One of the most common questions our clients ask is how to recover money owed from an individual or business. We set out what options are available to creditors looking to recover a debt.

Issue a Letter of Demand

Lawyers can prepare a formal letter requesting payment of the debt which would set out the specific amount owed, and the period in which the debtor can settle the matter.

If parties reach an agreed payment plan (either in full or instalments), they can then enter a binding settlement deed outlining the agreed proposal. A formal letter can sometimes encourage a creditor to take prompt action. It’s also a cheaper debt recovery option. However, there is some risk that a debtor may ignore the letter or raise a dispute to pay the money.

Initiate a Claim in the Court

Before commencing legal proceedings, carefully consider your position as there is a risk of an adverse finding and a costs order made against you. The basic steps in court proceedings are as follows:

  1. Creditor (i.e. the party initiating proceedings), files in court and serves a statement of claim on the debtor (and any other party) setting out their claim;
  2. Debtor files and serves a defence (within 28 days from the date of service of the claim), setting out whether the debtor admits or denies the creditor’s claim;
  3. If the debtor fails to file a defence, the creditor can make an application to the court to have default judgment entered against the debtor;
  4. If the debtor also has a claim against the creditor, then the debtor should file a cross-claim against the creditor (who can then file a defence to the cross-claim);
  5. Parties either file or exchange their evidence (generally in the form of affidavits);
  6. Hearing before the court.

Following the hearing, the judge or magistrate will deliver a finding and set out their reasons. You can enforce the court’s judgment through the followings processes:

  • Writ for the levy of property: Ask the court to authorise the sheriff to seize and sell property belonging to the judgment debtor to pay the debt;
  • Garnishee order: Ask the court to issue an order to have money taken from the debtor’s bank account or wages;
  • Examination notice: Ask for an examination notice to collect information about the debtor’s income and assets. If the debtor doesn’t comply with the notice within the given period (usually 28 days), you can ask the court to issue an examination order. This information can help you choose the best option to recover your money or good and take the right enforcement action.
  • Bankruptcy: If the judgment awarded is more than $5000, the court can declare the debtor bankrupt. However, this action is complex and expensive.
  • Winding up a company: Apply for a winding up order based on the debtor company’s failure to comply with your demand.

Commencing proceedings in the courts can be expensive even for a local court matter. Sometimes this cost can be prohibitive to creditors. There also is a risk that if you are unsuccessful, you will be ordered to pay the entirety (or a portion of) your opponent’s costs.

Issue a Statutory Demand

If a company can pay its debts as and when they fall due, a creditor can issue a formal demand under section 459E of the Corporations Act 2001 (Cth). A valid statutory demand must satisfy the following criteria:

  1. in writing and specify the total amount of the debt (or debts);
  2. require the company to pay the debt or debts within 21 days after service;
  3. signed by or on behalf of the creditor (a lawyer can sign off on this on your behalf); and
  4. in the prescribed form (found in Schedule 2 of the Corporations Regulations 2001).

Where the debt is due, and there is no genuine dispute, an affidavit must accompany the statutory demand.

If a company fails to pay the debt or applies to set aside the debt within 21 days, the company can be presumed insolvent. On this basis, the party serving the statutory demand can apply to wind up the company.

The purpose of a statutory demand is not as a debt-collecting tool. However, if a debt is due and owing (and not disputed) we have found it can be a persuasive method of recovering money owed.

Reach a Commercial Settlement

You may wish to explore mediation or arbitration to seek a mutual resolution to the dispute. However, it’s important to remember that there is no guarantee that the other party will ‘come to the table’, so to speak. Mediation and arbitration can also be expensive, as the parties must appoint an arbitrator or mediator and hire a mediation value.

The success of any mediation or arbitration will ultimately depend on the reasonableness of both parties. If the other side is steadfast they do not owe any money, they are unlikely to agree to an early mediation or arbitration.


If you need assistance recovering a debt or have any questions, get in touch with our debt recovery lawyers on 1300 544 755.

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