The Debt Recovery Process

As a creditor the last thing you want to do is throw good money after bad. In order to make a sound decision about whether to pursue a debt, it is important to have an understanding of how the debt recovery process works. Whilst the particular steps required in each case may vary, the most common steps are outlined below:

Becoming a Paywatch client enables us to advise you, then act on your subsequent instructions as well as keep you updated on the progress of your matter wherever it sits in the debt recovery process -  all via Paywatch.

Letter of Demand

Debt recovery matters begin with a formal letter of demand being issued to the debtor.

This letter will request that the amount outstanding be paid within a certain time frame (usually 7 days)

Commence Legal Proceedings

Should the debt remain outstanding or the debtor fails to make arrangements to pay instalments, then it is open to the creditor to commence legal action in the appropriate court to recover the amount.

Each court has a jurisdictional limit, the debt amount will determine which court the matter will be heard in – Local/Magistrates court, District Court or even the Supreme Court. While different Court rules mean that the debt collection process varies slightly from state to state, it is essentially the same across the country. The steps that follow will depend on the circumstances of each particular case.

What Next?

When the solicitor lodges a claim they will particularise the matter in a court document.

This will outline the grounds of the case, for example, when the contract was entered into, when the outstanding invoices where issued and what the total debt is. The documents must be lodged with the court, once the document is sealed it needs to be served on the debtor.

Obtaining Judgment

In general the debtor has 3 options; pay in full, come to some other arrangement acceptable to the creditor or to file a legal defence disputing some or all of the debt. If the debtor doesn’t respond after receiving the court documents then a default judgment can be obtained.

Default Judgment

We can apply to the court for default judgment, in this case the matter can be dealt with, with no parties present.  In the majority of cases many debts are not disputed and the outcome is that the creditor has a judgment to enforce for a limited cost.


Once a court has given judgment against a party and they still fail to pay, it may be necessary to enforce the judgment against the debtor. There are a range of options available to a creditor at this point. In WA these include:

  • Means Inquiry;
  • Property (seizure & sale) Order;
  • Statutory Demand (please see below);
Important to Note

Unfortunately, just because a court issues a judgment this does not guarantee that the debt will be paid. Dependent on the circumstances, some creditors don’t proceed past the stage of Default Judgment. The Judgment will be on the debtors records and will appear should they try to obtain credit in the future. Court records show that the majority of finalised debt matters are reached through obtaining a default judgment.

Statutory Demands

A statutory demand under Section 459E of the Corporations Act 2001 (C’th) - applicable only to a company debtor (as opposed to an individual debtor).

The statutory demand is issued by the creditor for a debt of at least $2,000 and the company debtor has 21 days to:

  • pay the debt;
  • negotiate a settlement; or
  • apply to the court to have the demand set aside due to (usually) a ‘genuine dispute’ as to the existence or amount of the debt.

If the company debtor takes none of these steps, then the legal presumption is that the company debtor is insolvent.

Insolvent companies are unable to trade and may be wound up by a creditor’s petition. If the company debtor is wound up, then the directors may potentially face exposure to personal liability for the company’s debts for allowing the company to trade while insolvent.

Moreover, in practical terms, the presentation of a statutory demand on a company may constitute a default under many financing conditions or arrangements, potentially leading to the withdrawal of the facility – a situation to be strongly avoided by most debtor companies.