Debt Collection Agency Australia
Amicable Debt Collections Australia
1. General information
Cosmopolite Collections maintain a professional collection process, focusing on the relationships between our clients and their debtors at all times.
Our team of collection specialists carry out the collection process in-house. We contact debtors both verbally and in writing whilst adhering to federal and state laws.
When there is a case of dispute, we aim to reach an amicable solution between the creditor and the debtor.
We do this by analysing contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms that have been agreed upon).
All investigations are completed with the assistance and agreement of our legal team.
1.2. Local agents
Although not commonly used in Australia, we can employ local agents to make field visits to debtors in all areas of the country. However, due to the size of the country, it may not be economical in more remote regions.
The agents we use will report on any meetings they have with the debtors and provide a summary of the debtors’ business operations.
Cosmopolite Collections are not allowed to automatically charge interest to debtors unless the client’s terms and conditions and/or contract specifically outline the penalty for overdue payments. From a cultural point of view, Australian debtors very rarely agree to pay late payment interest.
It is often used as a negotiation tool between debtors and collectors. However, if the matter leads to legal action and we file proceedings in the court for the debt’s recovery, then our claims will include a charge for overdue interest as agreed under each state’s laws and the court system.
Again, debtors will always refuse to pay any interest in the first instance.
1.4. Debt collection costs in Australia
In Australia, debt collection costs are not chargeable to debtors unless the client’s terms and conditions and/or contract specifically outline exactly which collection costs become the responsibility of the debtor and when.
Again, if the matter leads to legal action and we file proceedings in court for the debt’s recovery, our claim will include the court fees and solicitors’ costs, as agreed under each state’s laws and the court system.
These will be charged to the debtor.
The general prescription period in Australia for a simple contract debt is generally six years, starting from the original due date of the debt.
This means that a court will not hear an action for payment where a debt is outstanding for more than six years. Legal action on such debts is barred by the statute.
The time period may start again, however, if the debtor either makes a payment or acknowledges the debt in writing.
To have the effect of restarting the clock, a signed acknowledgement must either be made by the debtor or a properly authorised agent of the debtor, acknowledging that the debt exists and is unpaid.
Whether a document constitutes sufficient acknowledgement of debt to restart the time period must be determined on a case-by-case basis. The limitation period for enforcing a court judgment is 12 years.
1.6. Accepted and most common payment methods
The most common payment methods are bank transfers and cheque payments. Cosmopolite Collection do not offer direct debit from the debtor’s account.
1.7. Types of companies
- Sole trader
An individual trading on their own The sole trader owns all the business assets and is responsible for the liabilities of the business. Liability is unlimited and includes all personal assets, including any assets the owner shares with others.
An association of people or entities running a business together, but not as a company It can be a normal partnership, a limited partnership or an incorporated limited partnership .
Apart from partners with limited liability, all partners are liable for financial obligations. This applies even if one partner incurs debts without the other partners’ knowledge or consent.
A business structure where a trustee holds property or income for the benefit of others called beneficiaries Trusts have various complex structures. Each has their own set of financial and legal obligations.
- Proprietary limited company
A legal entity separate from its shareholders. Regulated under the Corporations Law, which sets out substantial obligations for company directors. Companies have limited liability, but directors can be personally liable under the Corporations Act 2001 if they are found to be fraudulent, negligent or reckless.
1.8. Sources of information
In Australia, we contract very experienced reporting agencies to assist with the assessment of the debtor’s financial situation.
Depending on the debtor’s legal structure, we can also find out further information, such as whether the debtor owns any property, to determine the best course of action against the debtor.
We also have numerous tracing agents who employ investigators when necessary to locate debtors and their assets.
2. Retention of title
The commencement of the Personal Property Security Act 2009 (PPSA) on 30th January 2012 has changed the way in which businesses that regularly supply goods under retention of title (ROT) terms register their entitlement.
