If you have a debtor owing you money and that debt is unsecured, weighing up the cost-benefit in pursuing debts owed to you or your business is an essential exercise to undertake before instructing your lawyer to start the debt recovery process. In our experience, the time, money, and effort spent in the debt recovery process must make commercial sense as it is not necessarily a cheap and quick process and it has no guarantee of success. One of the most important things to consider at the outset is whether the debtor is able to pay the debt, one can very easily throw good money after bad by going through the debt recovery process only to find out that no practical results can be obtained.

 

The unfortunate reality is that stumbling blocks are frequent in the debt recovery process. Going to court and filing a statement of claim may be easy, though there are costs involved there. Following that you must serve (give) a copy of the statement of claim on (to) the debtor, you can run into a stumbling block here as it may arise that service cannot be affected for various reasons such as the debtor no longer resides at the address provided. A skip trace may be necessary to find the debtor, this adds another cost to a third-party service provider in the process, the documents will have to be served again per the skip trace.

 

After serving the statement of claim and the requisite time has elapsed with no defence filed, you could get default judgment. If you have obtained the judgment by default, you could encounter a more stumbling blocks, such as having to oppose a possible application by the debtor to rescind the judgment, this usually happens when enforcement proceedings begins, there are costs associated with that.

 

Alternatively, if the debtor files a defence, it will have to be addressed, and as the matter proceeds, the costs can build up as steps such as obtaining directions, putting on evidence, appearances, possible alternative dispute resolution and so on are likely to be added to the process. If after all that you get your judgment, Great! Note that even if costs are awarded to you, the amount that can be recovered usually won’t cover the amount spent on the process.

 

With judgment in hand, the next step is enforcement. Whilst there are a few leavers to pull for enforcement of a judgment debt, keep in mind that there are costs associated with pulling these leavers.

 

You would note that the debt recovery process is frustrating and costly, the creditor is already on the backfoot having advanced funds or the like to the debtor, now the creditor is in for additional costs to sue the debtor, most of which likely won’t be recoverable.

 

Ultimately, the creditor needs to understand that at best, they will see a partial recovery of the amount owed by the debtor once all is said and done and needs to be comfortable with possibly seeing a percentage of something in their account at the end of the process whilst running the risk of having nothing to show for the time, effort and money spent on the process.

 

This is the reason we recommend that the commercial reality of initiating the process must be considered at the start of the proceedings, think about whether the debt is substantial enough to refer to your lawyer for recovery, what impact will partial recovery of the debt have on your cashflow, are you willing to spend on the debt recovery process and if so what are the prospects of recovery.

 

Soni Legal is a focused commercial and insolvency law practice, should you require assistance or advice with your company, feel free to reach out to us at info@sonilegal.com.au or call us on +61 2 8076 6072.

 

© Kaveer Soni – 14 February 2023