Problematic Debt Recovery

You’ve sent your bad debt to a collection agency, but the debtor has only empty, broken promises to offer. Or does not respond at all.

You may find that the debtor:

• disputes your claim for payment without a proper basis; or
• seeks to impose a counterclaim or setoff based on dubious allegations of faulty goods or defective work; or
• complains that he can’t pay you until he has been paid; or worse
• has on-sold goods you supplied, received payment and spent your money on other things without paying you.

You may be aware of other suppliers who also haven’t been paid. You’re angry and frustrated. The relationship is destroyed.

While most business owners are honest, hard-working people who want to pay their bills, sadly, there are some who care little for the distress caused to trade suppliers when goods and services provided on credit are not paid for.

Adding insult to injury, the pursuit of your debt through the courts is expensive. Often the potential for recovery is small, and legal action is seen as throwing good money after bad. In a court winding up application the legal fees, court filing fees and process servers can often total $10,000 to $15,000, even where the matter is not defended. Achieving justice at great cost through a court-ordered winding up of the debtor may be a Pyrrhic victory.

In our experience, many unpaid creditors are willing to invest a small amount towards the costs of seeking a winding up order against the non-paying corporate debtor, but balk at outlaying the full cost where there is little likelihood of recovery. The unpaid creditor who files a winding up application is called the ‘petitioning creditor’, and the Corporations Act provides priority for repayment of the petitioning creditor’s taxed costs (the costs assessed as reasonable by the Court’s taxing master, not the actual amount incurred, which invariably will be greater). For this to occur, broadly speaking the liquidator needs to make recoveries sufficient for the payment of those costs. Only asset realisation expenses have priority for payment ahead of the petitioning creditor’s taxed costs out of assets realised by the Liquidator.

Through our referral partners in the legal, debt collection and litigation funding industries (all independent professionals) in many cases a way forward can be tailored which takes much of the pain away. In approved matters and subject to certain terms and conditions (discussed and explained to you prior to commencement) the legal work for filing a winding up application can be performed on a speculative basis. Those fees (possibly with an uplift) will only become payable if sufficient recoveries are made from the winding up.

In most cases there are out-of-pocket expenses that must be paid up front, including search fees for initial due diligence, the Court filing fee and process service charges. Typically those costs could be in the vicinity of $2,000, but can be reduced by sharing with other creditors of the debtor, if known, who are willing to engage with and support the process. Whilst the out-of-pocket costs of initial due diligence (variable, but about $200) will always need to be paid up front, subject to the outcome of that process, our referral partners may also agree to fund the out-of-pocket expenses of the Court process as well as the legal fees.

We will consent to act in the winding up of your debtor as part of this service offering. Once appointed by the Court, we will work closely with other professionals to maximise the recovery of assets and claims available to the Liquidator, to ensure you have the best chance of recovering your debt.

Many Court liquidations result in no recoveries by the liquidator, due to lack of identified assets, lack of funding and lack of records. The arrangements we have with a range of independent professionals ensure that if there are assets or claims to be recovered, we have the best chance of achieving a favourable outcome.

There is of course, no guarantee that your costs will be recovered, or that anyone, including us, will be paid. We assess all matters that are presented to us for consideration, and for commercial reasons, may decline to become involved where we consider that the potential for recovery is low. So while we may not be able to assist in every case, please contact us for a confidential discussion of your matter.