How long can you be chased for a debt?

Have you ever wondered how long you can be chased for a debt or how long you have to recover your unpaid debts?

In most states in Australia, the limitation period for debts is for six (6) years, except in Northern Territory where it is for three (3) years.  This means that the creditor can pursue the debt from six (6) years from the date of when:

  1. The debt became due and payable; or
  2. The last date a payment was made towards the debt; or
  3. The date the debtor acknowledged in writing that they owed the debt.

It is imperative that you get the calculations correct, as failure to establish the limitation period, may mean that you will be unable to successfully recover your debt and the debt will become statute-barred.  

A statue-barred debt is when the debt becomes older than the limitation period in your State or Territory (being six (6) years in all states in Australia, except in Northern Territory where it is three (3) years).  Therefore, a creditor will no longer have legal right of recovery for a statue-barred debt. However, if the debtor acknowledges the debt in writing, or makes any payments towards the debt, then this resets the clock on the six (6) year limitation period.

Therefore, if you have any unpaid debt, we strongly suggest that you act fast, as the longer the time passes, the less chances you have of recovering the debt.


Should you require any assistance in regards to unpaid debt, contact our debt recovery lawyers now to discuss your options in a no-obligation consultation with the experts. We will guide you, step by step and ensure the best possible outcome for your circumstances.  Call our Brisbane lawyers on (07) 3009 8444 or our Sydney lawyers on (02) 9307 8900. Alternatively, click here to get started.

The blog published by Rostron Carlyle Rojas 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 blog publisher. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.


Three Ways to Ensure your Business is Viable Post COVID-19

In 2020, COVID-19 forced most Australian businesses to change how they operate and to seek assistance, with 55% accessing wage subsidies and 38% accessing other government support measures. Given that JobKeeper permanently ends on 28 March 2021 and other government support is finishing up, it is important that you are informed about the full extent of COVID-19’s impact on your business and certain that your business is still viable. Here are three steps that might assist you:

  1. Keep Your Books & Tax Lodgments Up to Date

Keeping an accurate record of all your business’ books and expenses and ensuring that these are correctly lodged with the tax office is the best way to know your business is turning over a profit. A business that keeps its books up to date will know straight away if their income has dropped and they are still viable.

Additionally, the tax office is often the first creditor to pursue unpaid taxes from failing businesses and will be sure to notify you that your debts are due and payable.

  1. Seek Professional Financial Advice

Accountants and other financial advisors are able to provide sound advice about the business’s cash flow and whether the business is profitable. Financial advisors can also assist in restructuring the business and its debts to avoid potential insolvency.

The Federal government’s small business insolvency reforms have set up a restructuring process for small businesses that allows companies to continue trading as the restructuring practitioner develops and proposes a plan to the creditors. For more information about the Small Business Restructuring reforms click HERE.

  1. Pay Invoices on Time

Overdue invoices, payment plans and the failure to respond to demands are all indicators of insolvency that the Court will look at when considering a business’s solvency. To avoid being deemed insolvent by the Court and incurring unnecessary legal costs defending a debt recovery claim, businesses should ensure their invoices are paid on time.

What Now?

If you would like to discuss how we can assist your business post COVID-19, please contact Levi Smouha at Rostron Carlyle Rojas Lawyers on (07) 3009 8444.

Contact our insolvency lawyers now to discuss your options in a no-obligation consultation with the experts. We will guide you, step by step and ensure the best possible outcome for your circumstances.  Call our Brisbane lawyers on (07) 3009 8444 or our Sydney lawyers on (02) 9307 8900. Alternatively, click here to get started.


Instalment Contracts and Forfeiture of Deposits

Business Due Diligence

A recent matter reminds us all that in a hot real estate market and rising prices, any delays in settlement can be a fundamental breach. However-not all may be lost if there is an instalment contract.

We recently acted for a buyer of an off the plan property on the Gold Coast who initially signed a contract for $2,000,000 in 2017.

A deposit was paid of 10% of the purchase price at the time of signing.

4 years later when the developer called for settlement, the buyer’s financier was not ready to settle and sought a short extension to settle.

