Debt collection … What can you do when someone owes you money…?

We are asked every week:  “What can you do if you (or your business) are owed money, and the debtor refuses to pay”?

The first step is to check the terms of trade agreement between you and the debtor.  This should set out your rights when the debtor fails to pay. 

Disagreement about the amount of the debt

If there is disagreement about the existence of the debt, that dispute will need to be resolved before further steps can be taken to be able to recover the money. 

If there is a disputes resolution clause in the terms of trade you will need to comply with it.  Depending on the clause, usually parties need to first try and negotiate an outcome.  If that does not work, the next steps might include a mediation.  

Depending on what the dispute is about there may be a specialist service available (for example, Building and Construction Mediation Services, Tenancy Services Mediation, Weathertight Homes Mediation).  If mediation does not work, or you are not required to attend mediation, you may apply for a decision to be made by the relevant Tribunal, or an Arbitrator, or the Court.  

Tribunals are less formal, require less of an investment and are quicker than the Courts.  The Disputes Tribunal can make a decision on general debt disputes (up to a value of $15,000, or $20,000 if both parties agree).  There are also several specialist Tribunals (for example the Building Disputes Tribunal, Telecommunication Disputes Tribunal, Tenancy Tribunal, Motor Vehicle Disputes Tribunal). 

Arbitration usually involves the parties appointing an agreed decision-maker to decide the outcome of a dispute.  The parties will have much more control over the process than a Tribunal or Court hearing.  

A Court hearing is likely to require the most investment and will likely be the lengthiest way to resolve the dispute.  Going to Court should be considered if you have already tried other ways to resolve it without success. 

If there is no dispute about the debt being owed (or no real defence)

If there is no disagreement about the amount of the debt, you could make a final demand on the debtor to pay by a certain date.  It is usually a good idea to get legal advice about what you can claim in the final demand. 

Depending on the terms of trade between the parties, you may be able to recover interest, administration fees, debt collection costs, legal fees etc.  A final demand on a legal firm letterhead usually provides extra incentive for debtor to pay, as the debtor will realise you are serious about collecting the debt. 

The debtor should also be informed in the letter of demand that if they do not pay, they may face Court action, that may result in them being liable for costs on top of the debt.  

If the debtor still fails to pay, you could apply to the Court for a Summary Judgment.  A Summary Judgment application is a relatively quick way of getting a judgment, which will then allow you to seek enforcement action. 

If the debtor is a company you can proceed straight to a Statutory Demand.  If the debt is not paid in full plus costs, within x days, the company can be wound up/liquidated.

Enforcement action can include seizing the debtor’s property and selling it to pay the debt, intercepting money owed to the debtor by another person, getting an order for payment directly out of the debtor’s wages or benefit, or evicting a renter or lessee from a property.

There are many ways of getting your money into your bank account where it belongs.  The quicker you act the more likely you are to be successful in recovering your cash.