Common Recovery Proceedings

Feb 27, 2021 | Voluntary Administration

Creditors have various means of debt collection they can apply, and the following are the five most common.

Statement of Claim

A statement of claim is normally the first step in the debt collection process through the court system. The statement of claim will address the elements of the law on which the claim is based and substantiate the claim by evidence, usually in affidavit form.

Once a Statement of Claim is received the recipient should act quickly to defend the claim made by the other party (the Plaintiff). The recipient (defendant) has 28 days from receipt of the claim to lodge a defence. If a defence is not lodged, the plaintiff who brought the Statement of Claim can seek a default judgement against the defendant.

Judgement Debt

A judgement debt means the Court has ordered that the defendant owes the money to the Plaintiff, as a result of previous proceedings like a Statement of Claim. Once plaintiffs obtain a judgement debt, they may enforce it in a number of ways. The most common ways of enforcing judgement debts are:

  • Judgements for possession of land in the Supreme or District Courts, which may be enforced by a writ of possession;
  • Judgements for delivery of goods, which may be enforced by a writ of delivery;
  • Judgements for the payment of money, which may be enforced by:
    • A writ for the levy property
    • A garnishee order
    • A charging order in the Supreme or District Courts

Statutory Demand

A Statutory Demand is a claim made under Section 459E of the Corporations Act. Failure to comply with a Statutory Demand or apply to the Court to set it aside will result in the company being” deemed” to be insolvent. The Corporations Act defines a company is insolvent if it is unable to pay its debts as and when they fall due.

The service and non-compliance with a Statutory Demand allows the creditor that issued the Statutory Demand to apply to the Court to appoint an official liquidator to the Company. The failure to comply with a Statutory Demand is the most common basis on which applications are made to the Court for the winding up of companies in Australia.

If you have received a Statutory Demand, you are required to pay the specified sum of money within 21 days from the date of delivery of the statutory demand.

If you dispute the debt or there are irregularities with the document received, you should immediately seek independent legal advice and apply to the Court to set the demand aside on the basis that the debt, being the subject of the Statutory Demand, is genuinely disputed or there is an irregularity. This application needs to be done within 21 days from receiving the Statutory Demand.

Directors need to act quickly if a Statutory Demand is served on their company otherwise their company may be deemed insolvent and could face a Notice of Winding Up Application once the 21 day period expires.

Notice of Winding Up Application

After a creditor obtains a judgement debt or following the failure of a debtor to comply with a statutory demand within 21 days, a creditor may issue proceedings in the Federal or Supreme Court to wind up a Company. The process for issuing these proceedings is brought under Section 459P. Upon these events occurring, a Notice of Winding up Application is issued to the registered office of a company after a creditor has filed a court application to wind up the Company.

There are other circumstances, although less common, that may allow a party to initiate wind up proceedings.
If the Winding Up Application hearing takes place and the Court is satisfied that a company should be wound up, the Court makes an order for the company to be wound up and the Court appoints an Official Liquidator. Normally, the creditor or the lawyers filing the Winding up Application will request a consent to act from the appointed Liquidator prior to the Court Hearing.

It is important that Directors are aware that once a Winding Up application commences, it is normally based on an act of insolvency having taken place. If the Winding Up action is not dismissed and heard before a Court, the question of solvency is usually taken into consideration.

ATO Garnishee

Pursuant to Section 260-5 of the Taxation Administration Act 1953, the Australian Taxation Office has the power to issue a Garnishee Notice in order to collect taxes due by a company (the taxpayer). The two most common Garnishees are:

    1. Garnishee to Debtors – the ATO can collect through a company’s debtors by providing those debtors with a letter requiring that any monies owed by the debtor to the company are not to be paid to the company, but instead paid directly to the ATO.
    2. Garnishee to Bank Account – the ATO can collect funds that a company holds in a bank account by providing a notice to the financial institution requiring that monies held in a designated back account of the company be paid directly to the ATO.

A Garnishee Notice can have catastrophic effects on your business. If a Garnishee Notice has been issued to either your debtors or the bank where your accounts are being held, you may find it has insufficient or no cash to pay employees or other critical creditors, causing significant disruptions to the business.


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