Debt Recovery

NB: These notes were correct as at March, 2001. The Civil Claims procedures are constantly changing and a range of fees apply in respect to proceedings. These notes are quite general and cover only common procedures.

For detailed information about the following article please contact your professional accountant at Perry Ure on 02 4926 4522 or email mail@perryure.com.au


Statement of Claim

To begin an action, a Statement of Claim must be issued in a Local Court. The person who issues it is the "plaintiff" and it is taken out against the "defendant". The plaintiff must have the defendant's name and address and details of the debt (amount, date incurred, invoice number, what it is for).

The Statement of Claim must also indicate if the matter is General Division or Small Claims Division - Small Claims Division is responsible for claims of up to $10,000. Claims over $10,000 but less than $40,000 are handled by the General Division.

If the defendant is a business, a search must be made to find out its details before the Statement of Claim can be issued:

  1. where the defendant is a company - go to the Australian Securities and Investments Commission to check the company name, obtain an ACN number and registered office address (web address on the Perry Ure "Links" page);

  2. where the defendant is a business name - go to the Department of Fair Trading to check the name of the proprietor of the business name and find out the address of the principal place of business (web address on the Perry Ure "Links" page).

For simple claims, the counter staff at a Local Court will usually prepare the Statement of Claim. More difficult claims are usually referred to the Chamber Magistrate at the Court.


There are two types of Statements of Claim:

  1. Statement of Liquidated Claim
    For work done and materials provided, goods sold and delivered, professional services rendered, etc. (Can also be used for motor vehicle damage claims.)

  2. Ordinary Statement of Claim
    For claims for damages due to negligence, breach of contract, etc. This is rarely used by small business people and should be drafted by a solicitor.

Once a Statement of Claim has been issued it must be "Served".


Service on the Defendant

Anyone at least 16 years old can serve a Statement of Claim. A plaintiff can pay for a sheriff's officer to serve it.

The court can arrange for service of the summons by pre-paid post where the defendant is an individual. This fee is currently $26. This option is only available to the courts. Alternatively, if the plaintiff so desires, the Sheriff is able to serve the Statement of Claim. These costs are added to the outstanding debt. The service fee pays for delivery to the defendant and preparation of an affidavit of service.

It must be served:

  • on an individual: by handing it to the defendant personally, or to someone who appears to be at least 16 years old and a resident at the defendant's place of abode;
  • on a company: posted or handed to someone who appears to be at least 16 years old and an employee at the REGISTERED OFFICE ADDRESS of the company;
  • on a business name: posted by certified or registered mail to the principal place of business, or served on the proprietor(s) personally.

There are two divisions in the Local Court: Small Claims Division and General Division.

Debts of up to $10,000 are handled by the Small Claims Division and those over $10,000 but not more than $40,000 are handled by the General Division. The issue fee depends on that amount actually claimed. Currently fees are: $56 for claims of $3,000 or less; $74 for claims of more than $3,000 and up to $10,000; and $140 for those matters exceeding $10,000 but not more than $40,000. $40,000 is the limit of the Local Courts jurisdiction.


Defended Actions

A defendant wishing to dispute the debt must file a defence. If there is a cross-claim, it should be filed at the same time.

If a claim in the General Division is defended, see a solicitor as the hearing is formal and certain procedures need to be adhered to.

If a claim in the Small Claims Division is defended, the procedure has been simplified so that people without any legal training should be able to conduct their own hearing. The action is first listed for "pre-trial review" to try to bring the parties to a settlement through mediation. If this fails, the matters in dispute are defined and directions given by the Court as to when and how the hearing will be conducted. The hearing usually does not involve parties giving oral evidence. The Court usually directs parties and their witnesses to provide written statements and a decision is made on the evidence in the statements. An Assessor may determine a small claims matter.


Undefended Actions

  1. Confessions and applications to pay by instalments: A defendant might file a "confession" to all or part of the debt. If a part-confession is filed, the plaintiff can accept or reject it. An application to pay the amount confessed to by instalments might be filed. If the Registrar of the Court makes an instalment order, again the plaintiff is given the opportunity to accept or reject it. If the Registrar refuses to make an order or the plaintiff objects to an order, there is a hearing as to payment.

  2. If 28 days have expired after service and the defendant has ignored (not fully paid, confessed or defended) the Statement of Liquidated Claim, the plaintiff can apply for "default judgement". The procedure is the same in both divisions of the Court to obtain default judgement and a plaintiff should not need a solicitor. It is simply a matter of going to the Court counter and filing an:

    affidavit of service (stating how the service was carried out); and

    affidavit of debt (stating how much is owing).

Judgement is then automatically entered by the Registrar. The plaintiff becomes the "judgement creditor" (or just "creditor") and the defendant becomes the "judgement debtor" ("debtor").

In the case of an Ordinary Statement of Claim, the plaintiff must apply for an Order for Judgement and will require affidavits supporting his/her claim as to quantum (amount claimed).


To Enforce the Judgement

This is also usually done at the counter. The usual ways are to:

  1. issue a writ of execution - the fee is currently $49. A sheriff's officer will go to the debtor's address and try to collect the money. If the sheriff's officer is not given full payment, he or she will then list "chattels" owned by the debtor (property, excluding land) then ask the creditor for advertising fees for a sale by auction.

    At this point, the judgement debtor will often file an application to pay the debt by instalments, which then goes through the channels described above.

    If payment is then not made or an application to pay by instalments lodged at the Court, the chattels can be sold at auction and the money sent to the creditor.

  2. issue a garnishee order - to anyone that owes the debtor money. This will usually be either the debtor's bank account manager or employer (known as the "garnishee"). The order directs the garnishee to send the money to the creditor. If the garnishee order is directed to the debtor's employer, only a set amount can be deducted from the debtor's wages or salary.

    Once again, an application to pay by instalments may be lodged by the debtor after a garnishee order is issued.

  3. issue an examination summons - if little is known about the debtor's financial position (property or source of income). This summons the debtor to go to a nearby court to be examined about his/her financial position.

    The plaintiff must conduct the examination if the plaintiff lives within 30 kilometres of the court at which the debtor is to appear, otherwise the plaintiff may file a request for the Registrar to conduct the examination.

    Failure to attend can result in a warrant for the debtor's arrest being issued.

  4. issue a writ against land - for debts of $3,000 or more. You should see a solicitor to do this if a writ of execution is unable to be satisfied.

  5. bankruptcy in the case of an individual for debt must be at least $1,500 or $2,000 for liquidation of a company. Bankruptcy information is provided by Insolvency and Trustee Service Australia, which is an Executive Agency of the Commonwealth Attorney General's portfolio.

    For further information refer to their website at : http://law.gov.au/aghome/commaff/itsa

  6. winding up proceedings in the case of a company. In this case, see a solicitor.


Bad Debts and the GST

If GST is accounted for on an accrual basis, GST may have been paid before all or part of a debt is recovered. Any bad debts written off will need to be accounted for by reducing the amount of GST paid on the bad debt. Later, if some or all of that debt is recovered, GST will need to be paid on the amount recovered.


This information brought to Perry Ure clients by the
NSW Department of State & Regional Development.

 

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