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In our previous blog, we discussed steps that you can take to protect your money and secure your cash flow.  If you have exhausted these options and are still not able to recover your money, then you may consider pursuing your debtor through the Court. Recovering money from debtors through the Court can be a frustrating and costly experience. Accordingly, it is important that you get the debt recovery processes right the first time.

This blog will provide an overview of the steps required to be taken under the new Uniform Civil Rules 2020 (Court Rules), before you can pursue a debtor through the Court. These steps apply to debts over $12,000.

Under the Court Rules, there are several re-action steps that must be undertaken before a court proceeding can be commenced. If you fail to comply with the Court Rules, it may affect your ability to claim costs from your debtor and / or you may be liable for their costs for certain steps in the proceedings. You may also find that a Magistrate or Judge may make an adverse order against you, requiring you to go back and carry out a certain Pre-action step if you have not done it.  In such circumstances, the court proceedings may end up costing you more time and money than if you had complied with the Court Rules in the first place.

The Pre-action steps are set out below: 

  • Pre-action Claim

A Pre-action Claim must be served on the debtor and allow a period of 21 days for them to respond. This Claim may also be known as a letter of demand.

Pursuant to the Court Rules, the Pre-action Claim must outline specific details relating to the debt. For example, it should include (but is not limited to):

  • the full name and address of both you and the debtor;
  • details of the agreement which gave rise to the debt, including details of the service and / or product that has been provided and the payment terms;
  •  the total amount owed by the debtor;
  •  attachment of any contract or other evidence with supports your claim to the debt;
  • Identify which Court you intend to bring the legal proceedings;

The Pre-action Claim must also include an offer of settlement and a proposed time for a meeting for negotiating settlement of the dispute. 

  • Pre-action Response

Under the Court Rules, your debtor will have 21 days to respond to the Pre-action Claim and it must do so by serving a Pre-action Response on you.  The Pre-action Response should set out whether your debtor accepts your offer or rejects it. If your debtor rejects your claim, they are required to provide the reasons for rejecting it.

If a debtor wishes to bring a counterclaim against you (ie. if services and / or products provided were defective), then the debtor must set out the terms of the counterclaim in the Pre-action Response (including providing any experts reports or other correspondence to support the counterclaim). If the debtor does identify a counterclaim, it should include in the Pre-action Response, a counteroffer to resolve both the debt and counterclaim.

The Pre-action Claim must also include the debtor’s response stating whether the proposed meeting date is acceptable. If not, the debtor must propose an alternative meeting date that is no later than 7 days after the initial meeting date proposed by you.

  • Pre-action Meeting

If the debt and / or any counterclaim brought, cannot be resolved in the Pre-action correspondence then a Pre-action Meeting is to be convened. The Pre-action Meeting must be held within the period prescribed by the Court Rules (namely within 21 days of the last Pre-action correspondence between the parties) and both parties are required negotiate in good faith with a view to resolving the dispute rather than commence court proceedings. If the parties are not able to reach an agreement at the meeting, a Pre-action Meeting report must be prepared in accordance with the Court Rules.

It is important to note that the parties can reach an agreement to resolve the debt and / or dispute at any stage in the Pre-action Court process. If any dispute is resolved and / or your debtor agrees to pay the money owed to you but by way of a payment plan, we strongly recommend that you have a written agreement to record the terms agreed by both parties. The written agreement will become a legally binding document and will ensure that your debtor pays you the outstanding amount within the agreed period and protect your rights to recover the money in the event it fails to do so.

If you cannot resolve the debt and / or any dispute in the Pre-action process , you can then issue a claim in the Court against your debtor to recover the money owed to you. Commencing legal proceedings can be costly and time consuming and it is important to consider whether it is commercially viable to recover your money through the Court before you make such a decision.

In our next blog, we will discuss what happens when you commence a Court action against your debtor to recover monies owed to you.

If you or your business are having issues with bad debts, please contact us at Clarke Hemmerling Lawyers on (08) 8333 2130 and let us advise you on your legal position and the options available to you. We can help you recover monies that are owed to you.

This Blog was written by Renee Hii, Solicitor at Clarke Hemmerling Lawyers.

This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you.  Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.