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Debt Collection

Debt Collection

You may have the best business in the world but if your clients are not paying your bills, your business will not survive. The old saying goes, cash is best. However if you have to give credit, there are a few things that should be remembered to protect yourself.

Things to consider before extending credit

Effective debt recovery begins with effective documentation of the transaction. This entails more than merely getting a signature on a piece of paper. Think about the information you will need if you have to sue to recover the debt. Here are some things to consider:

  • is the debtor a natural person, a company or some other type of entity?
  • have you confirmed the identity of the debtor by requesting proof from an individual or have you considered conducting a company or business name search?
  • have you confirmed the personal and business addresses of each of the debtors?
  • have you recorded all this information accurately in the contract?
  • have you conducted a credit check on the debtor and, if applicable, its directors or proprietors or promoters?
  • have you identified fully and precisely the money, goods or services to be provided?
  • have you specified precisely when payment is due?
  • have you specified precisely what will happen if payment is not made by the due date?
  • if you want to charge interest, have you specified precisely the rate to be charged, the method of calculation and the date from which interest will run?
  • if you are selling goods, have you made clear precisely when title to the goods passes to the purchaser and have you included a “Romalpa” or “retention of title” clause? For those not familiar with a “Romalpa” clause, it is a term in a contract that states that the title or ownership to the goods do not pass till payment is received.
  • if there is to be a course of trading, have you obtained the debtor’s agreement and signature to a comprehensive and well-drafted “Terms of Trading”?
  • if the debtor is a company, or if you have some doubts about ability to pay, should you get personal guarantees from third parties? Do you have a well-drafted form of Guarantee?

You should have the debtor’s agreement to your terms before you perform your part of the transaction. It may not be enough to rely on your terms of trading on the reverse of your invoice.

You must enforce your terms, otherwise you are sending an implicit message to the debtor that you do not care. How you enforce your terms is a matter for your commercial judgment.

The best thing to do is immediately after the due date, an “account rendered” be sent, specifying a new due date. If the debt is still not paid, refer the matter to a lawyer for legal action.

The longer a debt is left unpaid, the harder it will be to recover. It must be made clear to the debtor that you will not let up until you have been paid.

Remember that, if you have to sue to recover your debt, the Court will require you to prove your case. Careful documentation of the transaction, and of your enforcement action, will play a very important part in that proof.

What happens if the debtor still refuses to pay.

A solicitor will usually send a letter of demand to the debtor. A simple letter of demand would cost between $60-$100.00. A letter of demand will usually threaten the issue of a summons to recover the debt if the debt is not repaid within a further 7 or 14 days.

In the event that the debt is not paid, you then have to discuss with your solicitor whether you should proceed with the next step which is to issue the summons.

Your solicitor will then have to explain to you which Court he will commence the action in.

Which Court

The West Australian court system is made up of many different courts, boards and tribunals, each with their own jurisdiction, which determines the types of cases they can hear.

Courts of Western Australia








Supreme Court

Constituted under the Supreme Court Act 1935. Is a superior court of record and the highest in the State. Civil, criminal and appellate jurisdictions at highest level.


Civil :

Judge sitting alone (occasionally jury)

No limit on monetary jurisdiction.

There is one Supreme Court registry located in Perth.

The court sits primarily in Perth but judges conduct circuit court sittings at 11 regional centres in Western Australia. Provision exists to sit at Christmas and Cocos Islands.


District Court

Constituted under the District Court of Western Australia Act 1969. Is the intermediate court of record in the State. Civil, criminal and appellate jurisdictions.

Civil : Up to $250,000 for monetary and general damages; unlimited for personal injuries.

The principal registry is located at Perth.

The court sits primarily in Perth but circuits are conducted at 11 regional centres.

Civil matters may be filed at regional centres.


Magistrates’ Courts

Civil Jurisdiction :

Local Courts Act

Civil :

Local Courts Act Claims for recovery of debt up to $25,000. Presided over by a magistrate.

A Small Disputes Division exists with a limit of $3,000. This division also deals with residential tenancy disputes to a limit of $6,000. The Clerk of Local Court can sit on residential tenancy disputes with consent of the parties.