The developer refused to grant the extension, and purported to terminate and forfeit the deposit of $200,000 on the basis that the contract expressly provided time was of the essence and the failure to settle on the due date was a fundamental breach of the terms of the contract. The developer then offered to re-sell the property to the buyer at what it considered to be the current market value of $2,500,000-an increase of $500,000 ! Clearly, the developer had simply sought to take advantage of the market conditions and the increased value.

Naturally the Buyer was less than impressed and sought our advice.

Upon further investigation, it transpired that some months before the settlement was due, the developer’s had offered to build an additional storage area for the buyer attached to its basement carpark for $3,500. This additional storage area was offered on the basis that it would be “on title” and that the buyer would have exclusive use, and the CMS would reflect the additional space.

This offer was accepted and the additional storage area fee was paid.

Instalment Contracts definition

Was the additional storage space fee payment a payment “other than a deposit”?

In our view, this additional storage fee triggered the instalment provisions of the Property Law Act.

Under the Property Law Act 1974 (Qld) (PLA), section 71 defines:

a “deposit” as follows:

deposit” means a sum—

(a) not exceeding the prescribed percentage of the purchase price payable under an instalment contract; and

(b) paid or payable in 1 or more amounts; and

(c) liable to be forfeited and retained by the vendor in the event of a breach of contract by the purchaser.”

an “instalment contract” as follows:

“instalment contract” means an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments.

a “prescribed percentage” as:

“prescribed percentage” means—

(a) for a contract for the sale of a proposed lot—20%; or

(b) otherwise—10%. 

30 days notice to terminate required

The effect of this was that the Developer had failed to terminate in accordance with S 72 which provides:

S71 (1) An instalment contract shall not be determinable or determined because of default on the part of the purchaser in payment of any instalment or sum of money (other than a deposit or any part of a deposit) due and payable under the contract until the expiration of a period of 30 days after service upon the purchaser of a notice in the approved form.

Following our robust representations to the developer’s legal representatives and threats of court action, the developer relented it position and offered to re-sell the unit at the original contracted price and credit the forfeited deposit to the new contract.

Our client buyer refused this kind offer and sought an immediate refund of the deposit, storage fee and interest. This was agreed upon and paid.

But for the fact that the additional storage fee made the contract an instalment contract, the developer was entitled to terminate and forfeit the deposit.

The matter was a timely and stark reminder that in a rising market with property values rapidly escalating, buyers must have their finance in order to settle on time or face the possible termination and loss of their deposits. However-in certain circumstances, and with the benefit of good legal advice, it may be possible to avoid the drastic consequences of a purported termination. It also emphasises the need for developers to  be aware of the consequences of accepting additional payments “other than” deposit monies before deciding to terminate.

If you have any queries on these matters-please contact us;

QLD: 07 3009 8444
NSW: 02 9307 8900
Email: [email protected]


Small Business Restructuring Reforms Now in Effect

On 1 January 2021, a number of amendments to Chapter 5 of the Corporations Act (2001) (Cth) came into effect, establishing a new framework of Australian insolvency law to better serve small businesses as they try to cope with the economic impact of COVID-19. 


  • Businesses with liabilities of less than $1 million will be entitled to a new debt restructuring and liquidation process, aimed at providing faster and lower cost pathways for businesses in financial distress. 
  • The reforms introduce a debt restructuring process that allows business owners to retain control of their company while a restructuring practitioner develops a debt restructuring proposal. 
  • The small business insolvency reforms are aimed at increasing the rate of successful restructures as well as reducing the number of financially distressed businesses entering voluntary administration and liquidation. 


Small businesses experiencing financial distress should note three key reforms to the Australian insolvency law that might be available to them:

  1. A new debt restructuring process to provide small businesses with a faster and less complex mechanism for financially distressed, but viable, companies to restructure their existing debts;
  2. A new simplified liquidation process for small businesses to allow faster and lower-cost liquidation, increasing returns for creditors and employees; 
  3. Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to the needs of small business. 

Small Business Debt Restructuring Process

The most significant insolvency law reform is the introduction of a new debt restructuring process for small businesses (Restructuring Process). Under the new debt restructuring model, eligible companies are able to approach a registered small business restructuring practitioner (Restructuring Practitioner) to assist in reviewing the business’ financial affairs and developing a restructuring plan to be put forward to the creditors within 20 days of their appointment. 

