I am often asked what options are available if a customer fails to pay their bills. So, this month, I wanted to give a brief overview of the procedure for pursuing claims and enforcing judgements.

If you are successful, costs such as legal fees may be awarded against the unsuccessful party to help you cover the costs of obtaining legal advice. If a debtor ignores your payment reminders or denies the debt, here are some formal steps to take:

DEMAND LETTER
A demand letter is a formal request for payment. It should clearly set out why you are entitled to payment and specify a payment deadline. A well-written demand letter can sometimes lead to a settlement or prompt the debtor to pay, especially if they wish to avoid further legal costs.

STATUTORY DEMAND
If the debtor is a company, you can issue a statutory demand, a legal notice demanding payment of an undisputed debt over $1000. The requirement for a statutory demand is outlined in section 289 of the Companies Act 1993. The demand must be in writing and served on the company.

A statutory demand is a useful tool to compel payment, but it should only be used if you are prepared to take steps towards liquidating the company if the owners don’t pay rather than merely as a means of collecting the outstanding debt.

ISSUING COURT PROCEEDINGS

If a demand letter or statutory demand does not lead to payment, you may need to take the debtor to Court. There are three jurisdictions depending on the debt amount owed.

DISPUTES TRIBUNAL
For debts under $30,000 you can file a claim with the Disputes Tribunal. The tribunal is an informal setting where both parties represent themselves. Decisions are made by a referee and the resulting order is legally binding, analogous to a Court judgement.

DISTRICT COURT
The District Court hears debt claims up to $350,000. General proceedings are commenced by filing a statement of claim, notice of proceeding and a list of documents relied on. After filing, the debtor has 25 working days to file a statement of defence. If a statement of defence is not filed, and where the claim is for unliquidated damages, the plaintiff may apply for judgement by default.

HIGH COURT
The High Court hears debt claims over $350,000 and for cases involving bankruptcy or liquidation.

For simple cases in both the District Court and the High Court, where the debtor has no lawful defence, an interlocutory application for summary judgement can “fast-track” the approach for obtaining a judgement without the need for a trial.

Under the Limitation Act 2010, claims must be filed within six years from the date the debt arose, although some exceptions are set out in the Act.

ENFORCING A COURT JUDGEMENT

Once you have obtained a judgement, you can apply for an enforcement order to collect the debt. There are five main avenues available through the District Court but a financial assessment hearing may be a useful first step to ascertain the debtor’s financial position.

At a financial assessment hearing, the debtor must provide evidence of income and expenses and your lawyer can cross-examine them on oath about their assets, liabilities and their means to pay the debt. If a debtor fails to attend, a warrant for their arrest can be sought.

ATTACHMENT ORDER
An attachment order directs the debtor’s employer or benefit provider to deduct from their earnings and pay an amount to you as the creditor. Up to 40% of their income can be allocated this way.

CHARGING ORDER
A charging order places a “hold” on the debtor’s assets that are identified in the order, such as property, and prevents the debtor from dealing with or selling these assets until the debt is paid.

WARRANT TO SEIZE PROPERTY
Such a warrant allows a court-appointed bailiff to enter the debtor’s premises, seize personal property and sell them to recover the debt. The bailiff is not authorised to take tools of trade (to a value not exceeding $5000) or necessary household furniture items, including clothing (to a value not exceeding $10,000).

SALE ORDER
A sale order is available in the High Court. It is similar to a warrant to seize property but assets such as land can also be seized and sold.

GARNISHEE ORDER
A garnishee order allows you to collect the debt directly from money owed to the debtor by a third party. For example, a bank may be ordered to pay money directly to the creditor if there is money held in a debtor’s bank account.