The information in this section is aimed at creditors who are owed debts of no more than $12 000 (which is the limit for claims in the Civil (Minor Claims) Division of the Magistrates Court of South Australia as of 1 August 2016).
The information is largely reproduced from our booklet How to Recover a Debt.
If you are owed a debt as a subcontractor or supplier in the building and construction industry, then you may be able to make a claim under the Building and Construction Industry Security of Payment Act 2009 (for further detail see Debts in the Building and Construction Industry).
Things to consider before pursuing a debt
Proving your debt
Whenever you are owed a debt you should have proof that the debt exists and proof of the debt’s value. You should keep copies of any agreements, invoices, emails, letters or other documents that show how much money is owed, and the time, date or circumstances of the debt.
When making a verbal agreement, write down any terms or conditions of the agreement and the time and date that it took place. In the case of a verbal agreement, it can be useful if there is a witness who saw the agreement take place or saw the debtor refuse to pay. Evidence such as a bank transfer or cheque records may also substantiate the verbal agreement.
Legal action to recover a debt must be commenced within six years from the date when the debt first came about. If, during that time, the debtor acknowledges or confirms the debt (by making a promise in writing signed by the debtor or their agent to pay the debt) then the six year period begins again from that date.
Communication with the person who owes you money is important. Most debts can be resolved if both parties remain courteous and reasonable. Keep in regular contact with the debtor by mail, email or telephone so the debt does not fall to the back of their mind. Keep a copy of any correspondence and a record of phone calls, including the date and time they were made and what was said.
Find out if there is a reason the debtor cannot pay you. Perhaps they can afford to pay you part of the debt each month. Remember, a court will never place a person under severe financial hardship to pay a debt, so there is no point asking for more than the debtor can afford. Debtors are more willing to pay their debts if the creditor is polite and does not make unreasonable demands. If the debtor feels they are being treated rudely or unfairly, they will often ignore requests for payment or pay other debts before yours. A debtor who genuinely cannot afford to pay will be honest with you so long as you treat them fairly.
When pursuing a debt there are strict rules which apply to your behaviour.
YOU MUST NOT:
This behaviour is likely to anger the debtor will not be as effective as being polite, and may be illegal. A letter of request is a way of formally asking for payment of the debt. It is not a necessary step in commencing legal action.
See Fair Trading Act 1974 s 43
If the debtor refuses to pay the debt, there are five options:
1. Offering the debtor an Enforceable Payment Agreement (EPA)
Instead of taking legal action, or at any stage after you have started legal action, you can offer an Enforceable Payment Agreement to the debtor. An EPA is an agreement for the debtor to pay the debt in instalments, and that the creditor will not commence a legal action or report the debt to credit referencing agencies. If the debtor defaults on the EPA, the EPA and an affidavit verifying it can be accepted as proof of the agreement and judgment can be given.
The EPA form (Form 1B) is available from the Magistrates Court or the Magistrates Court website.
2. Further negotiation
Further negotiation may be an attractive option, especially if the debtor indicates they may be able to pay the debt in the future. Use the same techniques described in ‘Negotiation with the debtor’ above. Consider suggesting an EPA as part of your negotiations.
Mediation is a process where both parties agree to sit down in the same room with a mediator to resolve their dispute. The mediator is a neutral third party who helps the parties discuss the problem. However, it is up to the parties themselves to arrive at a solution. Mediation can be seen as advantageous compared to going to court because:
The Magistrates Court offers a mediation service. This is available once you have sent the debtor a Final Notice of Claim (Form 1A) or you have commenced legal action in the court (see 'Giving notice of intention to sue'). If you come to an agreement as to how to pay the debt, ensure you put it in writing. An Enforceable Payment Agreement (Form 1B) can be used for this purpose.
4. Commencing legal action
There are several factors to consider before taking legal action.
Can you prove that you are owed money by the debtor? Do you have documentation of the debt such as an invoice, or witnesses who will confirm your version of events? Do you have a text message, letter or email from the debtor that confirms the debt?
A Minor Civil Claim in the Magsitrates Court can be settled at any time. However, it will be some months before a trial occurs if the debtor does not agree to pay the debt. Enforcing the judgment will take some time after this and the debt may not be paid in full straight away but in instalments.
If you are representing yourself, you would need to be available in court at the time set for your directions hearing and trial.
Fees need to be paid when:
All these costs are usually recoverable from the opposing party if you win.
5. Writing the debt off
If negotiation and mediation are not successful or possible, and if any of the above factors mean that you do not wish to take legal action, then you can choose not to recover the debt, that is, you can ‘write the debt off’. In some cases, a business debt may be tax deductible.
Sometimes as a result of sending a Notice of Intended Claim or following letters of demand it becomes clear that there is no real dispute that a sum of money is owing . If an agreement can be reached to repay by instalments there is now an option for the parties to enter into an Enforceable Payment Agreement (EPA).