Once the plan is put forward, creditors are given 15 days to vote on the plan, after which the plan is either implemented and distributions are made according to the plan’s terms, or the company may resolve to go into some other form of external administrations (voluntary administration or the small business liquidation process, as discussed below). 


A company will be eligible for the Restructuring Process where:

  • Its liabilities are than less than $1 million (any liability that is not contingent)
  • It has not been the subject of a separate Restructuring Process in the past 7 years
  • It is not currently the subject of other forms of external administration. 

Additionally, before a Restructuring Practitioner may propose a restructuring plan to the company’s creditors, they must ensure the company:

  • Has paid its employee entitlements due (including its employees’ superannuation); and 
  • Has its tax lodgements up to date (this includes returns, statements applications and any other documents required under the taxation law, but this does not require all tax debts to be paid where the lodgements are up to date). 

Who May Act as a Restructuring Practitioner?

As the law currently stands only registered liquidators are permitted to consent to an appointment as a Restructuring Practitioner. However, it is the intention of the legislation to create a new class of registered small business Restructuring Practitioner, under the Insolvency Practice Rules, that solely focuses on small business restructuring.

Additionally, certain classes of persons are excluded from acting as a Restructuring Practitioner, including creditors of the company over the value of $5,000, related entities or auditors of the company. 

Powers of the Restructuring Practitioner and the Company

The small business restructuring process allows the company to continue trading in the ordinary course of business under the control of its owners, which is overseen by the Restructuring Practitioner while a debt restructuring plan is developed and proposed to the Company’s creditors. Any trading outside the company’s ordinary course of business requires the prior approval of the Restructuring Practitioner. 

The role and function of the Restructuring Practitioner include: 

  • Examining the company’s financial records and determining if the business is viable;
  • Assisting the company in developing a debt restructuring plan to restructure its debts; 
  • Proposing the plan to the company’s creditors; and 
  • Managing the disbursements if the plan is approved. 

It is the Restructuring Practitioner’s responsibility to remain as an independent third party and to ensure that the creditor’s rights are represented and protected, this includes preserving the rights of secured creditors and treating similarly ranking creditors consistently. 

Only creditors who are not related entities may vote on the restructuring plan, and in order for it to be approved, the plan requires the majority of value of the creditors to vote in favour. If the proposal is successful it binds all creditors. 

Once the plan is approved, the practitioner remains in his position and administers the plan according to its terms. If the plan is voted down, the process ends and the company may proceed in an alternative form of external administration – this may include the simplified liquidation process set out below. 

New Small Business Simplified Liquidation Process

The second key reform which came in effect on 1 January 2021 is the new small business simplified liquidation process, which gives eligible companies access to a faster and cheaper alternative to the standard large scale, complex liquidation process. 

Details of the Simplified Liquidation Process

Where a liquidator has been appointed pursuant to a creditor’s voluntary liquidation and they consider on reasonable grounds that the company meets the eligibility criteria, the liquidator may choose to adopt the small business liquidation process rather than the standard creditor’s voluntary liquidation process. 

The simplified liquidation process is faster and simpler than the standard process, with the aim of a greater return to the company’s creditors and employees. Under the new process:

  • the liquidator is not required to submit a section 533 report to ASIC on potential misconduct unless there are reasonable grounds that misconduct has occurred. 
  • the liquidator is not required to hold formal creditor’s meetings and can instead distribute information to creditors, and proposals for voting, electronically. 
  • The unfair preference voidable transaction provisions are restricted to prevent the liquidator pursuing claims against unrelated entities.
  • The system of dividend distribution and proof of debt submission is simplified. 


In order for a company to be eligible for the simplified liquidation it must satisfy a number of requirements under the legislation including:

  • The company must already be in liquidation pursuant to a creditor’s voluntary liquidation.
  • The company must have liabilities less than $1 million.
  • The company must have its tax lodgements up to date (returns, notices, statements and applications as required by taxation laws). 

Creditors may also request in writing that the liquidator not follow the simplified liquidation process within 20 days of the event triggering the simplified liquidation process, and the liquidator must cease the simplified liquidation process if the eligibility criteria are no longer met. 

Complementary Provisions to Support the Insolvency Reforms

In addition to the debt restructuring process and the simplified liquidation process, a number of other amendments have been made to the Corporations Act to assist insolvency practitioners and distressed companies to transition into these reforms. 

