Debt Recovery 101

We’ve all been in the situation where we have purchased a product or entered into a contract for services and haven’t been satisfied by what was delivered.

In a situation where you feel like there has been a wrong-doing or you are in a disagreement about money (in a supplier/ consumer or a debtor/ creditor situation), you may be wondering what legal options are available to you, and what are your prospects of recovering monies or getting the relief you think you deserve.

Situations we, as lawyers, commonly see include (but are not limited to):-

• Unpaid invoices or accounts;
• Rent arrears;
• Work done or goods supplied without a firm and clear agreement about cost beforehand;
• Money loaned and not repaid; and
• Unpaid wages.

More often than not there are two sides to every argument. For example: you say you are owed money for building works completed, your opponent says you did not perform the works to a reasonable standard.

Our role as lawyers is to make a judgment about whether there is a genuine dispute and whether there are actual prospects of recovery. It is essential for lawyers to impartially weigh up the strengths and weaknesses of your argument about the dispute before providing you with advice and embarking on debt recovery proceedings. All talk about disputes aside, let’s talk about how you can avoid a dispute in the first place…

Tips for avoiding debt disputes

It is easy for us to say “you should have done this, you should have done that” when the dispute has already arisen, but the truth is – hindsight is a beautiful thing and often it is impossible to know how things will unfold. We as litigation lawyers have the benefit of having seen it all before, and we know where the landmines hide. 

The lay person may not look to the future in the way a lawyer might do, and think: Where could this agreement go wrong? What are the implications if something goes wrong? What happens if one of the parties can’t meet their end of the deal?

Set out below are some of the things you should ensure you do when you are entering into an agreement:-

1. Before you enter into the agreement, consider the reputation of the individual, company or organisation. Will their undertakings be honoured?  Have they defended claims against them many times before?
2. Ensure you have a satisfactory and complete written contract and read the terms of that contract carefully to protect yourself or your company;
3. Ensure that the terms of the agreement are complete and certain. Negotiate everything before you enter the agreement;
4. Record in writing – as a separate written variation - any alterations to the agreement;
5. Let your common sense prevail. You should carefully consider the agreement you are entering into, and consider what could go wrong;
6. If you are a supplier of goods and/or services, ensure you send regular bills and explain your fees. If payments stops, supply and/or work should stop too (assuming the contract allows you to do so);
7. Negotiate securities for unpaid bills e.g. holding on to equipment; and
8. Seek a guarantee by directors in advance of work performed or goods supplied.

When a dispute arises - your legal options

Before filing a claim in the Court with jurisdiction to hear your claim, it is likely a lawyer will firstly suggest sending a letter of demand. If a debtor does not respond to the letter of demand, or fails to provide a satisfactory response, the next step is to commence litigation proceedings in the Court by filing a Claim.

Filing a claim in the Court

Before filing a Claim in the Court, lawyers will consider if you have a strong case against the person you say owes you money. Relevant considerations include:-

• Do you have proof of your claim – is the agreement in writing?
• What was the intention of the parties when they entered into the agreement? The courts will try to establish what the parties intended and promised to one another when entering into the agreement.
• Does the debtor have multiple creditors?
• Does the debtor have money to pay back multiple creditors? Does the debtor have assets and income?
• Does the debtor have creditors who, in the event of the debtor becoming bankrupt, would be entitled to payment of debts owing before you would be? Secured creditors such as banks will always be paid first for instance in the event a company goes into liquidation.

The process of litigation should involve negotiations and attempts to resolve the matter before the matter goes to trial. If the matter cannot be resolved, the matter will proceed to trial where the Courts will make a decision about the dispute.

Filing a Bankruptcy Notice

In circumstances where an individual owes you money, you have already received an Order by the Court or the Queensland Civil and Administrative Tribunal supporting your claim, and the individual has failed to pay you - you are entitled to file and serve a Bankruptcy Notice on the debtor. 

If the debtor does not comply with the Bankruptcy Notice, the debtor will be taken to have committed an act of Bankruptcy and you, as the creditor, are entitled to file and serve a ‘creditor’s petition’ (make an application to the Federal Court or Federal Circuit Court) to have the individual made bankrupt.

Issuing a Creditor’s Statutory Demand

If it is a company who owes you money, an alternative to filing a Claim is to send a ‘Creditor’s Statutory Demand for Payment of Debt’. This option is relatively inexpensive and an efficient way of recovering your debt. A Statutory Demand (‘the Demand’) must not be issued unless there is no genuine dispute about the amount owing. After receiving the Demand, the Debtor has 21 days to pay the amount demanded, or to make an Application to the Court to have the Demand set aside. If the company does not do either, the company will be deemed insolvent and the company will then be at risk of a liquidator being appointed by the Court to wind up the company. 

Is it commercially sensible to embark in costly legal proceedings, and are there any other options I can consider?

A good lawyer should advise their clients about whether pursuing an unpaid debt is commercially viable. Lawyers should conduct a ‘cost benefits assessment’. It is common ground that involving lawyers in a dispute is costly. Clients should consider whether the benefit outweighs the cost. In other terms - the benefit of a successful outcome must outweigh the expense of engaging a lawyer.  You must carefully consider your prospects of success.

In some circumstances engaging a lawyer may not be the best option for you. You may want to consider whether going through the Queensland Civil and Administrative Tribunal would be a more sensible option for you.

Queensland Civil and Administrative Tribunal (QCAT)

QCAT is an independent tribunal who (amongst other things) resolve disputes and make decisions about minor civil and debt disputes with a value of up to $25,000.00. You should go to the QCAT website for further information about the services they provide. A person having a dispute heard through QCAT is not required to engage a lawyer or go through the Court system.  We would recommend going through QCAT in circumstances where you have strong supporting evidence about your dispute, time to appear at any QCAT hearing set down, and the confidence to appear without representation. QCAT decisions are legally binding.  If either of the parties do not comply with the decision of QCAT, the decision can be registered and enforced through the Court system.

Taking a sensible and thorough approach when entering into any agreement can save you thousands, however we as lawyers know that it is not always possible to foresee how disputes can arise, or to expect the unexpected. At Connolly Suthers we have a commercial litigation team with extensive experience in litigation and debt dispute resolution. You can trust us to advise you of the best way forward in any debt disputes you may be faced with.