The advantage to the creditor is that if the debtor falls behind in making two payments a claim can then be issued for the outstanding balance, but the debtor will not be allowed to file a defence to the claim. Instead the creditor will be able to obtain a judgment straight away which can then be enforced like any other judgment.
The advantage to the debtor is that if they abide by the agreement they do not get an adverse credit rating and they do not have to pay the legal costs associated with a claim being issued through the Magistrate's Court.
The first step in making a claim is to find out exactly who you should sue. If you do not put the correct person’s name or business name on the forms, you may have difficulty obtaining judgment or a judgment made in your favour may be set aside. If you do not find out the correct and current address, the debtor may not receive your forms and you may have to start the whole process again.
Similarly, you need to identify yourself correctly on the claim form. If the debt is owed to your business or partnership, use this name on the claim form.
An action can be brought against a person, a business (sole trader or partnership) or a company. If you are not sure who to sue, check any contracts, invoices that you have issued or emai or other type of correspondence. If you have an ABN for the person or entity, you can also check the Australian Business Register, which should identify if you have been dealing with a sole trader, partnership or company. Searching this register is free.
NB the Australian Business Register is different from the Australian Business Name Register - see further information below.
To find the address of a private person:
To find the business (sole trader or partnership) owner's name and the correct business name and address, you can search the Business Name Register on the ASIC Connect website (Business Name Register search). You should name the individual or partners (one or more names) followed by Trading As the business name: John Smith T/A John's Car Repairs.
For a company, you must use the company's name and registered address on any documentation, not the name and address of individuals running the company. To find the correct company name, you can search for it using the company ABN or ACN (these numbers should be on any documentation you have from the company) on the ASIC Connect website (Company Register search).
To get the registered address of a company, you can:
Further information can be obtained from ASIC on 1300 300 630.
Before commencing proceedings in court, notice of intention to sue should be given to the debtor. If no notice of intention to sue is given, the costs of filing the claim will not be recoverable. Notice of intention to sue can be given by EITHER filling out and serving a Final Notice of Claim (Form 1A) OR sending a Letter of Demand.
Final Notice of Claim
A Final Notice of Claim gives notice to the defendant that you intend to start an action to claim the debt owed to you. This form can be obtained from the Magistrates Court Registry or or from the Magistrates Court website online (click here). There is a cost for the form. The Registry will stamp the form, but you must post it yourself; the court will not do it for you.
After serving the form on the defendant, you must wait a minimum 21 days for a response before taking any further action. Send an Enforceable Payment Agreement with the Final Notice of Claim if you are willing to accept payment in instalments.
Letter of demand
A letter of demand is a formal request that the debtor pay you the money owed. A letter of demand can be used instead of a Final Notice of Claim but must include:
See below for a sample letter of demand.
There are two ways you can serve a Final Notice of Claim or letter of demand:
Keep a copy of the document and make a record of the date it was sent. A posted document is assumed to have been received by the person it was addressed to.
Registered Post provided proof of receipt of the document. You can organise and pay for your document to be sent by Registered Post at any post office. While using Registered Post shows the letter was sent, it is not strictly necessary.
If the debtor does not pay the debt or try to negotiate within 21 days of being served with a Final Notice of Claim (Form 1A) or letter of demand you can begin formal legal action. You must allow the debtor 21 day to respond before initiating any court action otherwise you will not be able to claim any costs if you win.
Fill out a Minor Civil Claim (Form 3), which you can get from the Registry or from the Magistrates Court website online (click here) and lodge it with the Registry. You will need four copies of the Claim. A fee is required to lodge the form.
Serve the claim on the defendant:
1. No response
If the defendant does not respond within 21 days, you can apply for judgment to be signed in your favour without the need for a court hearing. To do this complete a Request to Registrar (Form 18) and file it with the court with proof that a Minor Civil Claim (Form 3) has been served on the debtor, and that you have waited at least 21 days for a reply.
This judgment can be set aside if the defendant can show they did not receive the claim. This is why it is important to find out the defendant’s correct address, and, if there is any doubt about the address, to have a Sheriff’s Officer serve the claim or serve it personally yourself.
2. Admission of the claim
If the defendant admits the claim and agrees to pay, make sure you negotiate a specific final date for payment. If the defendant does not pay by the agreed date, follow the process set out above for having judgment signed, and then apply for an investigation hearing.
The defendant can admit liability for all or part of the debt owed by filing an Enforceable Payment Agreement (Form 1B) with the court. If the defendant only admits part of the debt and you aren’t satisfied with that, you can continue with the action. However, you may have to pay the defendant’s costs if the court awards you no more than what the defendant paid into the Court.
3. Denial of liability
4. Counter claim
Once a defence has been filed, the court will post out to both parties the date, time and place of a directions hearing. A directions hearing is not the trial but is held to determine the position of each party and to encourage a resolution of the matter. You do not need to bring any witnesses to a directions hearing. Mediation may be suggested by the court.
