Government changes to debt enforcement what options do I have now?

Article written by Mark Smith

On 22 March 2020, the Government announced measures to assist businesses with the impact of the current economic conditions arising from the COVID-19 pandemic.

The measures announced which are specific to insolvency and corporation law regimes are:

  • temporary increases to the threshold at which creditors can issue a statutory demand (from $2,000 to $20,000);
  • temporary increase to the threshold at which creditors can initiate bankruptcy proceeding (from $5,000 to $20,000);
  • increased time periods for responses to statutory demands and bankruptcy notices from 21 days to six (6) months;
  • temporary relief for directors from insolvent trading liability (although egregious cases of fraudulent or dishonest insolvent trading may still attract criminal actions).

The changes are currently before Parliament and are awaiting the bill to be passed this week. The changes will be implemented for a period of six (6) months.

It is a difficult time for businesses and individuals during this period and these changes will help reduce the impact of businesses being forced to close down and individuals becoming bankrupt.

But what does this mean for Creditors?

A Creditor can still commence legal proceedings and/or enforce any judgment obtained against a debtor in the following ways:

  1. Claim and Statement of Claim – a Claim and Statement of Claim (“Claim”) can be filed in the relevant court. If the debtor does not respond to the Claim within 28 days from being served with the Claim, the Creditor can apply for Judgment. This has the effect of showing the defendant has a judgment against him or her but then you need to look for options to enforce in most circumstances quickly.
  • Writ on Title – Once Judgment has been obtained, a creditor can apply to the court for an enforcement warrant for seizure and sale of the debtor’s property. This allows the creditor to place a writ over title of the debtor’s property, sell the debtors property and have the proceeds of the sale applied to the satisfaction of the judgment. A writ of title remains valid for a period of six (6) months in Queensland. This option hasn’t been affected by Covid-19 in terms of timing to issue a writ but public auctions where you would sell the defendant’s property to satisfy the creditor’s debt may now be delayed by government orders of this week. Such writs can be extended for another 6 months, so in terms of today’s Covid-19 atmosphere, this could be a viable option for creditors, to effectively “secure” a debt or judgment owed.
  • Caveat on Title – A Caveat can be lodged on title of the debtor’s property but will only remain in force for a period of three (3) months until it automatically lapses. The Creditor can secure the Caveat (ie prevent automatic lapsing) by filing a Claim and Statement of Claim in the relevant court to have their caveatable interest recognised on title.
  • Garnishee of Wages – Once Judgment has been obtained, a creditor can request that the debtor complete a statement of financial position and provide supporting documents. Based on the documents received by the debtor it can be determine whether the court would grant a redirection of earnings (garnishee order for their employer) on the debtor.
  • Enforcement Hearing – in the event that the debtor fails to complete the statement of financial position within fourteen (14) days, an application can be made to the court for an enforcement hearing summons. If granted, the courts will set down a date and time for the debtor to appear at court to complete the statement of financial position and provide supporting documents. Should the debtor fail to appear at court, an application can be made for an arrest warrant against the debtor.

Another option relates to if businesses have in place effective terms and conditions, the right to register a mortgage over the debtor’s property may arise. This again could be a very effective way to secure a creditor’s debt or judgment owed.

If you are unsure as to whether you can commence legal proceedings against a debtor, given the current changes to the insolvency and corporation laws, please feel free to contact SLF Lawyers and we can provide you with advice which best suits your objectives and the debtor’s financial position.

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