Debt recovery can be stressful and in our experience, acting swiftly at the earliest opportunity on unpaid debts vastly increases the likelihood of a successful debt recovery. If you or your business are owed a debt, it is important to seek legal advice as soon as possible from expert our team of debt recovery lawyers in Adelaide. Book a free, no obligation 30 minute consultation today as strict time limits may apply.
What is a Debt?
Typically, a debt claim emerges when a creditor, either an individual or a business, is owed money by a debtor, usually for goods or services rendered. This often transpires in a commercial setting where an invoice remains unpaid despite the delivery of the agreed-upon goods or services. A debt recovery claim may also emerge where an individual loans money to another individual or business which remains unpaid. Such claims involve a liquidated amount, which is a clearly determined sum based on the relevant invoice or quote. This is commonly termed a “simple debt” claim, distinguishing it from claims like damages resulting from contract breaches.
How Long Is a Debt Enforceable?
There is a maximum 15 year time limit to enforce a debt in South Australia after a successful judgment is obtained. However, if a judgment creditor waits more than 6 years, they must obtain special permission from the Court before taking enforcement steps after obtaining a judgment in Court pursuant to Rule 201.5 of the Uniform Civil Rules 2020 (SA). From 18 September 2023 onward, judgment debtors may be served a notice requiring them to attend court to produce documents and answer questions relating to their capacity to pay the judgment debt. These changes will streamline the judgment enforcement process and allow a judgment debtor the opportunity to comply, and deal with their ability to make repayments informally, and avoid court fees being added to their debt.
Debt Recovery: 4 Step Process
We have developed a staged process in order to simplify the process of debt recovery for our clients and will assist you to navigate and comply with the rigorous pre-action steps required the Uniform Civil Rules 2020 (SA).
Helpful Questions & Answers
Case Study: Default Judgment
We recently acted for a client in proceedings involving an amount owed to our client pursuant to a written agreement. The debtor failed to respond to a final notice and we therefore filed court proceedings. The debtor failed to file a defence to our client’s claim and, as a result, our client was awarded default judgment by the court.
The debtor was not able to apply to have the default judgment set aside because he could not satisfy the court that any genuine defence existed.
While the debtor attempted to avoid payment at all costs, we ran a property search on the debtor and discovered that he owned a house property. We applied to the court for a charging order over the debtor’s land and for an order that his house be sold in order to recover the debt owed to our client.
This action prompted the debtor to make payment of the debt without further delay and resulted in successful recovery for our client. There are many options available for recovery of debt. We can offer individualised advice for the best method of enforcement having regard to your circumstances.
In summary, it is most important to seek advice very early on and to take prompt action in order to maximise your chances of recovery.
Step 1 - Pre-Action Notice
The Uniform Civil Rules 2020 (SA) (Rule) generally require that, before court proceedings are commenced, the creditor issue a “pre-action notice” to the debtor. There is a specific court form for this purpose which can be filed in the Court registry and served on the debtor.
21 Days to Pay
The pre-action notice sets out the creditor’s claim in debt and allows the debtor 21 days to either pay the amount in full or to respond setting out reasons why the debt is “genuinely contestable”.
If the Debt is Not Paid
If the debtor fails to make payment within the required 21 days or otherwise fails to provide a satisfactory response, we then turn to the filing of a claim against the debtor in the appropriate court.
In many cases, the service upon the debtor of a properly prepared pre-action notice will bring the debtor to their senses and can often resolve debt claims well before court proceedings are required.
Step 2 - Pre-Action Claim
If the debt is “genuinely contestable”, for example, where the amount owed is capable of being disputed by the debtor and is not easily ascertainable by reference to an invoice or quote, or otherwise where there may be a genuine dispute about the accuracy of the invoice or quote, it may be necessary to prepare a more substantive “pre-action claim” and issue that to the debtor.
While the pre-action claim is similar to the pre-action notice, it is more comprehensive and is not filed in court. The pre-action claim is generally confidential and sets out a genuine offer of settlement for the debtor’s consideration with a view to resolving the matter before each party incurs further cost.
The debtor is required to respond to the pre-action claim within 21 days and, if the dispute is not resolved after the debtor provides a pre-action response, the parties are required to attend a “pre-action meeting” to attempt to resolve the dispute by way of good-faith negotiations.
If the dispute remains unresolved after the parties’ attendance at the pre-action meeting, we then look to file a claim against the debtor in the appropriate court.
Most often a pre-action claim will not be required for simple debt claims which are not genuinely contestable by the debtor.
Step 3: Court Proceedings
If the debtor fails to respond to the pre-action notice (or the pre-action claim if required), we will then draft a Statement of Claim, file it in the relevant court and serve a copy of it on the debtor.
If the debt is not genuinely contestable, the Court will be aware of the pre-action notice provided to the debtor as that document will have been filed before the commencement of court proceedings. This can be relevant to claiming court costs from the debtor if you are successful in the court proceedings.
Once you have served a Statement of Claim on the debtor, they will be required to file a Defence within 28 days. If the debtor fails to file a Defence within that timeframe, you will be able to seek “default judgment” against the debtor.
If the debtor files a defence, the court will make directions about the progress of the matter. Sometimes, debt claims are referred to mediation (usually where there is a genuine defence and the claim is contestable). In other cases, it is appropriate to ask the court to list the matter for a final hearing (trial) as soon as possible in order to resolve the dispute.
Step 4: Enforcing the Judgment Debt
Once you have been awarded judgment against the debtor (whether by the court after a trial, or by default because the debtor fails to file a defence), you are able to commence enforcement proceedings within 6 years of the date of the judgment. There are various methods available to the court to enforce a debt. The most common options include:
- Investigation Summons: The debtor is issued with a summons to attend court to answer questions about their financial position. The court may then order the debtor to pay the debt by way of instalments depending on their financial resources.
- Warrant of Apprehension: If the debtor fails to attend an Investigation Summons hearing, the court can issue a warrant of apprehension. The sheriff will attend at the debtor’s premises and “arrest” them to bring them before the court to answer the Investigation Summons.
- Charging Oder: If the debtor owns any real property (i.e. house / land), we can assist in applying for a charging order. A charging order is registered on the title to the debtor’s land. At the same time, it is possible to apply to the court for an order of the sale of the debtor’s land.
- Warrant of Sale: A warrant of sale authorises the sheriff to attend at the debtor’s premises and seize assets for the purpose of selling them to recover your debt.
- Bankruptcy: As a last resort, if the judgment debt owed exceeds $10,000, it is possible to serve the debtor with a Bankruptcy Notice.
The debtor will be required to comply with a Bankruptcy Notice within 21 days, failing which an application can be filed in the Federal Courts for orders declaring the debtor bankrupt. This is a complex process and is usually a last resort method of enforcement unless the amount owed justifies such action and the debtor is likely to have sufficient assets to satisfy the debt, in addition to any debts owed to their other creditors.
What is a Default Judgment?
Default judgment is a judgment of the court against the debtor and requires them to pay to you the sum claimed. In some circumstances, if the debtor can satisfy the court that they have a reasonable defence to the claim and a reasonable excuse for failing to file their defence within 28 days, this judgment can be “set aside”. In our experience, this is uncommon and a failure to file a defence usually occurs because there is no good defence to the claim.