Examples of orders which may be made at a directions hearing are:
It is important that you understand and comply with any orders made by the court at the directions hearing. If you are confused about what orders the court has made, you may get a copy of the court record of your hearing from the Magistrates Court Registry. If you do not understand the order, you may ask at the Registry.
Most debt matters do not make it to trial. If your matter does make it to trial you should be prepared in the following ways:
You will be called into the courtroom when it is time to hear your matter. The witnesses will be asked to wait outside. You should stand whenever the Magistrate enters or leaves the court and address him or her as ‘Sir’ or ‘Madam’ or ‘Your Honour’.
The procedure for Minor Civil Claims is less formal than in most other courts. The Magistrate will conduct the hearing more like an inquiry, and will ask questions of the parties, ask to see documents, and ask any questions of any witnesses. Speak slowly and clearly as the Magistrate and their clerk will need to write down details. If you are confused about the procedure you may ask the Magistrate questions.
Lawyers are only allowed in certain circumstances (e.g. if the other party is a lawyer, or if all parties agree or the court is of the opinion that a party would be unfarily disadvantaged without a lawyer and gives permission) [See Magistrates Court Act 1991 (SA) s 38(4) and Magistrates Court (Civil) Rules 2013 (SA) r 13(4)].
Once the trial has finished the Magistrate will decide if the debt is owed to you. Whoever receives judgment in their favour has “won” the case.
If you have won, you should request the Magistrate award costs and interest on your claim. Judgment in your favour may be for the entire debt or part of it. A judgment in your favour means that the court recognises that you are owed the debt and that it must be paid.
However, a judgment is no guarantee that money will be paid and it is up to you to enforce the judgment. Even with a court judgment, you cannot force someone to pay if they do not have the money.
If the debtor owns real estate or other types of property of value, a Warrant of Sale of the property can be requested (if the debt is over $10,000). If the debt is less than $10,000 but you want to ask for a Warrant of Sale as the first step, you need to make an application to explain why you will not accept a payment arrangement from the debtor.
Before the Investigation Summons hearing, the debtor will fill out a form detailing their financial situation. This will include how much they spend on rent, bills, food and other expenditure. During the hearing you will have a chance to question the debtor on this information. The Registrar in charge of the hearing will then usually make an order for the debt to be paid in instalments. The court will only order the debtor to pay instalment amounts they can afford. If the court decides the debtor has no means to pay the debt, you may ask for an adjournment (usually for a year) so that the court can reassess the debtor’s circumstances at a later date.
You may wish to consider other orders to enforce the payment of a debt. These can be made at any time after the investigation hearing. Other orders will not be made if there is a payment agreement in place from the investigation or examination hearings.
Very few warrants for sale of real property will proceed to sales as the debtor will usually pay the outstanding amount before the property goes to auction.
If you wish to apply for a warrant of sale of real estate you must first do a search at the Lands Title Office to discover whether the debtor owns any land (there is a small fee for this service) and enter the details of the title on the form. You must also give a written undertaking that you will pay for any costs involved in the auction of the property. These costs are recoverable from the debtor upon sale of the land.
A warrant for sale of personal property authorises a Sheriff’s Officer to enter the debtor’s address and seize property of sufficient value to cover the debt. Certain items such as cars under a certain value, ordinary clothing and necessary household goods cannot be seized. Items which are under finance or jointly owned will not be seized. If the debtor is bankrupt, their property cannot be taken.
Only about a third of warrants for sale for personal property are successful in recovering any money at all. Therefore you should consider whether it is worth applying for a warrant for sale given that there are costs to issue and the carry out the warrant. Try to find out whether the debtor owns more than one car or any valuable assets.
To apply for a charging order you will need to do a search at the Land Titles Office to identify any property owned by the debtor. You will then need to make a Form 21 application. In the space provided write “charging order over (name of property) for the judgment debt of $...”.
Before you commence bankruptcy proceedings consider whether the debtor owns enough property to make declaring them bankrupt worthwhile. If they own real estate (check at the Lands Title Office) or if they have a position that they will lose if declared bankrupt, then the threat of bankruptcy may force payment of the debt. The cost of bankrupting someone should also be considered.
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. This form is available on-line from the Australian Financial Security Authority (formerly ITSA). The cost of issuing a Bankruptcy Notice changes every year so it is wise to check the AFSA website fees and charges page for any updates.
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 Circuit Court. There are fees associated with filing a creditors petition, which can be claimed back from the bankrupt estate, assuming that there are any assets for the trustee to seize. Current court filing fees for bankruptcy matters can be checked on the Federal Circuit Court's website fees page.
Sending someone bankrupt is a complex and expensive process. You should seek independent legal advice before commencing bankruptcy proceedings. Further information on bankruptcy proceedings can be obtained from the AFSA website Sending someone bankrupt page. Information about filing creditor’s petitions is available at the Federal Court Registry, Level 5, Roma Mitchell Commonwealth Law Courts Building, 3 Angas Street, Adelaide or from the Federal Circuit Court website creditor's petitions page.