Debt Recovery - Commencing Legal Proceedings
Published: June 2010
It is important for companies and businesses to ensure that appropriate policies for debt recovery solutions and debt collection solutions are put in place. There are various internal and external avenues that a company or business can take to limit the risk of its cash flow suffering from outstanding debtors exceeding normal trading terms.
This series of articles contains general information regarding external debt recovery procedures and processes and debt collection procedures and processes. If internal attempts at recovering outstanding tax invoices from overdue debtors fail then assistance from an external debt collection law firm or debt recovery law firm may result in defaulting debtors making payment of those outstanding invoices. It is not only debt collection lawyers and debt recovery lawyers which can assist to obtain payment of overdue tax invoices. Debt collection companies or debt collection agencies can also assist to seek payment of overdue invoices.
This series of articles focuses on the role of lawyers (or barristers and solicitors) in recovering debts and collecting debts within the jurisdiction of the Magistrates Court of Victoria. The debt recovery process or the debt collection process can be divided into four main stages. The stages that may be necessary as a part of debt recovery action or debt collection action include: 1) the initial demand for payment or letter of demand; 2) the commencement of legal proceedings; 3) the obtaining of a Court Judgment or Court Order; and, 4) taking recovery action to enforce the Judgment debt.
In this article, we focus specifically on the commencement of legal proceedings. In an article relating to the initial demand for payment it was noted that it is often not necessary for creditors to provide substantial detail in order for the initial demand to be prepared. However, in order to commence legal proceedings it is often necessary for additional details and documents to be provided so that the required Court documentation can be properly formulated.
The extent to which it is necessary to enter into detail in the Court documentation can vary depending upon the nature and subject matter of the claim that is being made and also depending upon the reasons for which the debtor has not made payment. For example, it may be that the debtor has not made payment because the claim is disputed or, alternatively, it may be that they admit the debt but have not paid for some other reason. If a creditor is as certain as they can be that the legal proceedings will not be defended then it is sometimes possible to include less detail in the Court documentation than the detail that would be required if it is likely that the claim will be defended. This can reduce the legal costs associated with preparing the Court documentation for matters that are likely to be undefended.
Once all of the required documentation and details have been provided the Court documentation can then be drafted. In the Magistrates Court, legal proceedings are commenced by filing with the Court a document called a “Complaint”. Included within the Complaint is a section for the “Statement of Claim” which is the section in which the details in relation to the basis of the claim are set out along with details of the quantum of the claim. The Complaint will usually include a claim to the outstanding debt and also a claim to what are known as “scale legal costs” related to the commencement of the proceeding. The Complaint will in most cases require the debtor to make payment of not only the amount of the claim itself but also the scale legal costs in order to avoid further legal action being taken. The scale legal costs are the costs that the creditor is able to claim from the debtor to the stage of the process of issuing the legal proceedings and will not always cover all of the costs that may need to be paid by the client to their lawyers.
After the Complaint has been filed with the Court it (along with two blank Notices of Defence) need to be served upon the debtor. The manner in which the debtor needs to be served depends upon whether the debtor is an individual or a company. In most circumstances, an individual must be served personally by a process server whereas it will usually suffice for a company to be served by posting the Complaint to the registered office of the company. There is also a requirement to serve with the Complaint a particular notice under a piece of legislation called the Service and Execution of Process Act if the debtor is to be served at an address outside of Victoria.
Once the debtor (or defendant) has been served with the Complaint then it is most often the case that they will need to make payment of the debt (including the scale legal costs) or make satisfactory arrangements for payment within 21 days of the date of service. If they fail to do so within this timeframe then, unless they file a Notice of Defence, the creditor (or plaintiff) would be able to proceed to obtain a Court Order for the applicable amount.
The size of a company or business will have a bearing upon the most suitable policies and procedures to adopt for the recovery of debts. The policies and procedures may vary depending upon whether they relate to undisputed debts or disputed debts. This series of articles focuses on undisputed debts. All businesses (whether they are small businesses, medium sized businesses or a large businesses) should take action early to prevent their normal trading debts becoming stale debts or bad debts.Disclaimer
The facts and circumstances applicable to every client are different. The above article is not intended as, nor should it be construed as, legal advice as to the subject matter of the article. Should you have legal issues that are similar to above then you should not place any reliance on the content of this article but, instead, you should seek legal advice.
Related Practice Areas: Debt Recovery