Previously, ROT clauses were recognised as law and did not require registration – indeed registration was not possible. Suppliers of goods that supplied under an effective ROT clause were able to recover the goods not yet paid for upon the insolvency of the party in possession of the ROT goods.
Now, under the PPSA, the supplier can register its interest on the Personal Property Securities (PPS) Register in order to protect that interest and the right to repossess the goods, should the customer fails to pay. For situations with a continuous supply of goods, the supplier needs only to register once for each customer, not for every supply of goods.
The security interest arising from an ROT arrangement is referred to, in PPSA terminology, as a purchase money security interest (PMSI).
The importance of this type of security interest is that, if duly registered within the legislated time frames, it generally has a super priority against other interests in a variety of circumstances.
For instance, a supplier who has a duly registered PMSI can potentially have priority over even previously registered security interests.
A failure to register an ROT arrangement as a PMSI does not render it ineffective; however, that means it will not enjoy a super priority against other interests. That is not to say that all ROT suppliers should necessarily try to register all of their ROT arrangements as PMSIs. Instead, ROT suppliers will need to consider carefully the benefits of registration against the nature and magnitude of the risk that the ROT arrangement is intended to address and their relationships with customers, as well as the burden and cost of registration.
3. Safeguarding measures
In case the debtor is not able to settle a claim in a speedy manner, Cosmopolite Collections can request that the debtor secure the debt in favour of our client.
This can be done amicably and cost-efficiently by providing a deed of acknowledgement of debt drafted by our solicitors and authenticated by a justice of the peace.
This allows for the deed to be used as evidence of the debt if any legal action in the courts is disputed.
We can also request that the directors of the debtor company sign personal guarantees allowing them a suitable longer-term repayment plan (over three months).
The debtor is also able to offer other means of security, such as mortgages, assignments of debts or assets.
4. Legal Debt Collections Australia
4.1. General information
There are three levels of the legal system for debt recovery in Australia:
- Debts of up to AUD 40,000 are recovered in the local court
- Debts of up to AUD 750,000 can be recovered in the district court
- Debts exceeding AUD 750,000 are usually dealt with in the Supreme Court.
4.2. Required documents
In order to begin any legal proceedings, Cosmopolite Collections require copies of the outstanding invoices and a clear statement of account indicating payments and credit notes that have been paid against the invoices, as well as any contract or terms and conditions binding both parties.
As the lawsuit proceeds further, we may require additional documentation, such as copies of the contract, orders, confirmations, delivery notes and invoices, which will be requested when needed.
In case of dispute, all notes of conversations between the creditor and the debtor via letters and emails that may assist our lawyers should be kept.
In the case of oral negotiations, we may require meeting or system notes about what was agreed.
4.3. Legal dunning procedure
Unless required by the contract (or personal guarantee), it is not necessary to send any letter of demand, reminder notice or other forms of correspondence requesting payment before taking legal action.
However, it is considered best practice to issue a form of pre-legal step before taking legal action to give the debtor a chance to pay before incurring costs.
4.4. Lawsuit in Australia
To commence court proceedings, the creditor files a statement of claim. This document sets out the basic details of the debt and informs the debtor that they need to pay the debt or defend the matter within 28 days after service of the statement of claim.
If the debtor does not file a defence and does not pay within that 28-day period, then a judgment will be entered against them.
The plaintiff is free to commence proceedings in any court, but if the action is commenced in an inappropriate court, the defendant may be able to transfer the proceedings to a more appropriate court.
Cosmopolite Collections always try to issue legal proceedings in the state where the debtor resides, taking away the debtor’s ability to dispute the jurisdiction.
The full legal costs and disbursements can be claimed in the statement of claim, and they become payable upon issue of the statement of claim – not service. If a defendant has not paid the amount claimed or filed a defence within 28 days of service of the statement of claim, the plaintiff is entitled to apply for a default judgment against the defendant.
