Obtained a Judgment Debt against a debtor? Top tips for enforcing payment.
Where a creditor obtains a court judgement requiring a person to repay a debt, there’s a chance that the judgment debtor will not comply. In this instance, the judgment creditor must seek to enforce payment of the judgment debt.
This insight covers the various steps and processes in taking enforcement action against a debtor.
- There are numerous ways of recovering debt in NSW and how a judgment debt can be enforced.
- To have a debt paid, it is important to enforce it early by taking the most appropriate avenue for your circumstance.
- If an individual owes you money, consider issuing a bankruptcy notice to shortcut obtaining a result from a Court to have your debts repaid. If the debtor doesn’t comply, the next step will be seeking the Court to have them made bankrupt and to appoint a trustee who will distribute assets.
- If a company is owing you money, you should consider issuing a statutory demand on the debtor, which will require the debtor to repay the debt within 21 days. If this is not complied with, then the company will be deemed insolvent (unable to pay debts as and when they fell due) and consequently, an application can be made to the Court to appoint a liquidator and have the company wound up.
- If the circumstances are not appropriate for service of a bankruptcy notice or a statutory demand (e.g. because it is a small debt), other options include:
- Serving an examination notice;
- Applying for a garnishee order; or
- Applying for a writ for levy of property.
These options will be discussed further in this insight.
What is a Judgement Debt?
A ‘judgment debt’ is an order of a Court or Tribunal against a person (debtor) to pay money. In New South Wales, a judgement debt can be enforced for 12 years after the date of the judgment.
The rules governing enforcing a judgment are in the Civil Procedure Act 2005 (NSW).
- Examination Notice
An examination notice is a specified Court form, completed and sent to the judgment debtor, seeking that the judgment debtor provide details about, including but not limited to, their income, employment, and assets & liabilities, along with how they propose to pay the judgment debt.
The judgment debtor must respond to the examination notice within 28 days of its receipt. An examination notice assists creditors in determining the best way of collecting the money, because it provides information about the debtor and the availability of assets of the debtor.
- Examination Order
If the examination notice is not complied with, then a judgment debtor can apply to the court for an examination order. This requires the judgment debtor to attend Court, answer similar questions as requested in the examination notice, and provide the same financial documentation. Once the examination order form is completed, it must be served on the judgment debtor personally.
An examination hearing will then take place for you and the judgment debtor to attend in an informal process to discuss the judgement order, and is an opportunity to ask the debtor for relevant information about their assets and availability of funds, including from bank accounts, wages and third parties that owe money to the debtor.
- Garnishee Order
A garnishee order is given by the Court to a third party, known as the garnishee, who holds money on behalf of the judgment debtor, or who owes the judgement debtor money. Garnishee orders can be for wages and salary, or debts owed to the debtor, or bank accounts where the debtor’s money is held.
An application can be made to the Court for an order to have money deducted from the judgment debtor’s wages or salary and paid to you, or otherwise from the debtor’s bank account, or from payments collected from the judgment debtor’s debtor (third parties owing the judgment debtor money).
If you obtain a garnishee order directed to the employer of the judgement debtor, it must be properly served on the employer and must be an originally issued garnishee order from the Court.
A garnishee order for debts can be sent to individuals or companies who owe the judgment debtor money, or who hold funds on their behalf.
There are some circumstances where a garnishee order cannot be used. These include pension payments in bank accounts, Centrelink payments or other government support benefits, superannuation funds, amounts invested in shares or capital by the judgement debtor, pending insurance payouts, or from lawyers holding funds on trust.
The most common type of writ is a Writ for Levy of Property authorising a sheriff to seize or sell at auction personal or real property of the judgment debtor to pay the debt. This type of writ lasts for a period of 12 months from the date of issue.
The process will include the sheriff attending the debtor’s property to identify available assets, and to “seize” the assets for the purposes of auctioning the assets to recover the debt.
There are some difficulties with such writs, including debtors avoiding their assets being ceased by claiming they do not own assets at their home. There are also some difficulties in circumstances where the sheriff will require the creditor to deposit a bond for the costs of the auction, even though those costs are recoverable if assets are sold and there is sufficient money from the auction.
- Bankruptcy and creditors petition
Where the judgement debtor’s debt is greater than $10,000.00 and the debtor is an individual, a bankruptcy notice can be served. A bankruptcy notice must be served on the judgment debtor at least 21 days before taking any action, to give them a final opportunity to pay the debt or enter into a payment plan.
If the judgment debtor fails to comply with the bankruptcy notice, then they are deemed to have committed an “act of bankruptcy”, and the creditor can then prepare a creditor’s petition which is lodged with the Court, seeking to make the judgment debtor a bankrupt.
Once a Court makes an order for the debtor to be bankrupt, a trustee is appointed, who collects all the assets of the bankrupt and can then distribute payments to the creditors.
- Creditors statutory demand and winding up
A creditor’s statutory demand can be issued where debts are greater than $2,000.00 and the debtor is a company. A statutory demand is a legal document requiring the debtor to pay the debt within 21 days of receipt. Alternatively, the judgment debtor can apply to have the demand set aside. If the company fails to address the demand, it will be presumed insolvent, and the creditor can apply to the Supreme Court of NSW or Federal Court of Australia to wind up the company.
Winding up is similar to bankruptcy. It involves the company being wound up and a liquidator is appointed to take control of the company, investigate the financial affairs of the company, recover and liquidate all assets and make payment to creditors.
If you require advice or assistance in relation to a debt and your specific circumstances, contact us today on (02) 9189 5288.
Craig Higginbotham and Nicole Sarraf
29 June 2023