Major registries of the Local Court and Court of Petty Sessions are located in Perth.

5 other registries are located in the metropolitan area.

22 registries are located in regional centres within Western Australia. There are registries at both Christmas and Cocos Islands

Boards & Tribunals of Western Australia

Tribunal etc  






Small Claims Tribunal Small Claims Tribunals Act 1974. Referee sitting alone. Consumer/trader disputes under $6,000. The registry is located in Perth. The tribunal sits primarily in Perth, but referees sit in country centres on an as-needed basis.

For the purposes of this newsletter, I shall concentrate on proceedings in the Local Court.

Local Court

The Local Court deals with civil cases involving claims for debt, damages and residential tenancy matters. It has two divisions – small and general disputes.


  • most claims for debts or damages up to $25,000

Small Disputes

  • claims for debts and liquidation sums of money up to $3,000
  • residential tenancy matters involving amounts up to $6,000
  • Legal representation in this division is not permitted unless certain conditions are met

You should seek legal advice if you are in doubt about whether or not to commence action or if things get out of hand.

Parties are encouraged to try and reach an agreement or settlement before taking action. This can save them time and expense.

Sometimes , it may not be commercially viable to issue a summons against a debtor. This is especially the case where the debt is for a small amount. A small amount may be anything below $1,000.00-$3000.00. As I always tell my clients, “principles cost money”. To sue someone on principle when the amount claimed is a small amount is not always commercially viable as the cost may outweigh the benefits to be obtained.

The other problem is when the person you are suing has no known assets. Then, you may be throwing good money after bad.

It is best to discuss any potential claims with your solicitor before proceeding.

Issuing the summons

To commence action, the plaintiff (that is the creditor) must issue a summons to the defendant (that is the debtor). The summons must include full names and addresses of the parties plus full details of the claim. The summons is then lodged (with the appropriate court fees) either in person or by mail at a Local Court.

Serving the summons

It is the responsibility of the plaintiff to serve a copy of the summons upon the defendant. An additional fee may be paid at the time of lodging the summons for the court to appoint someone to serve the summons. Alternatively, the summons may be served by the plaintiff or a process server. It is the plaintiff’s responsibility to ensure the defendant’s address for service of the summons is correct.

After the summons is served – the defendant

Upon receiving the summons, the defendant should respond, within the period specified (usually 10 days), by either:

  1. Admitting to the debt – Judgment will then be entered for the plaintiff for the amount claimed. Payment can only be made direct to the plaintiff. If you cannot pay the debt in full you must negotiate time to pay with the plaintiff.
  2. Disputing the debt – Consider the following alternatives
  • approach the plaintiff with a view to resolving the claim
  • seek legal advice
  • file a defence at the court of issue (a fee will be payable)
  1. Admit part of the debt & defend balance – As per “disputing the debt” however you must ensure you carefully read and follow the instructions on the back of the summons form as there are additional steps you must take.
  2. Not responding to the summons – As a result, judgment may be entered in favour of the plaintiff for the full amount of the claim including costs for the issue of the summons.

Admitting or confessing to a debt in full – the plaintiff

If the defendant admits to the full debt, the plaintiff will receive a Notice of Confession of Debt from the court with details of any offer to pay in full or by installments. The plaintiff does not have to accept any offer to pay by installments and defendants are encouraged to contact the plaintiff prior to lodging the confession.

Disputing a debt in full or in part – the plaintiff

The plaintiff will be advised by the court if the debt is disputed either wholly or in part. The plaintiff may then accept the part admitted by the defendant and judgment will be entered for that amount or alternatively, the plaintiff may request the matter be listed for a pre-trial conference.

The pre-trial conference

The pre-trial conference is conducted by the Clerk of the Local Court. It is a chance for the parties to clarify issues in an attempt to settle the matter. If the matter is not settled and the action is ready, the next step is to proceed to trial. I would say that 60% of Local Court cases settle at the pre-trial conference stage. If the matter is not settled then, the clerk will arrange for the matter to be heard before a magistrate in a trial.

