Complex Debt Matters
Recovering large or old debts can be a challenging exercise for any individual, company or business owner. Some of the key challenges include unique contractual disputes, elusive/uncontactable debtors, intricate financial/security arrangements, or simply a lack of time and resources to pursue.
Generally, different enforcement methods will exist depending on how the debt arose, and combination of technical and commercial approaches will most often be required. With a proactive approach and some expert guidance, there a number of non-standard methods available that can lead to successful recovery.
Unique contractual disputes
In cases where there is a unique contractual dispute, you need to first know what legal avenues can (and should) be exercised to start the process of recovery or allege breach. This will often vary depending on the commercial context in which the debt came about for e.g., due to a dishonoured loan agreement, unpaid goods/services, defective goods, or services not fit for purpose.
There are usually mechanisms within the contract or agreement which allows you to allege breach against the other party or enforce a default in payment. The agreement may require you to serve a valid breach notice or contain technical requirements to validly terminate. Knowing how the agreement operates in these instances requires a technical understanding of its terms for their full meaning and effect.
Note: this step is very important to get right, as any mistep under the agreement could risk you being the party in breach.
If you think you need some guidance on this, it’s generally worth engaging an expert who can help you navigate the terms of the agreement or contract to ensure you adopt not only the correct legal approach, but also a commercial one.
Financial/security arrangements
What if you’ve previously tried to resolve the debt? This could’ve occurred by entering a deed of forbearance, settlement arrangement, or agreeing to a moratorium period. These solutions are not uncommon for high value debts in which a collaborative approach has previously been taken, or where there is a mutual understanding about non-payment.
If it’s now time to enforce, the most commercial solution/(s) will depend on the circumstances. Some examples:
In cases where proceedings were already on foot and a settlement arrangement has been implemented, the settlement deed may entitle you to obtain a default judgment immediately – making it a simple step to start recovery action.
If the debt is valuably secured, the quickest and most cost-efficient way may be to call upon the security. This may also be a useful step to encourage payment or open fruitful discussions on a resolution.
Your dealings with the debtor to date may have been and continue to be quite positive and collaborative, in which case an appropriate solution might be to enter into a revised deed or agreement with new mechanisms for repayment. The revised mechanisms may involve a restructure of assets or additional securities.
Elusive debtors
It may be that, in your specific circumstances:
a breach notice is not required or has already been issued;
dealings with the debtor have ceased; or
attempts to contact the debtor have garnered no substantive response.
If this sounds like your situation, below are some steps you might be able to employ immediately.
A creditor’s statutory demand is made by a creditor against a debtor company, and is generally a precursor to winding up a company (arising from the provisions of the Corporations Act 2001). However, it can also be useful as a tool to encourage payment or at least a response, as it requires a response or payment within 21 days. Note, there are specific requirements that need to be met to issue a statutory demand including that the debt is equal to or greater than $4,000.
Engaging a skip tracer or investigator is often overlooked as a debt recovery option but can be very useful in assessing the commerciality or prospects of enforcement action. If the investigations prove successful, you’ll be armed with extremely useful knowledge about the debtor’s available assets, which can be beneficial in circumstances where the debtor is evading payment.
Depending on the circumstances of the case, commencing proceedings may be a necessary step to elicit a meaningful response from a debtor. Upon a obtaining a judgment – either by default (being when the debtor does not respond to the claim), or by a successful court outcome, a creditor has a range of enforcement methods available. A highly effective one is issuing garnishee orders against a bank or third-party, which. is basically a court order that allows you to intercept funds that were payable to your debtor by third parties.
Some successful third-party garnishees include litigation funders, financial institutions, publicly listed companies, and AB has had significant success with this method in the past.
There is also the option of assigning the debt to a third-party for a monetary amount or via other financial arrangements.
Next steps
Let’s face it, chasing debts is not an alluring way to spend your time and energy, and after some failed attempts it can seem like you’re throwing good money after bad. If you’ve got a complex debt matter, and some of these concerns are relatable to you consider sending us an email using the button below – we are happy to have a free 30-minute chat with you without any further obligation.