Should I send a statutory demand or start court proceedings?

It depends on whether the debt is genuinely disputed. A statutory demand suits a clear, undisputed debt owed by a company. If the company has a real dispute about the amount or an offsetting claim, it can apply to set the demand aside and the creditor may pay its costs. In that case, court proceedings are usually the better starting point.

Can I recover interest and legal costs?

Interest can generally be claimed at the contract rate or, if none is agreed, under the Civil Procedure Act 2005 (NSW). Legal costs are usually recoverable in part if the claim succeeds in court, on the ordinary basis. Some contracts and credit applications allow recovery of costs on a full indemnity basis, which can improve the position considerably.

What if the debtor is a company with no assets?

Look at who else is liable. A director may have signed a personal guarantee, a parent company may have guaranteed the account, or goods may be recoverable under a registered retention of title clause. If the company goes into liquidation, the creditor can lodge a proof of debt, and directors may face claims such as insolvent trading.

Commercial Debt Recovery Lawyers

In this practice area

Recovering unpaid business debts through demand, negotiation, statutory demands and court proceedings, with the recovery path chosen according to the debtor's solvency, any dispute and the security available.

What commercial debt recovery involves

Commercial debt recovery is the process of turning an unpaid invoice, loan or account balance into money in the bank. It usually begins when a customer falls behind on trade terms, a borrower misses repayments, or a counterparty refuses to pay a final account. Some debtors simply need pressure. Others have a real dispute about quality, variations or set-off. Others are insolvent, and the question becomes how to rank ahead of other creditors or recover through a guarantor.

The first task is to identify the right debtor. A debt owed by a company with no assets is worth much less than the same debt supported by a director's guarantee or a registered security interest.

The legal framework

A contractual debt is usually a liquidated claim, meaning a fixed sum that can be proven by documents. In NSW, claims are brought in the Local Court (up to $20,000 in the Small Claims Division and up to $100,000 in the General Division), the District Court (up to $1.25 million) or the Supreme Court. The Civil Procedure Act 2005 (NSW) allows interest to be claimed up to judgment and after judgment, unless the contract provides its own rate.

Against a company, a creditor may instead serve a creditor's statutory demand under section 459E of the Corporations Act 2001 (Cth) for a debt of at least $4,000. Against an individual with a judgment debt of $10,000 or more, a bankruptcy notice may be available under the Bankruptcy Act 1966 (Cth). Registered security interests under the Personal Property Securities Act 2009 (Cth), retention of title clauses and guarantees all affect what can be recovered and in what order.

How recovery matters typically run

Most matters start with a letter of demand that sets out the debt, the basis for it and a short time to pay. If that fails, the choice is between court proceedings and an insolvency-based step. A statutory demand is fast and inexpensive, but it should not be used where the debtor has a genuine dispute, because the company can apply to set it aside and the creditor may be ordered to pay costs. Where a dispute exists, proceedings are the proper course.

Time matters. A claim for breach of contract in NSW generally must be brought within six years of the cause of action accruing under the Limitation Act 1969 (NSW). Payments received shortly before a debtor's liquidation can later be challenged as unfair preferences.

How GopherWood Lawyers acts

We begin with an assessment of the debt, the documents, the debtor's position and any security, and give a view on the most cost-effective route. We then run that route through to payment or enforcement, including negotiated payment plans backed by security or consent judgments where that is the better commercial outcome. For clients with regular recoveries, we can set up a consistent process, from demand letters to credit terms and guarantee documents, so that the next debt is easier to recover.