An application for a default judgment in a claim is made by filing a notice of motion. This must include an affidavit in support by an officer of the client and must take into account the indebtedness of the defendant.
The affidavit in support of the notice of motion must be filed within 14 days of swearing, which can cause issues if the client is located outside of Australia. A judgment can be enforced for 12 years, with interest accruing from the day following the date of judgment.
Some defendants and their lawyers may want to delay the egal proceedings. This may be in the form of a request for particulars – a letter requesting details of the claim – such as whether the contract is written or verbal, copies of invoices and details of orders.
Whilst it often is a delaying tactic, if it is straightforward to answer (and does not tactically damage the case), it is best to do so because a fight about particulars can add unnecessary costs and delays to the proceedings.
Appeals from the local court are to the Supreme Court, thus making any application very expensive. Appeals must be lodged within 28 days since the date of the decision or any other time as allowed by the court.
It is also possible for judgment debtors to make an application to set aside a default judgment.
To do so, they have to serve evidence to prove two things:
- That there is a reasonable explanation of why no defence was filed within the time allowed, and more importantly, That there is an arguable defence to the claim.
It is not sufficient to only satisfy one of the factors, though more weight is definitely placed on whether or not there is an arguable defence. It does not have to be a defence that will succeed, but merely has to be arguable.
It is not sufficient to swear that the defendant has an arguable defence. It is necessary to state some facts in the affidavit that show that the proposed defence is reasonably arguable in the circumstances.
4.6. Expected time frame
The average duration of a normal standard legal process is between ten and 16 weeks, whereas a defended court procedure can take 12 months or longer, depending on the complexity of the case and the availability of the judge and lawyers on both sides.
4.7. Interest and costs in the legal phase
Costs of the civil law procedures are determined by each state’s legislation and regulation and all differ slightly.
All costs depend on the amount of the outstanding principal, which also determines which court the matter will be started in. To issue a summons, it costs approximately AUD 300– AUD 1,500 in court filing fees and AUD 400–AUD 1,200 in solicitors’ costs, depending on the debt value.
To then obtain a default judgment will cost another AUD 300–AUD 750 in solicitors’ costs. Enforcement options will cost approximately AUD 500–AUD 1,000 for a garnishee order, examination notice or writ for the levy of property.
Bankruptcy and windup applications are significantly more expensive with the total process at times costing AUD 7,000–AUD 10,000.
Extrajudicial interest, costs and charges can only be charged to the debtor if they are included in the written agreement or contract with the debtor before the transaction occurs, and it clearly outlines the penalties for late payment.
Even then, it is not common for debtors to agree to pay any of these extra costs, and they are often used to negotiate a quicker settlement of the account.
Under our local laws, no automatic costs or interest can be added to debts being collected by a commercial debt collector.
When legal action is filed through the courts (a statement of claim), the legislation allows for a prescribed amount to be added to the debt to cover the court filing fee, solicitors’ drafting costs and prescribed interests.
These are referred to as scale costs and are legally added to the debt amount upon the filing of the statement of claim.
In practice, however, many debtors will only pay the invoiced debt amount of a statement of claim and not pay the fees, costs or interest portion.
This amount can be pursued further, but in reality, it is often not worth spending more money chasing these costs.
5.1. Enforcement in debt
The creditor can enforce a court-awarded judgment in the following ways:
- Garnishee order
A garnishee order is an order made by the court to allow creditors to recover the judgment debt from the debtor’s bank account, wages or even people who owe money to the debtor. The person the order is addressed to (the employer, bank or person who owes money to the judgment debtor) is known as the garnishee. The most common garnishee order is for the judgment debtor’s wages or salary.
This order tells the judgment debtor’s employer to take an amount of money from the judgment debtor’s wages and pay it to the creditor until the whole judgment debt is paid off. As an enforcement tool, garnishee orders are not very successful, as they have very strict requirements attached to them.
