Debt Recovery

The largest single problem encountered by lawyers in dealing with debt recovery matters is that clients leave it far too late before taking any form of affirmative action. It does not matter whether we are speaking of friends, relatives, partners, business or commercial activities, everyone gives far too much latitude to debtors. Unfortunately everyone believes that by extending credit for a longer period of time this is the best way to maintain relationships whether personal or business and that life will continue on as before.

Experience

Experience teaches that this never works and more so where the economy is in a severe downturn as currently during the course of the global financial crisis. Many creditors forget that the longer a debt remains outstanding the greater the chance it will not be recovered because the only reason why debts are not paid on time is because you are dealing with serial debtors, professional debtors or persons or entities who are in real financial distress. The longer the debt runs the greater the interest owing and the harder it becomes to recover a debt.

At LAC Lawyers we do not undertake any debt recovery work where the amount of the debt owing is less than $20,000. Where judgement or an order has been obtained against a debtor or where hey have been made bankrupt or a company wound up it has serious repercussions for their short and long term credit. Effectively they have no credit rating and it’s this threat that often compels debtors to pay. The lesson is if someone owes you money then pursue it otherwise you become a charity without the tax benefits.

Reality Check

An excellent point of reference is to look at the ASX2000 and see the number of companies or trusts which have either already breached their debt covenance or have almost done so. To put a finer focus on it if you were to look at the ASX100 the vast majority of these businesses including banks have had to raise capital to shore up their balance sheets to give them the financial strength to whether this crisis. If this is their position then how much worse is it for the small to medium business operator or a person who is owed money and cannot obtain access to capital to allow them to meet their obligations unless they recover their debts in a timely manner. 

Costs

Interestingly many creditors are concerned about legal costs, however, if the debt has been genuinely incurred and not paid then this should be the least of their concerns as otherwise they have just gifted a substantial amount of money to a debtor who has taken them down. Debt recovery is the first part of the process and where individuals are involved this can lead to bankruptcy. In the case of companies, creditors can proceed by way of statement of claim or statutory demand and if the debt is not paid they can seek to have the company wound up. Even where debtors are bankrupted or companies are liquidated there is always the chance of making a substantial recovery unless the debtor’s circumstances are hopeless.

Many clients forget that where companies are involved and their directors have traded insolvent it is highly likely that the directors are personally liable. It never ceases to amaze us that where debtors have made no attempt to pay by instalment or otherwise clients wait until the debt is almost irretrievable before they take action. It normally starts with a letter of demand and further letters of demand where the debtor completely disregards them, time is allowed to run and the debtor disappears.

One of the largest single creditors in Australia is the Australian Tax Office. When debtors are dealing with this organisation they need to be extremely careful as to how they proceed. Many taxpayers who approach us believe that by going bankrupt they can effectively clear the taxation debt without any further consequences. The real point is that it depends on how the debt was incurred, the actual taxes involved together with the amount. It should never be forgotten that where there is a substantial tax shortfall and bankruptcy or liquidation is relied upon to alleviate the debt it is highly likely where the amount is substantial the taxpayer(s), including company directors will be referred to the CDPP (Commonwealth Director of Public Prosecution) for prosecution. 

Should you require professional advice and representation with respect to any debt recovery, bankruptcy or insolvency matter do not hesitate to contact us now. 

Contact us now for Fast, Accurate and Timely legal advice

Phone LAC Lawyers on NSW 1300 799 888 or VIC 1300 734 638 or send us an email