Statute Barred Debt - JHK Legal Commercial Lawyers

18 April 2023

Statute Barred Debt

Written by Hannah Cavalieri


Once a debt is outstanding for a certain period of time, the debt becomes “statute barred”. This means that a debtor will have a complete defence if a creditor attempts to commence proceedings to recover the debt.

Each Australian jurisdiction has its own legislation governing the time frames in which creditors can recover debts. Legislation governing the time limits on the rights of creditors to commence court proceedings for the recovery of debts are known as limitation acts. In most Australian states, including New South Wales, Victoria and Queensland, a creditor must commence civil proceedings for the recovery of a debt within six years from the date the debt becomes due. Should a creditor fail to bring a claim within the six year period, the debt may become statute barred, and the creditor will forego its right to recover the debt.


In some circumstances, a creditor may be able to extend this limitation period. In the event a debtor acknowledges a debt, the time prior to the acknowledgement may not accumulate towards the limitation period, effectively “resetting” the limitation period. In order to effectively extend the limitation period, a creditor must establish that the debt was acknowledged by the debtor prior to the expiration date, either by way of an acknowledgement of the debt or by way of payments which can constitute as such acknowledgement.


Case law provides that to establish an acknowledgement of debt, there must be an express or implied admission that the debt is due, further, the acknowledgement must be in writing and must be signed by the maker.

In Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71 Gibbs CJ said: “Where the claim is for payment of a debt, an acknowledgment, to be sufficient, must recognise the present existence of the debt.”
Gibbs CJ agreed with Kerr J in Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565 who said that: “To acknowledge a claim, as a matter of ordinary English, signifies an admission that it is due. There is no acknowledgment of a debt unless there is an admission that there is a debt . . . outstanding and unpaid.”

In consideration of the above, to constitute an acknowledgement of debt, a debtor must provide an express or implied admission that the debt is due, or, act to recognise the present existence of the debt.


Payment or part payment made towards the debt by the debtor may act to extend the limitation period to commence from the date of the last payment, not from the original default.

Where a debt relates to multiple invoices, each invoice has its own separate cause of action and is therefore considered to have its own limitation period.

Therefore, a creditor must establish that all of the Invoices are in relation to one cause of action under a “running account” by demonstrating that there is an active account between the creditor and the debtor.


A running account is where the account runs from day to day and anticipates further debts to be incurred, accumulating the debt. Payments made towards the running account would be credited against the total balance as opposed to each individual invoice. This would allow the limitation period to extend on the running account as opposed to individual invoices.

The effect of successfully establishing that a debtor had a running account with a creditor would be that a partial payment by the debtor in relation to the running account could act to confirm the debt and effectively restart the limitation period from the date of the last payment.

If it is established that a running account between the creditor and the debtor existed, a creditor may refer to the last payment made in relation to the account to determine the new expiration date.


Where the debt is statute barred, the expiration of the limitation period is considered a complete defence to any proceedings commenced.

Creditors should be aware of the risks associated with pursing a debt where the statutory limit has expired. In order to proceed with claiming that a running account existed to avoid the debt being statute barred, a creditor would be required to convince the court that (i) payments were made on a running account and (ii) any payment towards the running account restarts the limitation period.

Caution must be exercised when trying to enforce statute-barred debts. In Collection House v Taylor [2004] VSC 49, the Supreme Court found that it was unconscionable for the debt collector to represent that legal action could be taken to enforce a statute-barred debt.

In all states aside from New South Wales, the respective legislation does not prohibit a creditor from receiving payment of statute barred debt, however such payment must be offered voluntarily. A creditor must not demand payment of the debt and must not represent that legal action could be commenced.

It is important to note that the limitations imposed in relation to statute barred debts do not apply to judgment debts. That is, where a court has made an order against a debtor for the payment of a debt, the judgment debt remains enforceable for a period of at least 12 years (or 15 years in South Australia and Victoria) to enforce and recover the debt. JHK can assist creditors in commencing recovery proceedings and obtaining a judgment to further extend the period in which a debt may be recovered.

Creditors must take care to ensure recovery proceedings are recovered within the time frame specified by the relevant legislation, in order to avoid forgoing their right to recover the debt.

JHK is well versed in debt recovery and can assist in determining if a debt is statute barred. JHK can also assist creditors in ascertaining whether an acknowledgement of debt has occurred, and accordingly, whether time limits imposed may be extended. Please contact us if you would like more information about the services we provide.