The parties involved in a recovery action are:
the Creditor = the person who is owed the money i.e the eCollect.co.nz client.
In court proceedings, the Creditor is called the Plaintiff or Complainant
the Debtor = the individual or company who owes the money.
In court proceedings, the Debtor is called the Defendant.
eCollect.co.nz has identified three general stages in the debt recovery process.
Demand Stage
This stage involves:
1. sending an invoice
2. chasing the Debtor by telephone and in writing for the payment of the debt
3. sending the Debtor a formal letter of demand which states the full claim and warns of impending legal action if no suitable arrangements are made to satisfy the debt.
Court Stage
This stage involves preparing and issuing the documents which start the court process and bring the matter within its jurisdiction. This must be done by a solicitor. eCollect.co.nz has a close relationship with E C Legal and will instruct that legal firm to represent you. The documents are then served on the Debtor who has the option of disputing the Creditor's claim. If the Debtor does dispute the claim, then the legal process becomes more complicated and a decision will need to be taken with the solicitor's advice as to the best course of action.
Enforcement Stage
If the debtor fails to dispute the claim within the allowed time, the solicitor will apply for and recieve judgment.
Once the court has given judgment, the task of actually obtaining payment presents itself. There are various methods of enforcement available to the Creditor. Which particular method is likely to be the most beneficial involves a careful consideration of the nature of the debt and the characteristics of the Debtor. In particular, information about the Debtor's financial position should be obtained and carefully analysed.
It is possible to omit the demand stage and proceed directly to the issue of legal proceedings through the court stage.
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This is an important stage of the debt recovery process which enables the Creditor to obtain valuable information about the nature of the Debtor and the likelihood of successful recovery of the debt.
Telephone Calls
Where an account or payment is overdue the most effective means for chasing it is often by making a call to the Debtor and reminding the Debtor that payment is overdue. It is important to couch demands in the correct fashion and to carefully record the Debtor's response. Statements made by the Debtor over the telephone may later be used as evidence of an admission of the debt should the Debtor subsequently deny owing the monies claimed. Quite often, the Debtor will complain about the quality of goods or services provided claiming that they were not right. This is less likely to happen immediately after the goods or services have been delivered and so eCollect.co.nz recommends a call to the Debtor at the earliest possible opportunity to make sure that the Debtor is happy with what has been done by the Creditor.
Letters of Demand
A letter of demand is a useful tool which should be used in conjunction with telephone calls. The letter of demand is a formal means of putting the debtor on notice of the Creditor's position in respect of the debt. The Debtor is then prevented from denying knowledge of the debt or its amount. A letter of demand should be sent as a matter of course prior to issuing legal proceedings.
A Creditor may initially send a letter of demand on its own letterhead. The nature of the wording in the letter will depend on the current relationship between the parties. More than one letter may be sent where appropriate. eCollect.co.nz provides suggested text for these letters.
If no satisfactory response is received from a Creditor's letter, then a solicitor's letter of demand should be sent. This usually carries more weight and indicates to the Debtor that the Creditor is serious about continuing toward legal action. A solicitor's letter of demand will claim an amount for costs. The Debtor is under no obligation to pay these costs. Costs only become legally payable after legal proceedings are issued. If the Debtor tenders full payment of the debt only, then the Creditor should accept this and bear his own costs relating to the demand stage.
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eCollect.co.nz refers all its clients to E C Legal. E C Legal will undertake litigation in all states of Australia and works closely with the staff from eCollect.co.nz.
The jurisdiction of the local courts is different from state to state e.g. up to $100,000 in the Magistrates Court of Victoria in debt cases.
If the debt exceeds this amount, the Creditor may abandon the excess in order to fit within the jurisdiction. If the excess over the jurisdictional limit is significant, and abandoning the excess is not appropriate, the matter must be pursued in the superior courts. If this is the case, then the assistance of a solicitor will be necessary.
For general information about:
Magistrates Court of Victoria website
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Obtaining Default Judgment
If the Debtor fails to pay or defend the claim following the issue and service of the legal proceedings then the first step is to obtain a court order stating that the Debtor owes the Creditor the amount claimed. This process is known as obtaining a default judgment and requires an affidavit of service to prove that the Debtor has received the legal process and a written request to the court for the making of a court order. Once this is done by E C Legal, the Debtor will not be able to argue that the amount of the debt is not payable.
This does not necessarily mean that the Debtor will make the payment and there are a number of options available to enforce the payment of the debt. They are as follows:
Summons for Oral Examination
This procedure is one which involves gathering of information only. It comprises of issuing a Summons for the Debtor to appear in court and answer a series of questions about the Debtor's financial position. The Registrar of the court interviews the Debtor, completes a financial position summary and reports back to the Creditor. The idea is that once the Creditor knows the Debtor's financial position, the Creditor will be in a better placed to decide which specific method or recovery is most suitable to pursue. The Summons for Oral Examination is a valuable tool because it is the first time in the legal process to date where the Debtor must physically appear in Court. Up to this point, the Debtor can simple ignore the process but if the Debtor fails to appear for a Summons for Oral Examination then the court can direct the Debtor be arrested. This usually provides incentive for an appearance which in turn often prompts action in relation to payment.
