Debt Recovery in Victoria
Debt recovery is the process of recovering an amount of money that is owed by a party to another party. A debt may relate to the payment of money for goods and services of some kind, or to some other transaction. There are a number of ways of recovering money owed by a debtor in Victoria.
Letters of demand
The first step for a creditor to take in the pursuit of the payment of a debt is to send a letter of demand to the debtor. This is a letter asking the debtor to pay back the money within a certain time frame, failing which the creditor will take the matter further, usually to a court or tribunal.
If you are a creditor writing a letter of demand, you should be careful not to harass or intimate the debtor. Your letter should be purely factual, setting out how the debt was accrued, the amount owed and the date by which payment is demanded.
If you do not receive an answer to a letter of demand, or if the debtor refuses to pay back the money, you can begin to take steps to recover the debt through the Victorian Courts and/or tribunals.
Which court or tribunal you commence proceedings in will depend on the amount of the debt owing to you.
Victorian Civil and Administrative Tribunal
A debt recovery matter may be initiated in the Civil Claims List at the Victorian Civil and Administrative Tribunal (VCAT) if it relates to a consumer and trader dispute. A consumer and trader dispute must involve a dispute between a supplier and purchaser (or possible purchaser) of goods and services.
VCAT can also hear specific debt matters that arise out of other legislation – for example retail landlords seeking to recover rent under the Retail Leases Act 2003.
A person wanting to apply to VCAT in relation to a debt recovery matter must complete an Application to Civil Claims List form.
In VCAT matters that involve a debt of less than $10,000, parties are not permitted to have legal representation at VCAT hearings. In some matters, VCAT may make an order for costs.
If you are a creditor and are successful in obtaining an order for the debtor to repay you and the amount of the debt is less than $100,000, you may apply to the Magistrates Court to enforce this order if payment is not forthcoming.
The Magistrates Court has jurisdiction hear debt recovery matters involving debts of up to $100,000. It does not have a small claims division.
To initiate a claim in the Magistrates Court, a person must draft a Form 5A Complaint, outlining your claim. Once you have filed this complaint with the Magistrates Court, you need to serve (or hand deliver) the complaint to the debtor yourself (you can also get a process server or a lawyer to do this instead, if it is impractical or unsafe to do so yourself).
Once the documents have been served, the debtor then has 21 days to either pay the claim or decide to defend the matter, which they can do by filing a Form 8A Notice of Defence with the Magistrates Court. If they do not respond within the 21-day period, you may apply to have a default judgement entered against them.
Once the defendant has filed and served the response, the court will often organise a pre-hearing conference to try and resolve some or all of the issues in dispute. It may also transfer the matter to VCAT if it considers that the matter would be better handled there.
If the pre-hearing conference does not resolve the matter, it will then proceed to a hearing at which the matter will be decided by a magistrate. The magistrate will decide on the balance of probabilities, whether the debt is owed or not. If he or she finds that a debt is owed, there are a number of orders that can be made including an order that the defendant repays the plaintiff and pay the plaintiff’s legal costs.
Debt recovery matters involving more than $100,000 can be dealt with by the Supreme Court. However, it is much more costly and time-consuming to take a matter to the Supreme Court than to VCAT or to the Magistrates Court.
It is important to note that under the Limitation of Actions Act 1958, a debt recovery matter must be commenced within six years of the date the debt arose.
A party that is owed money but does not want to litigate may wish to consider mediation. Mediation involves an independent third party (the mediator) assisting parties in resolving the dispute themselves.
There are various agencies that offer alternative dispute resolution services for free or at a low cost. For example, the Victorian Small Business Commissioner offers mediation at for $300 for a half-day or $600 for a full day.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.