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What are the Legal options if your Business is Owed Money?

Mullane & Lindsay Solicitors
Mullane & Lindsay Solicitors
What are the Legal options if your Business is Owed Money?

In this podcast Director, Kristy Nunn discusses the legal options that you have if your business is owed money. As well as the steps that you should take prior to seeking legal advice.

Annie: “Welcome, today I’m talking with Kristy Nunn from Mullane and Lindsay Solicitors, Newcastle and Tea Gardens. Hi Kristy, thank you for taking my call today. Our topic of discussion today is, “What are the legal options if your business is owed money”. So, tell me, Kristy, what are the common situations when a business is owed money?”

Kristy: “Well the first common situation is when a business provides goods and services and they have not been paid, so there creates the situation where they’re owed money for the goods and services provided. Alternately a business may have loaned money to a person or company and that money has not been repaid so they are owed that money and they are looking at steps to recover it.”

Annie: “So, what steps can be taken prior to seeking advice?”

Kristy: “Well, what we recommend is a business should first try and communicate with the customer or the person who owes the money to try and ascertain if there is a genuine dispute about the debt or if the customer is just not paying the debt because of their own cash flow or liquidity problems. So, it’s our recommendation to take those steps promptly, often discussions about money or difficult but in our experience, the longer its left, the older the harder it is for a business to recover. So, the best approach by a business is to make a telephone call and engage with the customer, if that doesn’t work and the customer is ignoring telephone calls, often emails are better because there’s a written chain of what’s gone on. If there is a dispute the business should try and get as much information or details as possible from the customer of what the dispute is about and the bases of the dispute. The business can then decide if the dispute is genuine or if it’s just a fob off to try and avoid paying. The other thing that can happen when early contact is made is the business can ascertain if the debt is agreed but there is just an issue in payment because of cash flow, the business may then suggest that they are happy to receive payment instalments or reach some other agreement about the debt.”

Annie: “Okay, and what will a lawyer need to know when you are seeking legal advice?”

Kristy: “If the debt cannot be paid by direct contact, then the first thing a lawyer will ask you is if there’s a written contract or agreement for the goods and services or for the loan. So, this can include things like a purchase order, sales agreement, terms and conditions, tax invoice, a loan agreement or even emails which evident the terms of the agreement. It’s important for people to understand that an agreement does not have to be in writing for it to be legally enforceable but if in writing it does make the process of proving the terms and conditions of the agreement are much easier, for example there might be interest clauses in the agreement or terms and conditions in relation to late payment which can then try and be enforced by the lawyer. So the first thing the lawyer will ask you is if there is a written contact, if not, you’ll need to be ready will all the details about what the terms and conditions were so it may be an oral agreement about to buy or sell something and you’’ need to know the terms such as the price and when the payment is to be made and when delivery is to be effected and those types of essential terms. It’s also important for the business to provide details of exactly the person, company or entity that owes the money. Often, you’ll be dealing with a person, but that person may be a director of a company and they be dealing with you on behalf of the company and the lawyer will need to know the precise person or entity that owes the money.”

Annie: “And what’s the legal process for attempting to recover a debt?”

Kristy: “Well usually the first step is to prepare and send a letter of demand and that will be a letter from the lawyer to the debtor setting out the details of the claim and demanding that payment of the debt be made within a specified period of time and often the issuing of a letter of demand from a lawyer will cause the debtor to take the debt seriously and make payment but if that doesn’t work and if the debtor doesn’t respond then the next step is the formal step of commencing court proceedings to try and recover the debt. Before any court proceedings can commence it’s important to satisfy that the debtor has a capacity to pay any judgement orders because there’s no point starting that court process if the debtor does not have any funds to pay at the end of the day.”

Annie: “So, what’s the difference between a Statement of Claim and a Statutory Demand?”

Kristy: “Well a Statement of Claim is a document which commences court proceedings, its commonly referred to as suing someone or being sued but that’s a statement of claim which commences a court process against another person and when we’re talking about debt recovery that would be a claim in contract seeking a person pay the debt that is owed. The value of the debt determines what court the proceedings are commenced in and in terms of debt recovery it would usually be the local court and most local courts are in all areas around regional NSW and the jurisdiction there is $60,000. A statutory demand is something that might be considered if the debt is owed by a company and it’s a regime under the corporations Act where a business can issue a demand to a company and it must be paid within 21 days, there’s a statutory minimum amount which is currently $4,000 and why a business might consider a statutory demand is that if there is a sum you buy a company to comply with a statutory demand, its presumed to be insolvent and then can proceed down a path of winding up a company if they don’t comply with a statutory demand. So a statutory demand should only really be considered if there’s a company and if the ultimate aim may be a winding up.”

Annie: “How can I enforce a judgement debt?”

Kristy: “The purpose of commencing court proceedings is to try and obtain a judgement debt, so a judgement debt can either be made by default, that is if a statement of claim is filed and is not complied with, the party can apply for default judgement or alternatively a judgement is what a party achieves if they’re the winner in court and they go to a hearing and they win and they get what’s called a judgment, that’s only the first stage, what then has to happen is enforcement of that judgement debt and actually getting the money. So once there is a judgement there’s a number of options available to try and enforce that. One of the options is a garnishee order and that is an order issued by the court which directs the third party to pay money to the judgement debtor so that might be a bank or it might be someone’s lawyer, anyone who may hold money on behalf of someone else they can receive the garnishee order and be required to pay that money. So that can be of assistance if the business knows that the debtor banks with a certain bank, for example if they’ve paid by cheque or deposited funds, they can then issue the garnishee order to that bank to receive the amount of their judgement debt. The next option is what’s called a writs levy of property, commonly that’s known as sending around the sheriff and the application is made to the court and then sent to the sheriff’s office and the sheriffs corresponds with the company or debtor and they seize that’s limited to tangible items of personal property, that can be cars, TVs, anything that has monetary value and then its auctioned off and the proceeds are accounted to, that can often be a lengthy process and there can often be difficulties with implantation for example personal property, that’s not readily clear as to who may own personal property and in our experience, we’ve had circumstances where a debtor denies that there property, for example if they live with other people in the home and so there can often be difficulties with that approach but that is an option available. Finally, if a party doesn’t have any details, for example bank accounts or where they might live for the sheriff to go around, there’s options available to issue examination orders and require the debtor to come along to court and provide details about their financial circumstances and their assets which might be useful or future recovery assets.”

Annie: “So, what steps can a business take to try and avoid problem debtors?”

Kristy: “As I’ve explained the process can be complicated if there is a debtor who doesn’t comply, who doesn’t pay, doesn’t respond to court processes and doesn’t have anything to which upon the judgement debt can be enforced so the best option for businesses is to try and avoid it from the start. Firstly, a business might consider whether it’s appropriate to request deposit or advance payments to be held on trust prior to providing goods and services, alternatively, cash on delivery or cash on provision of services to ensure that they don’t get into a situation where they’re chasing debts at a later stage. In relation to an agreement, the recommendation is that all agreements or provisions of goods and services or loan agreements should be in writing and preferably signed by all parties as to avoid dispute about what the terms were at a later stage and finally businesses should try and collect as much information as possible of the customer, on the outset the customer prior to providing goods and services which may assist later on if there’s a need for debt collection so things like just making accounts or assets, if they have other employment or other information which will asset, home addresses, any assets of any companies which might assist in the event that its necessary to try and enforce a judgment debt.”

Annie: “Well thank you for your time and helpful information today, Kristy and thanks also to Mullane and Lindsay, Newcastle and Tea Gardens.”

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