And if all information is not 100% correct, they will often be rejected. Examination notice If the creditor is unsure about the judgment debtor’s financial position, the judgment debtor can be asked to provide information about the debtor’s income and assets.
This is done with an examination notice or an examination order and can help determine whether to take further enforcement action and what form that action should take. First, the motion at court must be filed and then the debtor (or a director) served. The filing fee is approximately AUD 200 for an individual and AUD 300 for a corporation, and the service fee varies depending on the debtor’s location.
If the debt is more than AUD 5,000, bankruptcy proceedings can be brought against the creditor. If an individual is declared bankrupt, all of their property (with some basic living exemptions) comes under the control of a trustee.
The creditor may then lodge proof of their debt (the judgment) with the trustee to receive a share of the profits from the sale of the debtor’s property. Before commencing bankruptcy proceedings, the creditor should consider whether the debtor owns enough property to make declaring the debtor bankrupt worthwhile.
If the debtor owns real estate (check at the Lands Titles Office) or has a position that could be lost if declared bankrupt, then the threat of bankruptcy may force payment of the debt. The first step in bankruptcy proceedings is usually to serve the person with a bankruptcy notice.
A bankruptcy notice is a form requiring the debtor to pay the debt within 21 days. Once 21 days have elapsed from the service of the bankruptcy notice on the debtor, a creditor’s petition must be lodged in the Federal Magistrates Court.
The cost of bankrupting someone should be carefully considered as it may cost over AUD 7,000. Winding up a company Winding up is similar to bankruptcy.
To wind up a company, the creditor must prove that they are insolvent (unable to pay their debts) by issuing a statutory demand. If the judgment debtor does not respond to a statutory demand within 21 days, the creditor can file an application for a winding-up order. This is an expensive and complex way of enforcing payment of the debt and is usually considered only as a last resort.
5.2. Enforcement in movabe property
Writ for the levy of property A writ for the levy of property is an order for a sheriff to seize and sell at auction personal property (not land) belonging to the debtor.
The money from the sale of the goods is used to pay the judgment debt owed to the creditor. In many cases, the arrival of the sheriff with a writ will encourage the judgment debtor to avoid the sale of property by making arrangements to pay the creditor.
At this stage, the debtor can either apply to set aside the judgment, make an instalment application to the court or disagree with the outstanding amount of the judgment debt. The sheriff charges AUD 100 for each address visited and for each time that address is visited.
The cost for the sheriff to auction the seized goods is usually a flat fee of approximately AUD 75 but may be more in some areas due to advertising and auction expenses. If the sheriff needs to tow a car, the creditor will need to pay a deposit of around AUD 500, which will not be refunded.
If there are any special requirements, such as moving pianos, pool tables or heavy machinery, the creditor may have to pay extra to the sheriff. Any expenses that the sheriff incurs in enforcing the writ will be payable by the creditor.
The sheriff also charges a levy of 3% of any monies made from auctioning the seized goods, payable after the auction. Any amount payable will be added to the judgment debt.
5.3. Enforcement in immovable property
If the debtor owns real estate, the only possible way to access this asset is either through the bankruptcy of an individual or the liquidation of a company. This is discussed further in ‘Insolvency proceedings’.
6. Insolvency proceedings
6.1. General information
Insolvency is determined on a cash flow basis or the ability to pay debts. This corresponds with the definitions contained in the Corporations Act, which states that an entity is insolvent if it cannot pay its debts as they fall due.
The inability to pay debts is linked directly to the inability to obtain immediate cash and to debts being due and payable.
The aim of an insolvency proceeding is to pay out all creditors equally by liquidating the assets of the debtor company or collecting the enforceable income of the individual who is declared bankrupt.
A notice of winding-up application is issued to the registered office of a company when a creditor has filed in court an application to wind up that company.
This normally takes place after the creditor obtains a judgment debt or following the failure of the debtor company to comply with a statutory demand within 21 days. Once these events have started, the creditor may issue proceedings in the Federal Court or the Supreme Court to wind up the company.