The Summons for Oral Examination is a document prepared by E C Legal and issued by the court. It states the details of the judgment debt and requires the attendance of the debtor at court at a particular time and day to be examined. The date for the examination will be approximately 8 weeks from the time the Summons is issued and the court venue will the venue closest to the address for service of the Debtor. The Summons also requires the Debtor or Debtor company's director to produce all relevant financial documents for examination.
Once the Summons is issued it must be personally served on the Debtor. This is arranged by eCollect.co.nz staff members.
Warrant to Seize Property
This is the most common method of enforcing judgment. It involves issuing a Warrant against the Debtor and instructing an officer of the Court known as the Sheriff to attend at the premises of the Debtor to seize goods belonging to the Debtor and then sell those goods in satisfaction of the debt. The most commonly seized goods are motor vehicles.
Attachment of Earnings - Garnishee Orders
Where the Debtor's place of employment is known, this procedure enables you to make an application to the court for an order that the Debtor's employer deduct a certain amount of the Debtor's earnings in order to pay the debt by way of instalments. These payments are deducted directly from the Debtor's salary by the employer and sent to the Creditor.
Attachment of Debt
Where it is known that the Debtor has an amount owing, it is possible to apply to the Court for an order that the person who owes the money to the Debtor should pay it to you rather than the Debtor.
Warrant of Seizure and Sale
In the event that the Debtor owns real estate, it is possible to make an application to the court for the sale of this real estate in satisfaction of the debt. Only the Debtors interest in the real estate may be taken to pay the debt. As such, if the Debtor has little or no equity in the real property, then this may not be a viable enforcement option.
Bankruptcy
Bankruptcy is process where the control of the Debtors assets are taken away and placed in the hands of another person known as the Trustee. A number of restrictions are imposed on the Debtor including the amount that is able to be retained from earnings, owning of property, overseas travel etc.
Because of the nature of the jurisdiction and the drastic consequences to the Debtor, this procedure is very strictly controlled by the Federal Court and can costly. It is only useful where the defendant has assets either in his own name or recoverable by a trustee that the debtor refuses to sell in order to pay your debt. It may also be effective where the debtor wishes to avoid the stigma and inconvenience of becoming bankrupt and as such the threat of bankruptcy forces the debtor to come up with the money to pay you.
For more information on bankruptcy, see www.itsa.gov.au
Wind-Up Proceedings
Winding up a company may be likened to making an individual bankrupt and the cost and effort required is usually similar. This procedure may be effective where the Debtor, being a company, does not want to cease trading and is able to raise the funds to pay the debt.
Please read the information on choosing the right enforcement option before proceeding any further.
The most suitable option should be chosen with reference to the following criteria:
Cost
Some enforcement proceedings such as bankruptcy, winding - up a company, warrant for seizure and sale of real estate are expensive and therefore if the debt is small, it may not be worthwhile pursuing them.
Information About The Debtor
Information about the Debtor's financial position is vital at the enforcement stage. For example if you know that the Debtor is employed, you may apply to attach his/her earnings. If the Debtor has substantial personal assets or real assets it may be possible to seize and sell these assets. If the Debtor operates a business it may have debtors of its own, in which case an attachment of debts application may be appropriate.
Information About Other Creditors
If the Debtor has other substantial creditors, it will be necessary to take into account the impact of this on the Creditor's position. If for example there are other creditors taking recovery action against the Debtor such as bankruptcy proceedings or winding up proceedings, it may not be worthwhile for the Creditor to take any action whatsoever as this will not benefit the Creditor.
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Company
If there is a group of companies which have related operations, it is important to decide which member of the group is actually owed the money, and to register that particular member company.
The full name of the company including the Pty. Ltd. (if it is a proprietary limited company) or Ltd.
(if it is a limited company) must be included after the name.
e.g. CREDITOR PTY. LTD.
Sole Trader
The full name of that person must be stated:
e.g. JOHN PAUL CREDITOR
Partnership
Each partner's full name must be stated:
e.g. JOHN PAUL CREDITOR & MARIA CREDITOR
Tips for Identifying the Creditor
- Trading Debts - If invoices were issued in respect to the goods or services purchased by the debtor, look on the invoice for the name of the seller of goods or provider of services.
- Loan of Monies - who is the person to whom the promise to repay the monies was given.
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It is crucial to correctly identify and name the legal entity which owes the monies.
