Collecting and Pursuing Statute-Barred Debt
In Queensland, the Limitation of Actions Act 1974 (Qld) (the LAA) governs the time frames bestowed upon creditors in which they can commence actions to recover monies owed pursuant to a contract. A creditor must commence proceedings to recover debts within the limitation period. All Australian jurisdictions have similar legislation to the LAA but confer different time frames and effects once the limitation period has lapsed.
The relevant time frames can be summarised, as follows:
- Commencing proceedings on contracts:
- Queensland, New South Wales, Victoria, Tasmania, South Australia, Western Australia and the Australian Capital Territory: 6 years
- Northern Territory: 3 years
- Continuing proceedings after a court judgment is obtained:
- Queensland, New South Wales, Tasmania, Western Australia, the Australian Capital Territory and the Northern Territory: 12 years; and
- Victoria and South Australia: 15 years.
In all states and territories, apart from New South Wales, once the limitation period has lapsed, creditors can no longer actively pursue outstanding debts, though they can still be listed on a person’s credit file (provided that the listing is made prior to the limitation date). However, in New South Wales, once the limitation period has lapsed, the debt is completely extinguished and cannot be pursued or listed on a credit file.
When does the limitation period start and can it be re-set?
In all states and territories apart from the Northern Territory, the 6 years is calculated once the debt becomes overdue, noting that the limitation period is reset each time the debtor makes a payment towards the account or acknowledges the debt in writing.
In Queensland, South Australia, Western Australia and Tasmania, the limitation period can be re-set with each action taken on the account. For example, if the account has become statute-barred and a debtor in Queensland makes a voluntary payment towards the debt, the limitation period is refreshed. Conversely, in New South Wales, the Australian Capital Territory and the Northern Territory, the limitation period (once reached) does not refresh regardless of any payments made or acknowledgements received.
The collection of statute barred debt
This is a process which is closely monitored and highly regulated by the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC). If attempting to collect upon a statute barred debt, a creditor or collection agent must not suggest that they can still take legal or collection steps to recover the monies.
In the Victorian matter of Collection House v Taylor  VSC 29, a debtor was contacted by a collection agency in 2001 and advised that legal action was to be taken to recover the debt owed pursuant to a finance contract entered into in 1992. The Supreme Court of Victoria held that the agency had engaged in unconscionable conduct when it had advised the debtor that legal action was imminent unless an immediate payment was made, despite the debt being statute barred.
The principles and considerations espoused in Collection House v Taylor indicates that any attempts to recover statute barred debt means there is an increased risk of standard collection activities being considered unlawful, merely due to the age of the account.
Collecting statute barred debt
Collection of statute barred debt should be considered a last alternative. Steps should be put in place by creditors to avoid the statute barred period from lapsing and rendering the debt uncollectable.
If a debt has become statute barred, a creditor can still accept monies towards the outstanding balance, so long as it is voluntarily offered. It cannot take steps to force the repayment of the debt nor issue correspondence or elicit phone calls where payment is demanded or the potential for legal action is mentioned.
If collection action is taken on a potentially statute barred debt which is later disputed by the debtor, the onus is upon the creditor or collection agent to show that the transaction was fair, just and reasonable in the circumstances.
If you are considering taking action on accounts which may be close to becoming stat-barred, it is important that you obtain legal advice prior to doing so.
The RCR Recovery Team are able to provide advice in relation to the methods in all Australian jurisdictions which can be utilised to recover monies owing, including older accounts.
If you have any queries in relation to the above, please contact Ellen Naughton on 07 3009 8444.