Temporary Relief for Companies Seeking a Restructuring Practitioner

To assist in the transition into the small business reforms and as insolvency practitioners become more familiar with the processes, from 1 January 2021 until 31 March 2021 eligible companies are able to declare their intention to utilize the small business restructuring process through ASIC’s published notices website. 

If a company declares their intention to access the Restructuring Process with ASIC, the insolvency relief that applied in 2020 (extended compliance period for statutory demands and temporary protection from insolvent trading liability) will continue to apply until they are able to engage an eligible Restructuring Practitioner before 31 March 2021.

New Small Business Restructuring Practitioner

As the law currently stands, only registered liquidators are eligible to act as Restructuring Practitioners, however, under the insolvency practice rules a new classification of insolvency practitioner will be created that will solely focus on small business restructures.

To streamline the small business restructuring process, the new classification of practitioner will have their practice limited to small business restructurings only and will be offered to registered chartered accountants, in addition to insolvency professionals. It would seem the aim of this new classification is to try to increase accessibility and supply of available practitioners to meet potentially higher demand for small business debt restructuring. 

More Reforms

Other complementary provisions include:

  • Key sections of Chapter 5 of the Corporations Act have been made “technology neutral” so to allow external administrations to be carried out without a formal meeting of creditors.
  • Fees associated with registration as a registered liquidator are waived until 30 June 2022.

Speak with one of Rostron Carlyle Rojas Lawyers’ qualified restructuring and insolvency lawyers today, at:

QLD: 07 3009 8444
NSW: 02 9307 8900
Email: [email protected]


Update to Ending of COVID-19 Relief Measures



On 22 March 2020 the Government announced temporary insolvency relief for financially distressed companies, to help businesses get to the other side of the Coronavirus crisis. 

The temporary insolvency relief increased the thresholds at which creditors could issue a statutory demand (or a bankruptcy notice) and the compliance time for debtors to respond to statutory demands and bankruptcy notices. 

As a result of the temporary relief measures, creditor enforcement action (to recover debts) effectively graded to a halt. Businesses that would otherwise have failed (and entered External Administration) were kept alive through a combination of lack of creditor debt recovery action and other Government relief incentives. Such as JobKeeper – which was intended to give temporary support to viable businesses during a period of broader mandatory restrictions and shutdowns. 

Consequently, the number of businesses entering External Administration (liquidation or voluntary administration) dropped over 50%. This compared to the same period last year and, in the September quarter 2020, bankruptcy numbers were at their lowest level since AFSA records began in 1986. 

Temporary relief was also given to directors of companies from any personal liability for trading while insolvent, with respect to debts incurred by the company in the ordinary course of the company’s business. Provided that an external administrator was appointed to the company before the moratorium’s expiry, being before 31 December 2020.

The temporary insolvency relief measures expired on 31 December 2020 (while JobKeeper currently has a scheduled end date of 28 March 2021).

Insolvent trading moratorium ends

  • Many people appear to be operating under the misunderstanding that the insolvent trading moratorium (in effect during the March – December 2020 period) provides a complete shield from personal liability for insolvent trading. That is simply not the case.

  • Directors trading-on a business beyond 31 December 2020 will be exposed to the insolvent trading provisions of the Corporations Act 2001 throughout any period that the company was insolvent—including the March-December 2020 period—should the company later end up in liquidation.

  • Directors should be aware that they would only be afforded protection under the temporary relief measures IF they appointed an external administrator to the company before the moratorium’s expiry, i.e., before 31 December 2020.

  • For the avoidance of doubt, directors of companies who are still trading now that were trading insolvent during the March – December 2020 period, and that later end up in liquidation, will be exposed to personal liability for insolvent trading.

Where are we now?

On 1 January 2021 (following the expiration of the temporary insolvency relief measures) the Government’s insolvency reforms to support small businesses commenced. 

The reforms introduce new insolvency processes suitable for small businesses aimed at reducing the complexity, time and costs required to quickly and efficiently restructure their affairs. Where restructure is not possible, businesses can wind up faster via the simplified liquidation process, designed to enable greater returns for creditors and employees. 

