28
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HIRE
AND
RENTAL
NEWS
| MAY 2013
INDUSTRY IN FOCUS
By Gavin Stuart and Elias Yamine
Bartier Perry
In the hire industry, it is common
for hirers to incur significant exposure
on customer accounts where credit is
extended and security is not provided. In a
difficult economic climate, ensuring your
customers promptly pay for hired goods, or
pay at all, can be challenging.
A recent analysis found:
• 62%
of bills issued to customers are
settled late; and
•
customers took, on average, 52 days to
pay their bills.
The late payment of bills by customers
can adversely affect the cash flow of your
business and may be an early warning sign
your customer’s business is failing.
In relation to companies, the Australian
Securities & Investments Commission
recently released statistics showing in the
2011/2012
financial year, 10,757 companies
were placed into external administration.
In this article, we will explore the
options to recover outstanding debts owed
by customers who have failed to pay.
The importance of knowing precisely
who your customer is from the outset
of your business relationship cannot be
understated. Failure to do so can lead
to problems in identifying who the real
debtor is, and whether the signatory on
the account or credit application had the
authority to incur the charges.
At the very least, you should consider
the following free online searches:
1.
A company and business names search
available on ASIC’s website to find out if
you have been given a company name or
business name, the correct ACN, and if
the company has been deregistered or is
under external administration.
2.
A business name search using the
Australian Business Register to show who
owns the business name.
3.
A bankruptcy search, through the
Federal Court’s website, to identify
whether the person is bankrupt.
Common errors customers make when
filling out applications are the customer is
incorrectly identified as being a business
name when, in reality, the business
operates through a company, or vice versa.
It is critical you maintain up to date
records of your customer so any letters
of demand or Court process can be sent
to your customer’s current address. Also,
bank and business reference checks should
be conducted before credit is extended
to a new customer or when an existing
It pays to break the vicious debtor cycle
customer requests an increase to a credit
limit.
Letter of demand
The key to any recovery action is it is
taken as quickly as possible to increase
the likelihood of receiving payment
and to guard against the possibility
your customer’s business may fail in
the intervening period or its assets are
dissipated. As a first step, whether your
customer is an individual or a company,
you should send a letter of demand. The
letter notifies:
1.
How much is owing.
2.
That you intend to commence recovery
action if the amount is not repaid within
a short period, such as seven days, and
additional costs and interest may be
incurred if that happens.
Often, upon receipt of the letter of
demand, your customer will make payment
of its debt. If this does not occur, the letter
is still useful because it can be relied upon
in any recovery proceedings.
Statutory demands
If your customer is a company that
owes you at least $2,000, an alternative
to a simple letter of demand is to issue a
statutory demand to that company.
The purpose of the statutory demand
scheme is to provide a quick resolution
of the issue of solvency of a company.
Accordingly, a statutory demand should
not be issued if the debt is disputed by
your customer, even if you believe the
dispute would be determined in your
favour. Where a debt is disputed, recovery
proceedings should be commenced by
claim in a court with the appropriate
jurisdiction to determine the claim.
A statutory demand takes a particular
form prescribed by the Corporations Act
and Regulations. If the debt demanded
is not a judgment debt, it must be
accompanied by an affidavit attesting to
the belief of the deponent the debt is
due and payable, and there is no genuine
dispute about the debt.
The company has 21 days from the date
of service to comply with the statutory
demand. Compliance requires the company
to either pay the amount demanded or
reach agreement to pay by instalments.
Alternatively, the company may apply to
the Supreme or Federal Court to set aside
the statutory demand on the basis there
is a genuine dispute as to the existence or
amount of the debt, or the company has
an offsetting claim.
In the absence of compliance with the
statutory demand within 21 days, the
company is deemed insolvent unless an
application to set aside is filed and served.
An application to wind up the company
may then be made to the Supreme or
Federal Court on the ground the company
failed to comply with the statutory
demand and is deemed to be insolvent.
The advantage of issuing a statutory
demand is it places pressure on the
company to either pay the amount claimed
or to go to the expense of applying to set
aside the statutory demand within 21 days
of service. Also, there is no need to have
first taken recovery proceedings to obtain
a judgment against the company for the
amount owed. There is also a risk any
assets the company has will be dissipated
during any recovery proceedings taken.
However, it must be remembered the
courts apply a low threshold of what
constitutes a ‘genuine’ dispute and a
statutory demand will usually be set aside
if the dispute is merely ‘plausible’. If this
happens, a costs order will probably be
made against you in favour of the debtor
company. Even if the debtor company
fails to have the demand set aside, the
process of recovery will have been delayed
and you will have incurred additional
legal costs for which you might never be
reimbursed.
Recovery proceedings
Recovery proceedings should be
commenced promptly if the letter of
demand is not answered. For a customer
who is either an individual or a company,
you will need to file a statement of claim
in a court with the appropriate jurisdiction
to determine the claim.
If a defence is not filed within the time
provided in the jurisdiction in which the
proceedings are commenced, you may
apply to the court for default judgment
against your customer. This will require
you file an application with supporting
evidence to show the debt remains
outstanding.
If a defence is filed which does not
disclose any proper legal (as opposed to
factual) grounds, consideration ought
to be given to applying to strike out the
defence and to seek summary judgment.
However, if this approach is to be taken,
our experience is the court will usually
provide a defendant with a second chance
to amend the defence if there is an
arguable defence available.
Once the Court has entered judgment,
some thought should be given to the form
of enforcement. If credible information
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