By Anica Cunanan, Solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group
Has the COVID-19 pandemic affected your approach to debt collection? Have you deferred debt collection, or accepted payment arrangements on matters which you would have previously sent for debt collection? The last few years have certainly tested the limits of creditors’ willingness to defer debt collection. However with debt collection generosity comes the very real risk that some amounts may no longer be available for debt collection. When considering leniency with your debt collection, it is important to know your limitations.
This is because when it comes to debt collection, there is a point when debts may no longer legally be pursued. Therefore, it is important to be aware of when debt collection will be ‘statute barred.’
All states and territories in Australia have legislation which limit the recovery of various actions and claims. For instance the Limitation Act 1969 (NSW) sets out various limitation periods for different claims, including debt collection. Once the relevant limitation period has expired, this will, in turn, extinguish the debt, therefore, debt collection will no longer be possible.
Most debt collection will be based on failure by a debtor to pay an agreed amount. In most cases this will be a breach of contract. The debt collection process seeks to recover an amount which the debtor agreed to pay. In NSW, debt collection in respect of contract is prohibited 6 years from when the debt collection claim – the ‘cause of action’ first arose. This will normally (but not always) be when the due date for payment has passed. Normally, in NSW at least, a creditor will then have 6 years to commence the formal debt collection process through commencing proceedings within the relevant jurisdiction. This period can extend up to 12 years, however, if the debt arises under a Deed. Normally debt collection which leads to judgment allows a creditor another 12 years to enforce that judgment, which can also be a handy limitation to know.
Knowing your limitations is important for debt collection so to is having debt collection systems in place to ensure limitation periods are not missed. Getting debt collection advice from a specialist debt collection lawyer can be critical in working out these limitations and any other critical legal issues – such as the difference between a deed and an agreement; or whether any exceptions or extensions may apply.
Some debt collection limitation periods may be affected by the following matters:
- the debtor makes a payment towards the debt;
- the debtor and creditor enter into a payment arrangement (or negotiate a discount); or
- the debtor acknowledges that the debt is owing.
In light of the above, good debt collection means knowing your limits, and considering these as part of any debt collection strategy including any generosity to debtors. Being well advised on debt collection limits can also give creditors the flexibility to know when to focus on debt collection, before leaving it too late.
Matthews Folbigg Lawyers has a specialist debt collection team dedicated to Insolvency, Restructuring and Debt Recovery.
If you would like more debt collection information or advice in relation to Insolvency, Restructuring or Debt Recovery practice and procedure, please contact Stephen Mullette or Jeffrey Brown on (02) 9806 7459 or (02) 9806 7446, or email stephenm@matthewsfolbigg.com.au or jeffreyb@matthewsfolbigg.com.au.