The new small business insolvency reforms (see link below) include:

  • A new Debt Restructuring Process for small businesses;

  • Temporary restructuring relief; and

  • A new Simplified Liquidation Process for small businesses.

For more information about the Small Business insolvency and restructuring reforms, please access our separate article HERE

Personal Insolvency and Bankruptcy Notices

  • Changes to Bankruptcy laws:

    • In March 2020, the Australian Government announced a series of changes to bankruptcy law, as part of the wider economic response to the COVID-19 pandemic.

    • Those temporary changes included:

      • an increase in the debt threshold, which enabled creditors to apply for a bankruptcy notice;

      • an increase to the timeframe for a debtor to respond to a bankruptcy notice; and

      • an increase to the temporary debt protection period available to debtors. 

    • As of 1 January 2021, those temporary changes have ceased, however, an amendment has been made to adjust the bankruptcy threshold amount. 

    • Relevantly:

      • the minimum amount of debt that can trigger bankruptcy is now $10,000 (down from $20,000 under temporary changes). Before the temporary changes, the minimum amount of debt that could trigger a bankruptcy was prescribed at $5,000.

      • The timeframe for a debtor to respond to a bankruptcy notice has reverted to 21 days (from 6 months under temporary changes). This means if a bankruptcy notice is issued on or after 1 January 2021, the debtor will have 21 days to comply with the bankruptcy notice.

      • The period for temporary debt protection for debtors has reduced from six months (under temporary changes) to 21 days.

      • Two or more creditors can combine their judgement debts to meet that minimum amount and together apply to court to petition to have a mutual debtor declared bankrupt

    • Back on the discussion table for government is the potential permanent bankruptcy reform to reduce the default bankruptcy period from three years to one year. That potential reform had stalled previously, but it may become a reality 2021.

Statutory Demands

Effective as at 1 January 2021, for creditor’s statutory demands against companies:

  • the minimum amount of debt for a statutory demand, that can trigger a winding up application, is now $2,000 (down from $20,000 under temporary changes), which is back to the way it was before the temporary changes.

  • The timeframe for a debtor to respond to a statutory demand has reverted to 21 days (from 6 months under temporary changes). This means if a statutory demand is issued on or after 1 January 2021, the debtor will have 21 days to comply with the statutory demand.

Update on JobKeeper

  • Ends 28 March 2021.

  • According to Federal Treasurer the Hon Josh Frydenberg MP, JobKeeper has costs $77 BILLION to date and at its peak was supporting 3.6 million Australian workers and around 1 million Australian businesses.

  • JobKeeper has now entered the second phase of its extension (from 4 January 2021). 

    • In this current phase, eligible businesses receive $500 per week for each staff member working at least 20 hours per week, down from $600. Other employees attract a payment of $325 per week, down from $375.

    • The tier 1 rate applies to eligible employees who worked for 80 hours or more in the four weeks of pay periods before either 1 March 2020 or 1 July 2020, and eligible business participants who were actively engaged in the business for 80 hours or more in February and provide a declaration to that effect.

    • The tier 2 rate applies to any other eligible employees and eligible business participants.

  • We anticipate that a significant number of businesses currently being kept alive solely by JobKeeper, will enter External Administration sometime after 28 March 2021.  

Practical tips & takeaways

  • Use the correct and updated Statutory Demand and Bankruptcy Notice forms to avoid challenges relating to material deficiencies in light of the above changes effective from 1 January 2021. 

  • Directors who think their companies were trading insolvent prior to 1 January 2021 (or since) should seek professional advice urgently to consider the options for their business and their personal position. 

  • Pressure from creditor enforcement being able to resume, and from JobKeeper coming to an end, will see an increase in companies entering External Administration and personal bankruptcies, likely from about March 2021. Business owners, directors and creditors should prepare themselves for new waves of insolvency and restructuring coming soon.

If you have felt the effects of the pandemic on your business or require assistance or clarification in relation to the ending of the temporary relief for financially distressed companies and businesses, now is the time to get advice on how to structure your company’s affairs or recovery activities.

Speak with one of Rostron Carlyle Rojas Lawyers’ qualified restructuring and insolvency lawyers today, at:

QLD: 07 3009 8444
NSW: 02 9307 8900
Email: [email protected]


Personal Guarantees – A Creditor’s Safety Net?

personal guarantee

It is common practice for suppliers to require a Director to guarantee the obligations of an applicant company prior to advancing any goods or services on credit to them (“the Guarantor”). This is what is commonly known as a personal guarantee.

