If a company owes a debt to you and defaults in repayment, you will want to recover the debt. This article sets out the steps the legal steps you can take to recover a debt from a company. See our article entitled “How do I recover a debt without going to court?”, which sets out the steps to be taken in order to recover a debt from an individual or a company without going to court.

Legal Proceedings to Recover a Debt

Seek legal advice and commence legal proceedings against the borrower. Legal proceedings must be commenced before the limitation period expires (which for most contract related debts is a period of 6 years from the borrower’s default). Legal proceedings must be carefully considered as there is a risk that if legal proceedings are unsuccessful then the court may award costs against the lender in favour of the borrower, which may be an additional cost borne by the lender in addition to the unpaid debt. The type of legal proceedings available to a lender (and therefore how expensive they will be to run) depends on the nature of the debt and amount of the debt.  For example, in NSW legal proceedings may be commenced in the Local Court (there are a number of different divisions), District Court or Supreme Court depending on the amount of the debt. The basic steps in legal proceedings are as follows:

  • the lender, being the party commencing legal proceedings, files in court and serves on the borrower (and any other party) a statement of claim, which sets out the lender’s claim;
  • the borrower files and serves a defence, which sets out whether the borrower admits or denies the lender’s claim;
  • if the borrower also has a claim against the lender then in addition to filing a defence the borrower should file a cross-claim against the lender (which can then file a defence to the cross-claim);
  • discovery and subpoenas, whereby the parties make available to each other documents relevant to legal proceedings;
  • the parties file their evidence, which is generally in the form of affidavits prepared by witnesses (for example, a representative of the lender who can give information about the debt);
  • hearing before the court.

At the end of the hearing, the judge or magistrate presiding over legal proceedings delivers a judgment setting out their decision and the reasons for the decision.

Enforce the Judgment

Assuming neither party appeals the decision, the lender must seek to enforce the judgment and have the borrower repay the amount awarded by the court.  This can be done in a number of ways:

  • seek voluntary repayment;
  • seizing assets or property;
  • appointing an administrator;
  • appointing a receiver/manager; or
  • garnishee order.

Seek Voluntary Repayment

If a judgment is made against an individual then they are more likely to voluntarily repay the debt than they would have been prior to the judgment in order to avoid the lender taking any other action to enforce the debt, which may have undesirable further consequences for the borrower.

Seizing Assets or Property

If a lender has obtained a judgment against a borrower and the lender wishes to use the proceeds of sale of the borrower’s property to repay a debt then the lender must apply to the court for a writ of execution, which authorises the sheriff (not the lender) to seize property and sell it at public auction.  If a writ of execution is obtained the lender has a legal right to have the borrower’s property sold and for the debt to be repaid out of the proceeds of sale, after payment of the sheriff’s costs and the auction costs.

Appointing an Administrator

If a lender has a charge over the whole, or substantially the whole, of a company’s assets the lender may enforce the charge by appointing an administrator to control the company’s business.  The administrator may carry on the company’s business and/or sell the business or any of the company’s assets.

Appointing a Receiver/Manager

A lender that is a secured creditor, or the court, may seek to have a receiver/manager appointed to receive and distribute the income and/or assets of a company if it is in financial difficulties. The role of the receiver/manager is to sell and recover enough of the company’s assets in order to repay the debt to the lender.  The receiver/manager’s primary duty is to the secured creditor, but it also has an obligation to unsecured creditors to take reasonable care to sell assets for their market value or the best price reasonably obtainable and report to them on the receivership.

Garnishee Order

A garnishee order is an order issued by a court to a third party requiring the third party to pay money that it would ordinarily pay to the borrower to the lender or court.  It operates from the date of the order until the debt payable to the lender is repaid in full.


It is critical that you keep a record in relation to any advance of money made giving rise to the debt, any repayments of the debt and attempted recovery of the debt.  This is good practice, but may be necessary if recovery is required through the court. For more guidance, contact LegalVision on 1300 544 755 to speak with one of our experienced business solicitors.

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