Debt Recovery: The Process in NSW

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Despite the best financial control every business sooner or later has to deal with a customer who won’t pay or who disputes an invoice, account or some aspect of the business relationship.

Our debt recovery lawyers are experienced in every option of dispute resolution including mediation, negotiation, arbitration and expert appraisal. In a debt recovery proceeding, a debtor is a person or an institution which owes a debt to another and a creditor is a person or an entity to which a debt is owed. In this article, these 2 terms have been used in this context.

The debt recovery process in New South Wales involves multiple steps like establishing contact with the debtor, trying alternate dispute resolution process for settlement and in the event of the dispute not being resolved – taking action through the relevant courts. The process of recovering debt in NSW is similar to the debt recovery process in other states of Australia.

Establishing Direct Contact

The creditor generally contacts the debtor directly to remind or encourage the debtor to repay the debt. However, the creditors should not harass the debtors for making payments. The Federal and State Fair Trading Laws include prohibitions on misconduct associated with debt collection activities. The Australian Competition and Consumer Commission (‘ACCC’) and Australian Securities and Investments Commission (‘ASIC’) are responsible for dealing with misconducts associated with debt collection activities.

Issuing a Letter of Demand

The creditor may issue a Letter of Demand to the debtor containing a formal request to pay the outstanding amount within a certain time period or on a particular date in case direct contact with the debtor does not work out. The Letter also warns the debtor that in case of non-payment, appropriate legal recourse may be taken.

Mediation and Adjudication

In NSW, debt recovery disputes can be resolved through free mediation service provided by the Community Justice Centres (“CJCs”). In the case of dispute in the construction industry, the Building and Construction Industry Security of Payment Act 1999 provides for low cost adjudication services to construction industry contractors and subcontractors. The adjudicator’s decision is recognised by the Courts and enforcement proceedings can commence without re-substantiating the existence of debt.

Legal Proceedings

To commence legal action, the creditor needs to complete a Statement of Claim and lodge it before the appropriate Court. The various Courts exercise their pecuniary jurisdiction and conduct the debt recovery proceedings accordingly.


If the debtor violates the Court order to pay the amount due to the creditor, it is the creditor’s responsibility to enforce the judgment. The creditor can enforce the judgement of the Court anytime within 12 years from the date of the judgment. The enforcement of the judgement obtained in the Court is largely dealt with under the Civil Procedure Act 2005.

The creditor may adopt the following measures for enforcing an order in his favour:

  • To seek an examination summons – The summon is intended to help the creditor to examine the debtor’s financial position, if not known,
  • To seek a garnishee order – The garnishee order made by the Court seeks to recover the judgement debt from the person who owes money to the debtor;
  • To apply for a writ of execution – This kind of an order directs the Sheriff or his officers to seize and sell the debtor’s personal assets and pay off the creditor; and
  • To apply for a writ against land – This Court order directs the Sheriff or his officers to seize and sell the debtor’s real property and pay off the creditor.

Alternative Methods

The Consumer, Trader and Tenancy Tribunal also provides a relatively fast and less expensive means of resolving disputes as an alternative to the Court system. However, large businesses are generally excluded from its purview.

In case, the debtor is a corporation and owes more than $2,000, a creditor may pursue a Creditor’s Statutory Demand under the Corporations Act 2001 (Cth) (‘Corporations Act’). A Creditor’s Statutory Demand must be in the prescribed Form 509H and must be accompanied by an Affidavit from or on behalf of the creditor. In case a company is served with a Creditor’s Statutory Demand, it has to either pay the stipulated amount within a period of 21 days or bring an application in the Supreme Court to have the demand set aside. If the company does not comply with the demand, it will be deemed to be insolvent as per section 459C(2)(a) of the Corporations Act.

The creditors may also outsource debt collection activities to third-party agents like mercantile agents or debt purchasers. They may also sell outstanding debts as a cash management strategy.

In NSW, licensing provisions apply to private agents involved in debt collection under the Commercial Agents and Private Inquiry Agents Act 2004 and Commercial Agents and Private Inquiry Agents Regulation 2006.

Recent Developments

The Commonwealth Government has recently passed the Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth) containing major reforms to the Privacy Act including provisions of credit reporting. There is heightened focus on credit reporting under the new legislation. The new legislation has a 15 month transition period from the time it receives Royal Assent. Some of the key overhauls of the credit reporting regime will include:

  • Creditors cannot put consumer debtors under the ‘default list’ until 14 days after notice of intention to default list
  • The minimum amount has been raised from $100 to $150 for default listing

The process of redrafting the Credit Reporting Code of Conduct is also in progress.

Contact Owen Hodge’s team of experienced lawyers today for legal advice and assistance regarding debt.

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