The process for issuing these proceedings is brought under Section 459P of the Corporations Act. If the winding-up application hearing takes place and the court is satisfied that a company should be wound up, the court will make an order for the company to be wound up and appoint an official liquidator.
Normally, the appointed liquidator has consented to be appointed prior to the hearing at the request of the creditor (or their lawyers) making the winding-up application.
It is important that directors are aware that once a windingup application commences, it is normally based upon an act of insolvency having taken place.
If the winding-up action is not dismissed and heard before a court, the question of insolvency is usually taken into consideration. The creditors can then lodge their claims with the liquidator and attempt to take back any goods delivered under retention of title.
After the proceedings start, lodging claims is possible provided that it occurs before the liquidation is finalised.
The liquidator can either accept or dispute a lodged debt. If the claim is disputed, the creditor may file a claim in court to prove the justification of the claim when further documentation does not convince the liquidator to confirm the debt.
At the end of the proceeding, all creditors with confirmed debts may receive a dividend if there are any funds to be divided.
Please note that the petition creditor’s legal costs that placed the debtor company into liquidation will be considered a priority and get paid back to the creditor first before any dividends are shared.
6.3. Required documents
In order to lodge a claim, Cosmopolite Collections require:
- Copies of invoices
- Copies of contracts
- Copies of orders, order confirmations and delivery notes
- Copies of general conditions of sales, should there be any
- Copies of any other correspondence that may verify the claim.
6.4. Expected time frame and outcome
The whole duration of insolvency proceedings cannot be predicted in Australia. They can take from a few days to many years, depending on the complexity of the company and the liquidation.
6.5. Limited companies
Proprietary limited companies can either go into liquidation or company administration. Prior to being made insolvent, a company’s director may be able to call a halt to the liquidation proceedings and appoint an administrator to relieve the pressure and stress that they are under.
If this is not done and they do not respond to a statutory demand within 21 days, the creditor can file an application for a winding-up order and appoint a liquidator.
6.6. Unlimited companies / individuals
Unlimited companies are not very common in Australia and do not make a difference to the insolvency proceedings. They can be liquidated and the members bankrupted in the pursuit of a debt recovery.
Bankruptcy generally lasts for a period of three years for individuals but can be extended in certain circumstances. There is a permanent record on the National Personal Insolvency Index (an electronic public register that can be accessed by anyone for a fee).
Creditors are then notified of the bankruptcy, and unsecured creditors must stop pursuing them for payment of the debt.
A trustee will then be appointed, and in order to pay the creditors, this trustee will:
- Sell any assets of the debtor (although the debtor is able to keep certain types of assets)
- Mandate contributions from the debtor’s income once the debtor earns over a certain amount, which is currently AUD 54,518
- Investigate the debtor’s financial affairs and may recover property or monies that the debtor has transferred to someone else for inadequate consideration.
Unfair preferences usually involve transactions that are in favour of one creditor at the expense of others. The aim of the law is to ensure all creditors are treated equally by preventing any unsecured creditors from receiving an advantage over others.
The general time frame in which payments may be classified as preferential payments is six months prior to the date of bankruptcy or liquidation.
Please note that the time frame is a guide and contains specific provisions that may alter the period that preferential payments may be recovered, depending on several circumstances of each bankrupt estate or liquidation.
In addition, related party transactions may be void for a period anywhere up to four years prior to the date of bankruptcy or liquidation.
If the liquidator disputes these payments, the creditor may be forced to refund the liquidator and can only lodge the corresponding debt instead.
7. Arbitration and mediation
If the creditor and the debtor agree on an alternative dispute solution, they can attend an arbitration and mediation service.
These are all private tribunals that serve the community, commerce and industry by facilitating efficient dispute resolution methods, including arbitration, mediation, conciliation and adjudication. However, these are not widely used within debt recovery in Australia.