The trial

The trial is conducted in a courtroom by a magistrate. The plaintiff and defendant are required to attend. The plaintiff may be allowed to proceed with the case if the defendant has been advised and fails to attend.

Usually, the plaintiff’s case is presented first, however different procedures may be observed at the hearing of small debts actions. The defendant is able to ask questions or cross examine each witness. When the plaintiff’s case is completed, the defendant’s case is presented. The plaintiff is able to ask questions or cross-examine each witness. Both parties then have the opportunity to summarise. The magistrate will determine the matter and make a decision. An order for costs (court fees) may then be sought by the successful party from the unsuccessful party. If the successful party was represented by a solicitor they may seek additional costs based on a costings scale.


The decision of the magistrate is known as the judgment. The successful party is known as the judgment creditor, and the unsuccessful party is known as the judgment debtor.

If the judgment debtor does not make an acceptable proposal to pay the debt and costs to the judgment creditor, the judgment creditor may enforce the judgment by a number of methods. The most common methods are a judgment summons or warrant of execution.

Judgment summons

The judgment creditor may apply for a judgment summons to be issued. This requires the judgment debtor to come before a court and be examined as to their means to pay the debt either in full or by periodic installments. After considering the evidence, the court may order the repayment of the debt at a reasonable rate.

Warrant of execution

The judgment creditor may apply for the issue of a warrant of execution. This empowers the bailiff to seize and sell the judgment debtor’s goods and/or land. The proceeds of sale are applied to the judgment debt and costs.


Appeals against decisions of the Local Court are made to the District Court.

This is just a small snippet of information on debt collection. It is advisable that you are aware of your rights as a creditor as soon as possible. However, it is also important to be aware of the practical side of court actions.

Tan and Tan take instructions on debt collection and would be glad to listen to your problems and try and find a solution to them.

“To cut a long story short”

I once acted for a lady who loaned quite substantial amounts of money to a close and personal friend. As usual in such personal matters, no records or agreements were signed. The defendant denied the moneys were loaned and created a big smoke screen to try and hide the real issues as to when and how the loans were made. The case turned on the credibility of the parties. It was fortunate that although my client did not keep proper records and evidence of the loans, the Magistrate believed the reason why the moneys were loaned and the fact that the moneys were loaned. The case was laborious because of all the issues raised by the defendant’s in an attempt to avoid liability for the debt.

We won the case and got judgement against the defendant and quite a substantial amount of cost. However, the problem was that the defendant had sold her house in between the lengthy Court proceedings which had to be adjourned on several occasions.

My client had to bankrupt the defendant on a matter of principle as the judgment was not able to be executed due to the fact that the defendant was impecunious.

Moral of the story:

Proper documentation would have enabled the debt to be more easily pursued in Court. If proper documentation was entered into prior to the transactions, it would have reduced the possibility of the defendant to try to create any delaying or diversionary tactics. Any loans to friends or for that matter any body should be evidenced in writing by a solicitor.

On the Light Side…

God strolls to the gates of heaven to talk to St. Peter. He says “Peter, you look tired, why don’t you take a vacation, kick it in the Caribbean for a week or two, and I’ll watch the gates.” So, St. Peter goes on vacation.

An engineer comes to the gates, God takes a look at him, and says, “You’re in the wrong place.” So he turns around, feeling quite rejected, and goes down the escalator to the gates of hell. There the devil greets him with open arms. After about a week, the engineer decides hell is just too hot and uncomfortable, so he talks to the devil and arranges to have water piped in, air conditioning installed, and swimming pools built. So after a month of construction, hell is getting to be a nice tropical place to be.

God calls the devil and asks, “So, how are things down there, pretty hot, huh?”

And the devil replies,” No, actually it’s pretty nice. We have an engineer down here who helped us pipe in some water and air condition the place.”

God says, “No, wait, that’s a mistake, the engineer was supposed to be up here.”

The devil says, “Too bad, we’re keeping him.”

God is angry: “I want that engineer, I’m going to sue.”

The devil smiles his most confident smile and says, “Yeah? Where are YOU going to get a lawyer??? They come straight to me. Hahahahahahahahaah.”