Effective debt collection for businesses
- March 6, 2019
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Cashflow management and debt collection are key to running a successful business. Before you call a debt collection agent, consider this – one of the most effective ways to recover monies owed by a company is to issue a Creditor’s Statutory Demand.
There are three main criteria which must be present:
- the debt must be against a company (ie not a sole trader or partnership);
- over $2,000; and
- there cannot be any genuine dispute about the debt (ie there are no problems with the product or service which are subject to the amount payable by the debtor).
Once we serve the Statutory Demand with the supporting affidavit signed by our client, the Statutory Demand places the onus on the debtor company to either pay the amount demanded or enter into a compromise agreement with the creditor within 21 days (eg a payment plan).
The debtor may apply to the Court to have the demand set aside, however this may be a costly process, and they will have to show that there is in fact a genuine dispute as to the existence of the debt and/or that they have an off-setting claim against the creditor.
If the debtor simply ignores the demand, then 21 days after it is served, the debtor will be deemed to be insolvent. In the case of Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd, the High Court confirmed the legal position that once the time for compliance with a statutory demand has expired, no application can be made by the debtor to extend the time for compliance.
If the debtor fails to comply with the demand within 21 days, the creditor has a right to apply to a Court for an order that the debtor company be wound up and a liquidator appointed.
We will publish an insolvency notice on the ASIC website notifying any other creditors that a company is in the process of being wound up.
If the debtor company continues trading, the directors could be committing an offence under the Corporations Act and they would also be personally liable for debts incurred while the debtor company is trading while it is insolvent.
Companies that receive Statutory Demands and their directors usually take them seriously. This leads to either payment of the debt or at the very least the debtor entering into a payment arrangement with our client in the majority of cases.
If you are owed more than $2,000 by a company and they are just not paying, we can help.