One of the things which impacts on many small to medium sized businesses is a debtor who simply won’t (or can’t) pay. In recent times the COVID-19 pandemic has seen the instance of disputes arising in relation to outstanding debts increase significantly as some previously reliable businesses struggle to pay their bills and remain financially viable.
For most businesses, once several promised payment deadlines have come and gone they then reach a point where simply waiting longer is no longer an option and they decide to take action to recover the debt. One of those options is to commence a Court action. For debts up to $75,000 an action can be taken through the Magistrates Court. For debts under $10,000 an action can be taken through the Minor Claims Division of the Magistrates Court, which is slightly less formal and a lower cost option.
However, there are often several factors which need to be carefully considered before a Court action is commenced to recover a debt. For example, whether there is a relationship which needs to be preserved or whether the debtor has a potential counterclaim or set-off which may complicate a Court action.
If you do decide to commence a Court action then you will need to complete and file the prescribed form with the Court (the Magistrates Court has a form for almost every step of the Court process) and pay the filing fee to get the claim underway. The filing fee varies greatly depending upon the value of the claim and the entity filing it. For example, the filing fee for an individual with a concession card in the Minor Claims Division (under $10,000) is $47 whereas the filing fee for a company taking a claim exceeding $50,000 is $1,227.20.
The process beyond commencing the claim then varies depending upon what type of action you have commenced and a detailed analysis goes beyond the scope of this article. However, the following practical tips will assist in almost all debt recovery actions through the Magistrates Court and if you elect to instruct a lawyer, they should also help minimise your legal costs.
- Prepare a timeline which you can hand up to the presiding Magistrate in Court. This should be in a table format with key dates and events accurately recorded. A timeline enables the Court to quickly get a handle on what has happened in the background to the matter to-date and will often be looked on favourably.
- Ensure that you can provide evidence to support your claim to the money owed (eg contracts, invoices, emails acknowledging the debt etc) and keep all of your documents relating to the dispute together (whether electronically or in hard copy). It is also helpful if you ensure that your documents are in some sort of logical order (eg chronological or ordered by category such as ‘Contract documents’, ‘Invoices’, ‘Emails’, ‘Text Messages’ etc) and are not all just stuffed into a folder. Make sure that you prepare an accurate index for your documents so that you know what documents you have (and importantly perhaps what you do not have and need to locate) and can locate individual documents quickly and easily.
- Keep written records of conversations you have with the debtor or any agent acting on the debtor’s behalf. These records can be as simple as a handwritten note, a diary entry or sending a short email confirming the date and approximate time of the conversation, what was discussed and any agreed outcome/s. Being able to produce these types of documents in Court to prove that a debtor previously said that they were happy with your goods or services and promised to pay you half a dozen times means it is less likely that a debt will be contested.
- Be prepared to compromise if needs be and particularly where there is a counterclaim scenario. If you attend an informal hearing such as a Pre-Trial Conference or a Mediation in a contested debt situation then the Court will try and find a compromise outcome acceptable to both parties. If the parties are unwilling to compromise then the matter may well end up in a trial, which then adds time and cost to the action.
Further to the above points, it is useful to understand that obtaining a judgment in your favour is only the first step. If the debtor still won’t pay then you may need to take steps to enforce the judgment. The Court does not do this for you and there are further costs associated with enforcement actions. These costs vary depending upon the selected enforcement mechanism.
Finally, if you have read this far and need to get some further practical advice about how to go about taking a debt recovery action through the Magistrates Court then get in touch.
Commencing a Court action is not without risk (for example it may damage an existing business relationship) but where an undisputed debt simply needs to be recovered it is often a concrete step toward getting paid. We can discuss your individual circumstances in a SmartMove initial discounted appointment (which we offer for $80) and provide you with preliminary advice as to whether a Court action may be appropriate for you, and if so, how to go about it.