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When is it too late to collect a debt?

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

When life gets busy, sometimes we put off important jobs to deal with more pressing matters. But when it comes to debt collection, this can only be put off for so long before debts become ‘statute barred‘. At this point the debts the subject of debt collection are no longer capable of being collected.

Most States and all Territories have time limits within which debt collection must be completed. In New South Wales, if too much time passes and the limitation period expires, section 63 of the Limitation Act 1969 (NSW) extinguishes the debt, meaning recovery of the debt is no longer possible..

In NSW, as in most states, the debt collection clock generally starts running from the date the cause of action first accrues. This is often the date of default; when the debtor fails to repay the debt, although there are some traps for the inexperienced in debt collection (for instance debts without a due date or which are ‘at call’). Once a default has arisen the creditor then has 6 years to commence the debt collection process formally, after which time the legislation restricts recovery, the debt becomes statute barred, and debt collection almost certainly impossible.
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Debt Collection – What we are hearing from our clients

Debt Collection – What we are hearing from our clients

Regardless of which industry they operate in, clients are expressing to us a sense of dislocation from their usual business networks. Social isolation has meant that feedback from customers, practical guidance from industry associations and even gossip from colleagues has been harder to come by. Under these pressures it is easy to feel as though your business challenges are unique to you.

If COVID-19 has led you to put debt collection down your business priority list you are not alone. Most of the business owners we have spoken to are:

  1. Not commencing any new legal action against debtors, and/or
  2. Ceasing debt collection activities all together, regardless of whether the debtor has provided an explanation for the delay in paying.

The current pandemic has, and indeed should, cause a rethink of debt collection practices. However, this is not the same as abandoning debt collection all together. It is possible to continue a disciplined and rigorous approach to debt collection whilst taking into account the difficulties that your customers are facing in light of the current restrictions. You might for example consider implementing a freeze on accumulating interest on outstanding debtors until economic conditions improve. You may also consider putting certain customers on a “cash on delivery” basis for supply in respect of orders going forward, on the basis that you agree not to pursue amounts currently in debt.
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Money for Nothing? Or, Something Instead of Nothing.

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Before commencing potentially costly court proceedings, there are a number of debt recovery options which should be canvassed by a wise creditor. One such option is that of a payment plan, or payment arrangement.

The benefits of a payment plan include;

  1. Regular payments from the debtor assisting with cashflow;
  2. Debtors are more likely to be able to repay a debt when it is broken down into smaller repayments;
  3. Potentially keeping relationships with valued customers;
  4. Opens up a channel of communication with the debtor;
  5. Avoiding disputes over the amounts owing.

A payment plan can take the form of an informal arrangement, or even just simply letting the debtor pay the debt off in smaller amounts without objecting or suing for the balance. On the other hand the terms may be set out in a formal deed.  There are advantages and disadvantages to both approaches, and much will depend upon which of the benefits set out above are most attractive to the creditor.
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Winter is Coming – COVID-19 Changes Insolvency Law

By Anica Cunanan, Law Clerk at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

The unprecedented financial impact of COVID-19 has forced the laws surrounding insolvencies to change – well at least temporarily.  Analogous to the process of containing the virus, the Government is currently deciding on temporary changes to also flatten the curve of the inevitable insolvencies following this pandemic.

The Treasurer has been given a temporary instrument-making power in the Corporations Act 2001, for a period of six months, in order to provide temporary relief to distressed businesses. This was announced by the Government on 12 March 2020.

By way of summary these changes may include the following:

  1. A temporary increase in respect of the debt for which creditors may issue a statutory demand – from $2,000 to $20,000;
  2. Further, extension of the time for compliance with a statutory demand – from 21 days to six months;
  3. An increase in the threshold for initiating bankruptcy proceedings;
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Debt Recovery – Why should I use a Lawyer?

By Darrin Mitchell, a Senior Associate in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Meet Darrin

Aside from being a lawyer, Darrin has been involved in debt recovery for 30 years, helping companies and individuals recover monies due and owing to them.

Before Darrin was admitted as a lawyer, he worked for a finance company and a mercantile agent so he saw first hand the nuts and bolts of dealing with debtors.

This experience has given Darrin a boost in assisting clients to recover monies in-house up to the management of a full blown hearing where the debtor defends everything from non-supply of goods to alleging that the goods supplied were defective.  It also allows Darrin to give advice on the implications of debt recovery, so clients can make practical, commercial decisions.

Why should I use a lawyer to collect my debts?

The answer is that in most cases you should not use a lawyer.  Most lawyers don’t have the X factor that will get a debt recovered as for most, debt recovery is just one of many areas of law listed on the firm’s “We Do …” list on their webpage.
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Creditor’s Requests – When is it unreasonable?

By Bonnie McMahon, an Associate in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Many external administrators and trustees will have been receiving requests from creditors under section 70-45 of the new insolvency practice schedules, which were first introduced into the Corporations Act and Bankruptcy Act in September 2017.

This new provision allows creditors to request information, reports or documents from an external administrator or trustee.

At this stage, there is not a lot of guidance as to when external administrators and trustees can refuse to comply with these requests, especially as the scope of section 70-45 has only been considered by the Court in one reported case to date.

However, there is some guidance in the Insolvency Practice Rules which insolvency practitioners should be aware of, especially if they are concerned that complying with a creditor’s request may open them up to criticism by another creditor or a third party.

Section 70-15 of the rules, sets out when a creditor’s request will be unreasonable.
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Creditor’s statutory demand issued pending negotiations is upheld

By Andrew Behman, an Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group

In a recent matter which we acted for the Defendant (In the matter of Precise Training Pty Ltd [2018] NSWSC 1383), we successfully defended an application to set aside a creditor’s statutory demand issued by the Chief Commissioner of State Revenue (“the Commissioner“) against Precise Training Pty Ltd, the Plaintiff.

Facts

The Commissioner issued a number of assessments for payroll tax to Precise Training in 2015 as a member of a larger tax group. Precise Training disputed the assessments and lodged an objection on 10 December 2015. The Commissioner disallowed the objection and proceeded to enter into negotiations for payment of the assessments.

Precise Training lodged a second objection on 18 July 2016 and requested that the Commissioner undertake not to commence recovery proceedings while the second objection was being decided and the parties were in negotiations.

On 10 November 2016, the Commissioner responded to the request for an undertaking advising that “recovery proceedings have been on hold” while the objection is being decided and the parties are in discussions to settle the disputed assessments.

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DEBTOR’S PETITION OVERHAUL – JANUARY 2020

By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

An individual overwhelmed by debt (“the Debtor”) may seek the protection of the Bankruptcy Act 1966 (Cth) (“the Act”) and file a Debtor’s Petition.

Section 55 of the Act provides that an individual may present to the Official Receiver a petition against himself/herself in the approved form and accompanied by a Statement of Affairs which provides details of the person and sets out the person’s financial affairs.

On 1 January 2020 the Official Receiver commenced a new online process for the lodgement of debtor’s petitions in an online portal. A new version of the approved form has been created which combines the petition and the Statement of Affairs.  A sample of the new approved form can be found here.  A Debtor is required to set up an online account to complete the form.  For online access to create an account see here.
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