Outstanding debts can be devastating to a small business. They affect the cash flow and solvency of your business. Sometimes legal help is required and when this need arises there are procedures to follow.
When seeking payment for goods or services, usually the first step is to draft a letter of demand. This should clearly identify the goods or services rendered, the sum of outstanding monies and provide a defined period in which the debtor can settle before legal action is taken.
If the debtor still does not make payment then legal action may be commenced or, in some instances, a second letter of demand may be rendered. For the latter you may want to include a draft of the Statement of Claim and an estimate of the costs associated with legal action.
Legal action is commenced by filing a document called a Statement of Claim in the appropriate court. Claims up to $10,000 are filed in the Small Claims Division of the Local Court. Claims more than $10,000 and up to $100,000 (or $120,000 in some limited circumstances) are filed in the General Division of the Local Court. All other claims are filed in the District Court or the Supreme Court.
Claims can be brought against a person (sole trader), a group of people (partnership) or a corporate entity (company, incorporated association). If the debtor is trading under a business name, then a business name search must be conducted to identify the owner of the business as the debtor.
Once the Statement of Claim has been filed with the Court, the debtor must be served with the Claim. The debtor has 28 days to file a Notice of Defence, or confess and apply to re-pay by instalments. If the debtor fails to take any action, then one may apply for default judgment. To collect your debt after commencing court proceedings a settlement must be negotiated or a judgment obtained in your favour. The parties may negotiate settlement terms at any time prior to the trial.
To prepare for a trial, evidence must be filed pursuant to the court rules. Usually affidavits, which are written submissions of evidence, and supporting documents will need to be prepared and filed with the Court. During trial, the Court will hear evidence from any witnesses and rely on the parties filed evidence to make a decision. The Court’s decision is referred to as the judgment.
To recover monies after judgement often involves obtaining a writ of execution against the debtor’s property, securing a garnishee order against the debtor’s wages or bank account, or forcing the debtor into bankruptcy if the debt is more than $5,000.
Good legal advice may well be the difference between a successful business and one that fails. When the problem is caused by a party not paying you for your work you should always obtain good concise advice. For more information call 02 6681 6334.