Debt Recovery Health Checks

About the Author:

Holly Cassin

Litigation Solicitor at Cavell Leitch
Holly's background is in insolvency, working on receiverships and liquidations across a range of industries. She now focuses on debt recovery, insolvency and dispute resolution and finding practical solutions for clients.

---

Unfortunately, debt recovery is part of running a business. Too often businesses take stock of their debtor position when it might already be too late, for example when a debtor company has receivers or liquidators appointed.  It is good practice to keep on top of your debtors and to undertake debt recovery health checks for your business from time to time. 

SOME KEY AREAS FOR YOU TO CONSIDER ARE:

Terms and conditions

Your terms of trade are a contract between you and your customers/debtors. In order to best protect yourself should you not get paid, you should ensure that your terms of trade are clear and robust and, at a minimum should include the following:

• What happens if someone does not pay you on time, or at all;

• That you retain ownership of any goods that you supply on credit until they are paid for in full;

• Your ability to register against the debtor on the Personal Property Securities Register (further details below);

• Your ability to charge interest and debt collection costs so that you are not left out of pocket pursuing payments due to you; and

• A personal guarantee from director/s of the debtor company.

Personal Guarantees

Many companies are reluctant to ask new company customers to give a personal guarantee while they are trying to build a new relationship or grow an existing contract. However, if a company is solvent, its director should not be opposed to signing your terms to guarantee their company’s obligations to you.

If things do go wrong, having this additional option for recovery and enforcement (including obtaining judgment against a director personally and proceeding with bankruptcy) will strengthen your position and increase the chances of recovery. 

PPSR registration

The Personal Property Securities Register (PPSR) is an electronic register where financing statements are registered by creditors to notify other parties of their interest in goods they have supplied to a customer on credit. Anyone in New Zealand supplying goods on credit should consider registering their interest in these goods on the PPSR. If a company you are trading with goes into liquidation or receivership, it is ultimately the PPSR which establishes priority and whether you will get any of your goods supplied/money owed back. Prompt and accurate registration are critical to protecting your position. 

Pursuing for payment of overdue accounts

Prompt action is always best when pursuing overdue accounts. Do not let them sit on your ledger.

When negotiating with a debtor and potentially agreeing to settlement or payment plan terms, be careful not to prejudice your position in agreeing to a settlement/part payment which may later affect your ability to pursue the debt should the debtor default on their agreement with you. 

Take advice early on

There is a range of options available to pursue outstanding accounts. These include:

1. A letter of demand
   These letters are a demand for payment which shows that you are serious about collecting the debt due to you. These are often a cost effective first step in debt recovery.

2. Statutory demand 
   A statutory demand is a legal demand notice served under the Companies Act 1993. These can only be served on a company where a debt is greater than $1,000, and where no genuine dispute has been raised by the debtor regarding the debt.
   
   Service of the statutory demand (usually on the companies registered office) gives the debtor company 15 working days to pay you the sum demanded, otherwise you can apply to the High Court to put them into liquidation.

3. Other dispute resolution options
   If a dispute has been raised in respect of an invoice, general debt recovery proceedings can still be filed in the District Court, or if the debt is less than $15,000 your claim may be eligible for the Disputes Tribunal. Whilst lawyers can not appear in the Disputes Tribunal, we regularly assist clients in preparing their applications and for the hearing.
   
   Alternative options such as mediation or arbitration can be considered and written into your business’ terms and conditions. 

Obtain legal advice:

The above points are intended as a high level overview of some factors to consider as part of a general review of your company’s security and accounts receivable management. 

For further assistance, seek legal advice.

Holly Cassin

Litigation Solicitor
Cavell Leitch
03 379 9940

www.cavell.co.nz

---

Related Articles