More frequently, a common issue facing suppliers or creditors (“a Creditor”) who issue, process and approve high volumes of credit applications is ‘improperly executed guarantees’.

When properly executed, and on the basis that the terms of the guarantees are drafted correctly and are able to be enforced, a personal guarantee can offer additional security and potential recovery avenues to a Creditor if the applicant company is wound up or otherwise becomes insolvent.

Generally, for a guarantee to be enforceable, it will require three conditions to be satisfied (“the Guarantee”):
1. It must be in writing;
2. It must be signed by the Guarantor; and
3. It must be witnessed.

When a Guarantee has not been properly executed (and not reviewed prior to the provision of credit), the Creditor may later find themselves in a predicament if the applicant company is unable to meet its obligations and becomes insolvent or is wound up.
This article will look at the ability of Creditors to enforce Guarantees in circumstances where the guarantee was improperly executed or not executed at all.

Unexecuted personal guarantees

Directors of companies may still be liable under an unsigned guarantee, if the guarantee can be construed as forming part of the initial credit application. The theory behind this position is that, commonly, credit applications and guarantees are included in the one document and accordingly, the execution of one section should be construed to be an execution or an agreement as a whole (including the guarantee).

In Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 [58] , the Western Australian Supreme Court considered certain practices and whether they could be construed as a director showcasing their ‘objective intention’ to be bound by a guarantee. Particularly:

1. Whether the guarantor is specifically identified within the particulars of the agreement or if it can be argued that the guarantee provisions applied to the guarantor directly in plain terms;

2. Whether the guarantor’s signature has been witnessed. It was argued that there would have been no purpose for the potential guarantor’s signature to be witnessed if they had not intended to be personally bound;

3. Whether there were handwritten amendments or initials signifying that the guarantor had exhibited an intention to be bound by the amended or initialled sections; and

4. Whether there is any correspondence from the guarantor relating to the agreement on or about the date of signing the agreement.
Despite the position put forward by the above case, such a proposition would only occur in rare circumstances and generally, the Queensland Courts would be unlikely to take such a view.

Improperly executed personal guarantees

A personal guarantee given by an independent third party (for example a family member of the Director) may be set aside if the Court considers that the guarantee was unjustly obtained through misrepresentation, unconscionable conduct or the exercise of undue influence over the guarantor leading up to or during the execution of the guarantee.

Generally, for relief to be granted (and the guarantee set aside), it must be shown that the stronger party (usually the creditor) exploited the guarantor’s disadvantage to procure the security for the applicant company.
In Commercial Bank of Australia Ltd v Amadio (1983) 46 ALR 402 (“Amadio”), the Court took into consideration whether the creditor knew or ought to have known about the misrepresentation of a material fact which induced the guarantee. In Amadio, the Full Court decided that the bank’s behavior was unconscionable as it took deliberate steps to conceal the Defendants’ son’s true financial situation from them prior to their execution of the guarantee (which directly influenced their decision to provide the guarantee to their son).

In light of the recent expose of unsatisfactory banking practices during the Royal Commission, if a similar matter was before them, it is likely that the judiciary could possibly be swayed to take a harder approach to such unscrupulous practices.

Minimisation of risks associated with unexecuted or improperly executed Guarantees

As a means of mitigating any potential losses, as well as minimising potential disputes arising from unexecuted guarantees (especially when a creditor subsequently attempts to rely on it), parties should take care to ensure that credit applications and guarantees are fully and properly executed prior to the provision of credit.

Should you require assistance in reviewing your current guarantee (or corresponding credit application) to further safeguard your rights when providing credit to companies, please contact our office on 07 3009 8444 to discuss further.

10 Golden Rules of Credit Control

Credit Control

1. Consider whether you need to provide credit in the first place

Many businesses will provide credit without considering whether their clients require or expect it. Even worse, many businesses become unwilling credit providers. Have you ever delivered stock, cash on delivery, and not been paid at the time of delivery? Have you ever accepted a personal or company cheque? The first step to effective credit control is to consider whether your business will provide credit and if so, to whom and on what terms.

