Introduction

Whether in Australia or China, when doing business, negotiating a collaboration or taking on a project, the greatest fear is not being paid. Everyone understands that legal action may be available at that point, but some people still worry:

Will it take a long time to obtain a court result?

Even with a result, does that mean the money can actually be recovered?

What if I am dissatisfied with the court’s judgment?

Must you wait a long time? Must the matter necessarily be taken all the way to court? Must…

If you are in Australia, how can the legal system help you as a creditor, and what “tools” are available?

In fact, under Australia’s legal framework, creditors have a complete and effective set of debt-recovery tools. The key is to act promptly. Today, NS Legal provides a simple and clear explanation.

1. Before Taking Action, Organise the Following Materials:

– Contracts, service agreements or quotes

– Invoice

– Delivery records and evidence of completed work

– Communication records, including emails, text messages and WeChat messages

– Any document capable of proving the transaction and the debt

In short, before formally pursuing a debt, first confirm whether you have sufficient evidence. The more complete the evidence, the smoother the subsequent collection and legal processes will be.

2. Do Not Pursue the Debt Haphazardly; Make a Formal Demand

Many people seeking advice say, “I have chased them many times, but they keep delaying.” We then ask how they have pursued the debt. Most people have repeatedly used the same content by telephone, email or WeChat. It is normal and reasonable to use the most convenient communication method for the first few reminders. However, if that approach does not produce an effective result, it is advisable to issue a formal Letter of Demand.

A properly prepared Letter of Demand should generally include:

The amount owed and the basis for it

A payment deadline, generally 7 to 14 days

A statement that legal action will be taken if payment is not made by the deadline

If you need to issue a formal Letter of Demand, you can contact NS Legal.

In practice, many debtors in Australia recognise the seriousness of the matter after receiving a formal lawyer’s letter. At the same time, the Letter of Demand is important evidence in any subsequent legal proceedings.

3. Commence Proceedings and Obtain a Court Judgment

If the Letter of Demand is ineffective, rejected or ignored, court proceedings should then be considered.

A lawyer will generally draft and file a Statement of Claim.

If the other party does not respond within the prescribed period, the court may enter a Default Judgment.

If the other party disputes the debt, both parties will need to submit evidence to the court, and a judge will determine:

Whether the debt exists;

The amount owed;

Whether interest and legal costs must be paid.

Once a Judgment is obtained, the debt becomes a legally recognised debt, making it difficult for the other party to continue denying or delaying it.

Step 4: Issue a Statutory Demand

For a company that owes a debt, a Statutory Demand is often one of the most powerful legal tools.

After obtaining a court judgment, if the debtor still refuses to fulfil its payment obligation, the creditor may serve a Statutory Demand on the debtor company.

Under Australia’s Corporations Act:

The company has only 21 days to respond;

It must either pay the debt;

Or raise a valid legal objection.

If it neither pays nor raises an objection, the law will presume that the company is Insolvent.

The creditor will then be eligible to apply to the court for compulsory winding up.

Most businesses take a Statutory Demand seriously because receiving one means the matter has reached a stage that may result in the company being wound up.

Step 5: Creditor’s Winding Up

If a company still has not responded within 21 days after receiving a Statutory Demand, the creditor may apply to the court for a Winding Up Order.

Once the court approves the application:

Control of the company will pass to a Liquidator;

The company’s assets will be investigated and realised;

The proceeds will be distributed to creditors in the statutory order.

Although this step involves higher legal and liquidation costs, it is often the most effective final measure for a debtor that has refused to pay over a long period or deliberately delayed payment.

A Special Reminder from the NS Legal Team:

1. The Earlier You Act, the Better the Prospects of Recovery

When doing business or undertaking projects, Chinese people in particular often worry about personal relationships. When a debt or dispute first arises, they may think, “Surely it does not need to damage the relationship.” However, the debtor may not see it that way. Alternatively, if genuine financial problems have left the debtor unable to pay, their assets will often continue to diminish.

The greatest mistake many creditors make is continuing to believe empty promises such as “I will definitely pay next month”, and consequently missing the best time to recover the debt.

2. Keep Written Records of All Communications Wherever Possible

After a telephone conversation, it is best to confirm the discussion by email or message.

A complete written record not only assists with later proceedings, but may also become important evidence in court.

3. Act Immediately If a Company Enters Liquidation