Issuing Legal Proceedings: the Commercial Way

Acting on principal when issuing legal proceedings seldom leaves creditors happy with the outcome. The purpose of this article is to outline the things creditors should turn their mind to before instructing a solicitor to issue legal proceedings against an individual, and how the early consideration of enforcement options may assist with making a commercial decision.

But what if I do not know where the debtor lives?

In circumstances where the debtor is an individual, the first question a creditor should ask themselves is, ‘do I know where the debtor resides?’. As basic as this question may seem, it is often a creditor’s undoing for the simple fact that, if you do not know where the debtor resides, you may not be able to serve them with legal proceedings. A creditor could outlay significant monies in professional fees and filing costs on legal proceedings only to find out that they cannot serve or progress the claim any further.

When considering this issue, some options are open to you as a creditor:

1. Instruct an agent to conduct a skip trace, which is, in short, a series of searches with the ultimate goal of locating the debtor; and/or
2. Make a substituted service application, which is an application made to the Court seeking orders that you be dispensed with the requirement of personal service and be able to serve the debtor by some other means. The only catch to this is that you can only make a substituted service application in circumstances where you reasonably believe that, if the documentation were to be, say emailed to the debtor, that the documentation would come to the debtor’s attention in a timely manner.

So you know where the debtor lives, now what?

Creditors are already in the red, therefore, it is important that they do not throw good money after bad, and evaluate their enforcement options at the outset to ensure that their chance of a recovery is more likely than not. Therefore, the next consideration should be:

1. What enforcement options are available; and
2. Are any of the available enforcement options likely to produce a positive return.

By way of example, the Magistrates’ Court of Victoria holds the jurisdiction for debts less than $100,000.00. Therefore, should a creditor elect to go down the path of issuing legal proceedings in that jurisdiction and be granted default judgment, they have the option to begin any of the following enforcement proceedings:

1. Summons for Oral Examination;
2. Warrant to Seize Property;
3. Attachment of Earnings;
4. Attachment of Debt; and
5. Bankruptcy.

So what options would best suit my case?

Whether one or all of the aforementioned enforcement options are available to a creditor is evaluated on a case-by-case basis.

Summons for Oral Examination

Whilst a Summons for Oral Examination is not an enforcement proceeding per se, it is a useful investigative tool, in so far as it acts as a fact finder for creditors who have little knowledge on the debtor’s financial circumstances and thus, means to pay. Meaning creditors can make an informed decision as to whether they push through with an active enforcement option, or pull the pin and cut their losses.

Warrant to Seize Property

A Warrant to Seize Property is an enforcement option which enables a Sheriff to attend the debtor’s address and make demands for payment. If payment is not made, the Sheriff can seize certain available assets of a sizable amount for sale to recover the debt. A Warrant to Seize Property is therefore a useful enforcement option for creditors who know that the debtor has assets capable of seizure and sale.

Attachment of Earnings

The prerequisite of an Attachment of Earnings application is not only knowing where the debtor is employed, but also ensuring that the debtor is not self-employed, or receives their sole income from Centrelink or other government benefits. If creditors can satisfy the three aforementioned requirements, an Attachment of Earnings is what we would classify as one of the most effective enforcement options on the market, as it takes the payment responsibility away from the debtor and allows creditors to receive instalments directly from the debtor’s income.

Attachment of Debt

An Attachment of Debt is much like an Attachment of Earnings, but instead of receiving money directly from the debtors’ income, creditors can recover their debt from a third party. Often creditors choose an Attachment of Debt to redirect funds from a debtor’s bank account in order to satisfy the debt.

Bankruptcy

We take this opportunity to note that bankruptcy is not to be used as a debt collection tool. However, we have noted it given it is an option available to parties with a judgment debt to enforce. A creditor may seek to issue a Bankruptcy Notice and bankrupt the debtor in circumstances where the debt is $10,000.00 or greater. Once the Bankruptcy Notice is served on the debtor, they will have 21 days to pay the amount outstanding, failing which, the debtor is deemed to be insolvent, and bankruptcy proceedings could be commenced should the creditor wish to proceed with this course of action.

In hindsight

Having reviewed the above, it is clear to understand why creditors who issue on principal or jump into issuing legal proceedings without having considered the viability of each enforcement option, and thus the commerciality of their claim, often wished they had. As the saying goes, hindsight is a beautiful thing.

Given that each enforcement option has its own prerequisites (with the exception of a Summons for Oral Examination) and are thus not all applicable to each creditor, it is good practice to consider your enforcement options at the forefront.

How has the Covid19 Pandemic impacted enforcement options in the Magistrates’ Court of Victoria?

The Covid 19 Pandemic has certainly forced most workplaces to have a quick crash course on technology, and the Courthouses are no exception to this. The early stages of lockdown saw all the enforcement options being adjourned, with process servers and sheriffs also temporarily adjourning their service and execution attempts.

As it currently stands, most hearings are being conducted online via an audio-visual link meaning in most circumstances, the requirement for personal attendance by the parties and their legal practitioners is being dispensed with. Whilst the approach may change at the time of reading this article, as it currently stands, hearings are still being conducted offsite. Therefore, to conclude, the two final considerations are:

1. Whether the courts are listing enforcement proceedings; and
2. Whether process servers and/or sheriffs are serving or executing.

How we can help you

If you require any further information or assistance with your debt recovery matter, our team at JHK Legal are happy to assist you. Please feel free to contact us.

Written by Laura-Ann Rullo