2. Establish your terms of trade

Your terms of trade are the rules upon which you are prepared to do business and provide credit and, structured correctly, form the basis of any contract of sale. Your terms of trade need to be made aware to the client prior to the time of purchase and ideally should be acknowledged by the client in some way (for example; initialled and dated). At the very least, your terms of trade should consider: price; terms of payment; warranties/conditions of purchase; limit of liability; title (when does it pass?); interest/administration fees; costs recoverable; security for payment; what constitutes default and its effect; termination.

Every business is different and may require specific considerations. It is recommended that you consult with a professional in the development of your terms and conditions.

3. Establish who you are dealing with

Whilst this sounds elementary, it is not as simple as it sounds. If you are providing credit, you ought to require proof of identification and proof of ability to pay. At the very least you should insist on identification and trade references. Anybody can print a business card! Take a photocopy of the ID and actually telephone the referees.

You should undertake a business name search and/or company search to confirm the accuracy of the information provided by the client. Both of these searches can be undertaken for a small fee at

4. Use a credit application and personal guarantees.

A well designed credit application, incorporating directors’ personal guarantees will be invaluable if it is necessary to take legal action to recover a debt. Ideally, your credit application will also incorporate your terms of trade. At the very least, your credit application should require the following information: full name and address of the client including business name, ABN. For a company, include the ACN and full names and addresses of the directors.

Depending on the limit of credit to be extended, you may require evidence of ability to pay, such as the provision of financials or a letter of credit from the client’s banker.

  • You should set a credit limit based upon the risk of each client and your cash flow requirements.
  • A directors’ guarantee should be drafted by a solicitor.

Beware, a one paragraph guarantee is most likely unenforceable.

10 Golden Rules of Credit Control5. Secure your debt

If a client is not paying your accounts, it is likely that other creditors are in the same boat. In many cases, the difference between being paid or not, depends upon whether you, as the creditor, hold security over a debtor’s property (personal or real). Ensuring that your terms of trade include a properly drafted retention of title and/or charging clause may set you apart from other creditors and will give you the ability to caveat and/or sell a debtor’s property.

6. Use a System – Review your accounts regularly

You should create and use a system to monitor your invoicing and collection. Regular invoicing and follow up is essential to good cash flow. Always know how much credit you have extended to your clients and do not extend beyond credit limits without making a conscious decision about the risks.

7. Avoid special cases

Making special arrangements can backfire. No client is so large or important that you should let them ignore your terms. Insisting that your clients comply with your terms will create a healthy respect for your business, rather than damage your goodwill. If a client is unable or unwilling to comply with your terms, you should ask why. It may only take one exception to drain your cash flow.

8. Classify bad debt from slow payers

Identifying bad debts from slow payers is critical when making a decision as to how you are going to deal with a debtor. Once you have identified a bad debt, you should deal with it in a methodical and legal manner. Slow payers may simply need a push and a reconsideration of credit limit. Before embarking upon collection of a debt, make a decision on whether you wish to keep the business relationship intact.

9. Have a plan to collect bad debt

Integrating debt collection into your general accounting system will reap instant rewards. Generating collection letters and telephoning clients at scheduled intervals is recommended (ex. 14, 30 and 60 days).

If a debtor makes a promise to pay by a certain time, make a note of it and diarise the matter for a follow up telephone call if the promise is not fulfilled.

Telephone calls or personal visits are more effective than letters.

10. Don’t be afraid to outsource a debt to a professional

Collection agents are professionals, are required to be licensed and are trained in the collection of debt. A good collection agent will be able to help you with identifying which debts are collectable and which debts should simply be written off.

Many collection agents will now act on a speculative basis, charging a percentage for collections recovered.

Has your company been served with a Statutory Demand?

If your company has been served with a creditors statutory demand for payment you must act with urgency, as allowing it to expire can cause irrevocable harm.

The most simple way that a company can be wound up and liquidators appointed is when an application is brought after the expiry of a statutory demand.  The statutory demand allows 21 days from service within which the recipient company must satisfy the creditor of the amount contained therein, or otherwise bring an application before the Court to have the demand set aside on grounds of the demand being defective or that there is a genuine dispute in relation to the debt.

