related disruptions, and the timing and extent of the unwinding of the various support measures.

“Bankruptcies and insolvencies are currently very low because of the income support, loan repayment deferrals and temporary insolvency relief.

“Business failures have flow-on effects to their creditors, both financial institutions and other businesses, and their employees.”

Payment times decrease in some sectors

Payment time is an indicator of how tough the environment is for businesses. According to the CreditorWatch report, the worst performing industries in terms of payment date were the following:

The report also showed that most states recorded falls in external administrations when compared to September, in line with the national trend:

• New South Wales recorded a 36.7 per cent decrease in business administrations
• Victoria recorded a 14.8 per cent decrease in business administrations
• Queensland recorded a 15.0 per cent decrease in business administrations

Early payments, including those below 30 days, are the ideal payment method for business owners. The efficiency of debt collection depends on the payment terms on an invoice. Thus, the more delayed customers pay invoices, the tighter the cash flow becomes. To address this, the government will roll out the payment transparency law in January.

The post Payment Terms, Business Administrations in Australia Plunge, Data Reveals appeared first on Slater Byrne Recoveries.

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.

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

The post Successful Debt Collection During the Pandemic for NZ Client appeared first on Slater Byrne Recoveries.