You must decide which legal entity made the agreement to buy goods/services or
loan money from you.
This is especially true when if legal proceedings are issued.
If you name the incorrect legal entity as the Debtor, your legal
proceedings may be struck out by the Court and may lead to you having to
pay the legal costs of the party whom you've sued incorrectly. As such, if you
are the least bit unsure of the correct legal person to name as the Debtor, you
should use the Seek Legal Advice option.
The most common kind of legal entities are:
Company
If the debt is owed by a company the full name of the company including
the Pty. Ltd. (if it is a proprietary limited company) or Ltd. (if it is a
limited company) must be included after the name. The Australian Company Number
or A.C.N. must also be named.
e.g. DEBTOR PTY. LTD. (A.C.N. 000 111 222)
If the name only of the debtor company has changed from the time the debt was
accrued to the time proceedings are drafted, it is appropriate to name the
Defendant as follows:
e.g. DEBTOR PTY. LTD. (A.C.N. 000 111 222)
(formerly known as PURCHASER PTY. LTD.)
If the Debtor defendant company owns a business name under which it trades,
it is appropriate to name the Defendant as follows:
e.g. DEBTOR PTY. LTD. (A.C.N. 000 111 222)
(trading as FRIENDLY PURCHASER)
If there is a group of companies which have related operations, it is important
to decide which member of the group is actually owed the money, and to name that
particular member company as the Debtor.
Sole Trader
If the debt is owing by a person trading in their own name, the full name
of that person must be stated:
e.g. JOHN PAUL DEBTOR
If the debt is owing by a person trading under a business name, both the
full name of that person and the business trading name must be stated:
e.g. JOHN PAUL DEBTOR
(trading as JOHN PAUL DEBTOR PURCHASING)
Partnership
If the debt is owing by a partnership or firm of partners then each
partner's full name must be stated:
e.g. JOHN PAUL DEBTOR & MARIA DEBTOR
(trading as JOHN & MARIA PURCHASES)
In the case of a partnership, each partner is liable for the debt, not
just the partner who dealt with you. That means that each of the partners to
the partnership must be entered into the data section of Pay Up!.
Multiple Defendants
Sometimes the debt is owed by more than one person or entity.
It is important that each debtor be named in the court proceedings as this
has the potential to increase the chances of recovering the monies owed.
Where a loan is made to more than one person such as husband and wife,
both borrowers should be named as Debtors.
e.g. JOHN BORROWER 1st Defendant
-and-
JENNY BORROWER 2nd Defendant
Where a person has given a guarantee that the debtor person or company
will pay its liabilities, then both the debtor and guarantor should be
named as defendants.
e.g. JOHN BORROWER 1st Defendant
-and-
JENNY GUARANTOR 2nd Defendant
Tips for Identifying the Defendant
>
- Loan of Monies - The Debtor will be the person to whom the monies
were given or who made the promise to repay the monies to you.
- Trading Debts - If invoices were issued in respect to the goods or services
purchased by the debtor, look on the invoice for the name of the purchaser
of goods or services.
If there is no documentation from the debtor at all and you are unsure
of whether the debtor is a company, a partnership, or a sole trader,
then the person who owes the debt will be the person who ordered the
goods and services. This is particularly the case if this person made
out as if he was ordering the goods/services on his own account.
If the Debtor is a company or trades under a business name, then a search
should be done on the business or company name of the Debtor in order to check
that the description of the Debtor is correct and to obtain the correct address
for service. This must be before the issue of any court proceedings.
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Once the legal process is issued by the court, it must be served on the Debtor in the manner provided by the appropriate court rules.
You may serve the legal documents yourself although eCollect.co.nz recommends that this important part of the process is done by independent experts who will ensure that service is carried out correctly. If it is not there will be delays and potential significant cost.
If you wish to serve the Debtor yourself, eCollect.co.nz will provide instructions on how this must be done.
In most jurisdictions, service on a corporation is done by sending a copy of the legal documents by ordinary prepaid mail to the registered office of the corporation.
For service on an individual, a copy of the legal documents be handed personally to each person named as a Defendant.
Once served, an Affidavit of Service will need to be completed and filed with the Court.
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The Debtor has a fixed number of days (usually 21) after service of the court documents to take action to dispute the claim. If the Debtor wishes to dispute the claim, a Notice of Defence must be filed with the Court and also sent to the lawyer of record. The Notice of Defence outlines the basis of the denial of the claim.
If the Creditor receives a Notice of Defence within the 21 day period, you should contact your lawyer as soon as possible to give you advice and assistance in the further conduct of the proceeding. There will be a cost for this which will be explained by the lawyer and will not involve eCollect.co.nz.
eCollect.co.nz advises most strongly against representing yourself where a proceeding is contested and will not accept any liability for loss suffered as a result of your failure to arrange legal representation for yourself.