Should the company fail to comply with the demand, by making full payment of the demand within 21 days or by applying to have the demand set aside, a company is deemed to be insolvent and a creditor may make an application to the Court to wind up the company.  No further evidence is required to prove insolvency.

For a company that may be asset rich but suffering from a temporary lack of liquidity, 21 days to comply with a statutory demand will often not be enough time in which to realise some of its assets and to make good on the demand.

Companies can attempt to oppose a winding up application on the basis that the company is in fact solvent.  This is a complex application to bring before the Court as it involves, amongst other things, overturning the presumption of insolvency.  A more effective approach is to deal with creditor who issued the statutory demand within the 21 day period to ensure that the presumption of insolvency does not arise at all.

If a company has been served with a demand and it does not consider that it owes the debt or that there is an irregularity in the document it may apply to the Court have the demand set aside.  However, this application must be made within 21 days and there is a large volume of case law that indicates the Court treats the 21 days in the strictest of terms.

Alternatively, if your company does owe the debt raised in the statutory demand, it is often beneficial to seek advice with a view to formally approaching the creditor’s legal representatives on a ‘without prejudice’ basis to attempt to negotiate payment terms, allowing for further time outside of the 21 day limit.

If your company has been served with a statutory demand, contact us for advice in relation to the most appropriate response for your circumstances.

Q&A: Using Caveats Over Real Property in Debt Collection

Using Caveats Over Real Property in Debt Collection FAQs

Common questions and answers for using caveats over real property in debt collection…


What is a caveat?

A caveat is a formal notice lodged on real property, which stops any person (including the registered proprietor) from dealing with the real property.

Who may lodge a caveat?

Any person claiming an estate or interest in land.

Does Judgment give me a caveatable Interest?


What is necessary to establish an Interest?

An actual interest in the property itself (some relation between the debt and the property).

It is not intended to provide an exhaustive list, but some common examples may include:

  • Equitable mortgagee or chargee
  • Purchaser under a contract of purchase
  • A husband or wife or partner (defacto)
  • Lessee
  • Beneficiary under a trust
  • A victim of fraud

What is an Equitable Chargee?

Where the debtor agrees to charge their real and personal property with the payment of a debt, the creditor becomes an “equitable chargee”; “equitable” in this sense meaning “unregistered”.

For example:
“The guarantor charges as beneficial owner and trustee of every trust all the guarantor’s land (including land acquired in the future) in favour of Bunnings to secure the payment of the moneys and the performance and observance of the guarantor’s covenance under this deed.”

(See Bunnings Building Supplies Pty Ltd -v- Blue Diamond Homes Pty Ltd [2004] QSC 54)

Note: Check the credit application and any guarantee documents.
If you are unsure whether or not your client is an equitable chargee, ask your friendly solicitor.

What is the procedure for lodging a caveat?

  • Confirm the existence of the debt
  • Confirm the caveatable interest (check the charging clause)
  • Lodge caveat (your friendly solicitor does this)
  • Notify other interested parties (Registrar does this)
  • Within 3 months of registration, commence legal proceedings (Supreme Court)

What if I don’t issue legal proceedings?

The caveat will lapse after 3 months. You may only caveat once.

Why use a caveat instead of a writ?

Caveat may be lodged immediately the debt becomes owing, whereas a writ requires a judgment.

Other matters to note about caveats

  • Be careful and always seek advice on whether there is an equitable interest
  • Conduct searches to ensure there is equity in the property
  • There are obvious costs risks if you get it wrong (Supreme Court)
  • A charging clause (and therefore a caveat) will not give priority over registered mortgages and perhaps future liquidators. A specific charge should be drafted for this.

Consent Caveats


What is a consent caveat?

The registered proprietor may agree to the lodgement of a caveat on the property, despite no pre-existing caveatable interest. A consent caveat will remain on the title even after the 3 month expiry period.

Debtor owes $10,000.00 and agrees to pay it back at $2,000.00 per month.
Creditor agrees, but wants security.
The Parties may agree that, instead of a registered mortgage, a consent caveat will be lodged.
A settlement agreement may be executed, charging the property and the consent caveat lodged.

What is the effect of the Consent Caveat?

Debtor may not transfer or re-finance the property without paying the debt or obtaining the creditor’s consent.

If you have additional questions about caveats over real property in debt collection, we can help.