A guide for clients – How to recover debts owed to you

When you have invested or otherwise provided money to another entity, or when you have provided goods or services before payment is received, there is always a chance that the entity (a debtor) will be unable to pay you the money that you are owed. Often RCR Lawyers are engaged by companies, individuals, and other entities to recover debts that they are owed. There are several ways to recover debts owed to you and there are various options available to solicitors. This is a guide for clients regarding the process of recovering debts.


Letters of Advice


The first step is to confirm all of the relevant details with the client. This will often take the form of a face-to-face meeting (generally referred to as an Initial Consultation), although this can also occur by phone call, or the relevant information could be provided by email, letter, or file transfer from another law firm. In any event, confirming all of the relevant details of the matter is one of the keys to success.


This information-gathering stage will usually require the solicitor to ask questions proactively because clients are not always aware of which details are relevant. The instructions can be reduced to writing in a Letter of Advice, or a Memorandum, which provides:


  • The facts that the advice is based upon;
  • The relevant legislation, regulations, case law, or terms of the relevant contract;
  • An application to the current factual circumstances;
  • A conclusion; and
  • Advice regarding the next steps.


Often clients want to jump right into a response letter to the other side, however, the Letter of Advice is a valuable first step as it usually results in key strengths or weaknesses being identified at an early stage.


Letters of Demand


The next step in a debt recovery matter is usually to send a Letter of Demand, which will contain all of the relevant details of how the debt arose, why our client believes they are owed the money, why the law or the relevant contract indicates that our client is owed the money, and a demand for payment to a named account. Law firms often include their Trust Account as the account for the funds to be paid into, so that the firm can confirm when a payment is made, the amount paid, and so that any legal fees can be paid from this amount. Note that any amounts paid into a firm’s account are usually to the firm’s Trust Account, meaning that those funds are held in trust for the beneficiary, which is the client.




The next step will usually be further correspondence between the parties and their legal representation, which may result in the debtor making payment of the debt after some persistence, denying the existence of the debt, raising a dispute about the debt, raising an offsetting claim, or not responding at all. It is a common occurrence in certain industries for debtors to raise a dispute regarding the work provided in order to reduce the amount on the invoice. Therefore, it is highly recommended for parties to secure payment in advance to reduce the chance that the debtor will raise a dispute and not make payment at a later stage.


Another workaround would be to utilise an escrow service, a bank guarantee, or a smart contract on a decentralised blockchain, whereby an objective third party entity holds the money, and they are under instructions to only release the money when certain conditions are met, such as when the work is completed and approved by an independent third party.


Statutory Demands


When the debtor is a company, and the reason for the debt not being paid is likely to be the insolvency of the debtor, and there is no genuine dispute about the existence of the debt, there is an option provided under the Corporations Act 2001 (Cth) (Corporations Act) in section 459E. Various other technical aspects must also be met (which may be discussed more in-depth in another article), such as there being no off-setting claim, a demand for payment within a reasonable timeframe being made and the debtor has failed to comply, and the amount being claimed exceeding the statutory minimum, among other requirements.


Once the Statutory Demand is issued, the Debtor has 21 days to make payment (noting that the timeframe begins when the demand is served, that is, received by the debtor), failing which the debtor company is presumed insolvent, allowing an application to be made to the Court to wind the company up in insolvency.


Statutory Demands are contained in part 5.4 of the Corporations Act, which is titled Winding up in Insolvency. It has been established by the Supreme Court in several cases (such as Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497 at 32) that where Statutory Demands are used for the coercive collecting of disputed debts from solvent companies, this may amount to an abuse of process. The debtor company can make an application to the Court to set aside the Statutory Demand, based on a genuine dispute existing or for another reason, and a costs order may be obtained against the entity issuing the Statutory Demand. Therefore, Statutory Demands must only be issued in a very narrow range of cases where all of the technical aspects have been met.


Commencing Proceedings to recover debts owed to you


One of the most powerful options available when seeking to recover debts owed to you is to commence legal proceedings against the debtor in the appropriate Court. This will depend on the amount of the claim, the location of the relevant conduct and the parties, and other factors such as whether Commonwealth legislation is to be relied upon. Preparing the necessary documents such as an originating claim and statement of claim, filing the claim with the Court, serving the defendants, preparing a Reply to the Defence, disclosing relevant documents, preparing and appearing at any interlocutory applications, and having the matter heard before the Court, whether in a preliminary hearing or at an eventual trial of the issues in dispute, is a time-consuming, costly, and often challenging experience for clients.


There will also be a consideration of whether the debtor is likely to have the ability to pay the debt if the client is successful and obtains an order from the Court. Obtaining an order against an entity that is unable to pay the debt results in the client being back at square one, now having incurred the time and expense of commencing proceedings, only to once again be seeking to recover a debt owed to them. Enforcement of a judgment debt is a topic for another article and we recommend that you seek legal advice in this regard.


Please contact our debt recovery and litigation lawyers now to discuss your options in a no-obligation consultation with the experts. We will guide you step-by-step and ensure that you obtain the best possible outcome for your circumstances. Please call our Brisbane lawyers at (07) 3009 8444 or our Sydney lawyers at (02) 9307 8900 to discuss your matter further.


The blog published by Rostron Carlyle Rojas Lawyers is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the author. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR Lawyers for any legal matters.

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