Debt Recovery – What can you do to legally recover debts owed to you?

What is debt recovery?

Debt recovery involves recovering money that is owed to someone (creditor) by someone else (debtor). In many cases, the creditor has provided goods or services to the debtor but the invoiced amount remains unpaid.

How can I recover a debt?

The first step is to issue a letter of demand. This should clearly set out:

  • the total amount of the debt;
  • how the debt arose and why it is required to be paid; and
  • that if the debt is not repaid within a certain time (usually 7-14 days) legal action may be taken against the debtor.

If the debtor does not respond to the demand, or refuses to pay, you can issue legal proceedings to recover the debt. The Court or Tribunal you use depends on the type and amount of the debt, and whether there is any complexity in the circumstances in which the debt arose.

Where should I issue proceedings?

VCAT – If the debt relates to goods or services, the dispute is a “consumer and trader” dispute under the Australian Consumer Law and Fair Trading Act and you can issue in the Victorian Civil and Administrative Tribunal (“VCAT”). For that you need to complete a “Civil Claims List Form”, accessed on VCAT’s website, and pay a filing fee.

Going to VCAT is relatively informal and if your claim is under $15,000, you generally can’t have a lawyer represent you. However, if your debt is for more, or the matter is complex, having a lawyer can be a worthwhile investment.

If the debtor files a response, VCAT then allocates a mediation or compulsory conference to assist the parties to resolve the matter. If no agreement to settle the matter is reached at this point, it proceeds to a hearing for a decision by a member of VCAT.

Any decision made by VCAT which may include that the debtor pays you part or all of your claim, binds the parties. If the debtor doesn’t comply, you can bring enforcement proceedings in the Magistrates’ Court to enforce the VCAT decision.

Generally in VCAT each party bears their own costs. However, in some circumstances VCAT may that one party pay some or all of the other party’s costs. These circumstances may include where a party:

  • did not act appropriately during the case and this unnecessarily disadvantaged the other party;
  • has delayed a hearing of the matter without good reason;
  • has tried to deceive the Tribunal or the other party; or
  • has no reasonable, factual or legal grounds to support its claim.

Magistrates Court – If you are owed a debt of less than $100,000, you can issue legal proceedings in the Magistrates’ Court. This is a more formal process than VCAT and the parties usually are legally represented.

Proceedings are commenced by filing a Complaint and paying the applicable filing fee. The Complaint will then need to be in most cases, personally served on the debtor.

Once served, the debtor has 21 days to either pay the amount claimed, or file a defence. If a defence is filed the Magistrates’ Court then organises a pre-hearing conference which provides the parties the opportunity to settle the matter, or alternatively agree on any further necessary steps before a final hearing.

If the debtor does not file a defence within the 21 days, you can apply to the Magistrates’ Court for a “judgment in default”.

Most civil matters involving a claim for less than $40,000 are referred to the Dispute Settlement Centre of Victoria for free mediation. Even if not referred, the parties may voluntarily approach the Centre for mediation.

Otherwise, the matter proceeds to a final hearing and the Magistrate will make a decision on the case. If your claim is successful and the debtor is ordered to pay part or all of the debt owing to you, the Court will usually make an order that the debtor pay most of your costs.

All orders made by a Magistrate are legally binding and can be enforced, such as by a Court officer (known as the Sheriff) seizing property of the debtor, or by payment out of the debtor’s earnings.

Debts of more than $100,000 are usually the subject of proceedings in the County or Supreme Courts. You should seek legal advice prior to issuing those proceedings.

If you, or your business is owed money, Robertson Hyetts is here to help.  Call our experienced Dispute Resolution/Litigation Lawyer, Daniel Jones on 5434 6666.