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If no Notice of Defence is received within 21 of service of the Complaint, the Creditor is entitled to make an application for a court order stating that the Debtor is liable to pay the amount of the claim. An application is made by sending an application to the court in the appropriate form. This is done by E C Legal. A small fee is also payable to the court on the application. Once the Court receives this application it will check the court file to ensure that a valid affidavit of service has been received by the court. If so, the Court will make an order for the full amount of your claim, together with interest from the date of the issue of the Complaint and the allowable costs. This judgment order will be sent to E C Legal in the form of a document called Notice of Order Made. A copy of this will be posted on your file on the eCollect.co.nz website.
eCollect.co.nz recommends that the Notice of Order Made be sent to the Debtor together with a letter of demand for payment. This can be done by eCollect.co.nz as a part of the Enforcement Stage for no additional cost.
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Your legal costs - no recovery no charge
Our prefered legal firm, E C Legal, may represent the Creditor on the basis that the Creditor will only be expected to pay if a recovery is made from the Debtor. The E C Legal terms and conditions will be provided to you if your case needs legal action.
This situation changes where that the Debtor enters a defence to the Creditor's claim. In this situation, the Creditor will need to decide whether or not you instruct E C Legal to continue to act on your behalf.
If you do instruct E C Legal to continue to act on your behalf in a defended matter, E C Legal will charge you in accordance with their terms and conditions. Before proceeding in a defended matter, E C Legal will give you an idea on the maximum possible costs which might be incurred in defending the matter.
One very important point to note is that where a matter becomes defended and the Creditor decides not to pursue the case any further, the Debtor may seek the cost of his defence from the Creditor. It is very important before commencing legal action, to ensure that the Creditor has a strong claim and is prepared to continue the claim through to finality whether or not the matter is defended. Quite often, if the matter is defended and the Creditor decides not to press on with the claim, the Debtor will agree not to seek any legal costs from the Creditor on the basis that the claim is withdrawn.
Legal costs recoverable from the debtor
Each court sets out a scale of costs which lists amounts that the debtors are required to pay for both professional costs and out of pocket expenses. These costs are known as party-party costs and include an allowance for the lawyer to do the legal work as well as an allowance for out-of-pocket expenses such as court fees, service fees, company searches etc. Once funds are recovered from the Debtor, the lawyer is entitled to recover his professional fees from the money paid by the Debtor for the work done which will be billed according to the appropriate court scale. In addition, the Creditor may recover the out-of-pocket expenses that the Creditor has paid. These amounts are recoverable from the Debtor in addition to the amount that is payable as the debt. Similarly, the court will allow a certain rate of interest to be paid by the Debtor representing the time between the issue of complaint and the payment of the money. So, in the situation where the Debtor pays the full amount due, the Creditor will receive a refund of the out-of-pocket expenses paid to the court, process servers and other people via eCollect.co.nz as well as receiving the amount of your claim plus interest.
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Before starting the recovery process with eCollect.co.nz it is essential that the Creditor is able to prove their claim. This means that there should be as much documentary evidence in place as possible showing that the amount is properly due from the Debtor to the Creditor. At the very least, the Creditor should have rendered an invoice to the Debtor. Any correspondence between the Creditor and the Debtor should be on hand including quotes or other documentary specification on the works, orders, correspondence regarding the subject matter of the claim etc.
One of the most common situations in a recovery matter is for the Debtor to claim that the goods delivered or the work preformed was not done to specification or was not authorised at all. To prevent this occurring, obtaining documentary proof what was required to be delivered will greatly assist the claim. But even if this material does not exist at the time of the claim it is helpful to try and establish that the Debtor has no reason to dispute the claim before the recovery process is commenced.
For this reason, a telephone call at an early stage checking that the Debtor is happy with the goods or services delivered is a wise move. If there is a problem raised, the Creditor will need to attend to this before making the claim because this will surely be a matter that will prevent the Debtor making the appropriate payment. Once the Debtor's satisfaction with the goods or services has been acknowledged, this should be recorded in writing by way of a telephone/action record or, better still, by a letter to the Debtor referring to the telephone call and noting the Debtor's satisfaction.
Keeping full and complete documentary records of what has occurred before during and after the claim process is always recommended.
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Creditors should always be prepared to make a settlement arrangement especially in situations where the claim may have possible flaws or the Debtor may have limited capacity to pay. There is considerable amount of effort in bringing even the simplest recovery action and if a settlement deal can be made that provides an appropriate return to the Creditor then this option should always be considered.
The nature of any settlement deal will always be a matter for the Creditor but the areas for negotiation are generally:
- accepting less than the full amount of the claim; and/or
- granting an extended time to pay.
eCollect.co.nz recommends that an appropriate document be created to record any settlement deal.
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