When people tell me that they are owed money and ask me what they can do to recover that debt, I can only tell them half the story. Of course, when you commence debt recovery, you must be fully aware of and observe the recommended debt collection methods and guidelines set by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC).
Still, the other half of the story only they can tell me.
My half of the story
The legal system provides a number of measures—methods of debt recovery—to enable you to try to recover a debt owed to you once it has fallen due.
Generally speaking, if you have already exhausted all attempts at recovering debts by begging, cajoling, and sending threatening letters, you will need the assistance of the court.
You will have heard terms such as a statement of claim, statutory demands, winding up applications, writs, garnishees, bankruptcy notices and so on.
Each of these primary debt recovery tools—for the recovery of unsecured loans or even the secured ones—has its own pros and cons and chances of succeeding.
Which is the best one for you will depend on the circumstances of your case.
Any lawyer worth their salt knows these measures like the back of their hand.
This is the half of the story that I can tell you.
Your half of the story
Consider one specific example: you commence court proceedings to recover a debt against a company and during that process, the company is placed into administration or liquidation.
This will dramatically reduce your chances of recovering your debt.
If you are an unsecured creditor, you will be forced to line up with all the other creditors and accept whatever cents in the dollar are finally paid to creditors by way of a dividend.
Usually, this is zero.
There are many other such examples.
Here are five measures which you can take to protect yourself:
1. Comprehensive credit check
An obvious precaution is to do a comprehensive credit check before you do business with any company.
This is the most basic protection against future bad debts.
It can help you decide what terms of trade to extend and whether you want to do business with the company at all.
Surprisingly, many companies omit this simple step.
2. Insert a clause in your terms of trade
A properly drafted clause in your terms of trade allows you to place a caveat over a company or the property of its directors if the company does not pay its debts.
3. Retention of title clause
Having a properly drafted retention of title clause on your invoices will enable you to recover the goods you supplied to the company if some of those goods were not paid for.
Without such a clause, those goods may well be sold and the proceeds used to pay all creditors.
4. Directors’ personal guarantees
You have the right to insist that the directors of the company give you personal guarantees as a condition of doing business with you.
This will mean that you have access to their assets if the company has none.
5. Security over an asset
You have the option of taking security over an asset of the company by a charge or some other means of security.
This will enable you to seize the property which is the subject of the security, rather than waiting in the queue with the other (unsecured) creditors.
Foresight is better than hindsight
These and other mechanisms can make it easier for you to recover debts when they fall due.
But what I cannot stress enough is how important it is to act in advance, before trading starts or before the debt falls due, to give yourself the best protection you possibly can.
A decisive pre-emptive action is by far your best bet when it comes to recovering the money that you have worked so hard to earn.
Read more on effective debt collection techniques here.
Terry Sperber is a litigation partner at Swaab Attorneys.