Can my business recover debts during the coronavirus period?
The Government has put in place measures to ‘hibernate’ Australian business during the coronavirus crisis. That does not mean that your business cannot take steps now to recover outstanding debts.
WHAT HAS CHANGED?
The Federal Government has made it more difficult to enforce debts during the ‘hibernation’ period by:
- Increasing the minimum amount of the debt that can be claimed in a creditor’s statutory demand or bankruptcy notice to $20,000.
- Providing 6 months for a response to a creditor’s statutory demand or bankruptcy notice (increased from 21 days).
However, these changes do not prevent your business from recovering payment of your outstanding invoices. There are many other options available to enforce debts (in addition to the issue of a creditor’s statutory demand or bankruptcy notice).
WHAT HASN’T CHANGED
The debt recovery process remains unchanged.
If a debt remains unpaid or is disputed, court action needs to be taken to obtain a court judgment. This process takes, on average, about 12 months to be completed if the debt is disputed (or 28 days if the court action is not defended).
At the time of writing this article, there have not been any restrictions imposed on taking court action against a company or individual for an unpaid or disputed debt owed to a business. However, in NSW, the courts have slowed down the process to comply with social distancing measures to keep all those involved in the process safe. In person hearings have, where possible, been replaced by virtual hearings**.
Once a judgment has been obtained, there are many options available to enforce debts including:
- Garnishee orders.
- Writs against land.
- Writs against assets.
- Charging orders.
The method of enforcement needs to be tailored to suit the particular circumstances of the debtor.
CONCLUDING COMMENTS AND TIPS
Now more than ever, cash flow is vital to a businesses’ continued success. To increase the chance of recovering outstanding invoices as soon as possible (or at the other side of the pandemic), steps should be taken now to collaborate with debtors to enter suitable payment arrangements. Failing this, court action should be commenced to get the ball rolling to obtain a judgment so that your business is in the best position to enforce the judgment when the opportunity arises.
In the meantime, to ensure that your business can survive, consider not supplying goods and services on credit (or reducing the amount of any credit limit that is given), request payment on delivery, offer a discount if your invoice is paid early, or ask your customer to provide additional forms of security for payment.
WE’RE HERE TO ASSIST
We regularly assist to recover outstanding debts owed to businesses. Unlike debt recovery agents, we do not charge a commission based on a percentage of the debt that is recovered. For most debt recovery matters, we offer fixed fees for certainty and peace of mind.
For more, contact us today for an initial general consultation so we can discuss your circumstances and review your options together.
Disclaimer: This article is intended to provide general information in summary form only. The contents do not constitute legal advice. Formal legal advice should be obtained for your specific matter.
** Except for civil hearings of the General Division of the Local Court of NSW, which have been postponed until at least the end of September 2020