A common problem for small businesses is outstanding debtors, especially when cash flow is imperative. Often these debts are small enough that the owners are unwilling to incur the expense and risk of pursing them.

However, the minor civil claims system is a simple and cost effective legal process for recovering debt of $12,000 or less.

So how does debt recovery as a minor civil claim work?

There are four steps in the process:

  1. Issue a letter of demand. This letter sets out your claim and provides notice of impending action if the debt is not paid within the 21 days.
  2. File a claim in the Magistrates court. This is then served on the debtor who has 21 days to file a defence with the Court.
  3. If the debtor does not file a defence you can obtain default judgment and proceed with investigation summons.
  4. An investigation summons brings the debtor before the Court where they are obligated to provide their financial information to determine the best course for repayment, such as a payment plan.

If this fails there are further enforcement procedures available if necessary.

You may also be able to claim a portion of your costs, as determined by a scale set by the Court, if your claim is successful.

What do I need to consider?

The most important thing to consider is whether you believe the debtor can actually pay. Even if the answer is no, it may be worthwhile to send a letter of demand as it may yield a positive result and you are not obligated to proceed further if it doesn’t.

You should also consider if the debtor has any basis to contest the action. If you believe they may contest the facts then you should consider the additional time and expense in proving your claim, potentially at trial.

If you have an outstanding debt you would like to discuss with Tasman at Hume Taylor & Co, make an appointment today.