Navigating Local Court Debt Recovery – What You Can Expect

Introduction

Whilst often overwhelming, if you are facing a debt recovery matter in the Local Court, it is important to understand the process.

Local Courts often handle a variety of debt disputes, and knowing the steps involved can often help you prepare and navigate the proceedings more effectively.

This article will guide you through the key stages of a debt recovery matter in the Local Court in NSW. It must be noted that the Local Court in NSW will deal with debt recovery claims up to the amount of $100,000.00.

Understanding these steps can help provide you with clarity on the process, whether you are a creditor seeking to recover a debt owed to you or a debtor defending against a claim.

Step 1 – File a Statement of Claim

In order to commence debt recovery proceedings in the Local Court, a Statement of Claim must be filed with the relevant court.

A Statement of Claim is a document that sets out the details of your claim, including the amount you are owed and why you are owed those funds.

If your Statement of Claim is not drafted correctly, then a court may choose to dismiss your claim or find in favour of the debtor.

Once the Statement of Claim is filed, it must be served on the debtor. If your debtor is a company, the Statement of Claim may be served to them by posting the letter to their registered office by pre-paid post. However, if the debtor is an individual, the document must be personally served. This means that the documents must be handed to them and there are specific requirements around this.

Upon serving the Statement of Claim, the debtor will have 28 days to either settle the debt or file a Defence.

Step 2 – Defence / No Defence

Once the Statement of Claim is served and the 28 days has elapsed with no payment to the debt the matter will progress in one of two ways:

Undefended Proceedings

If no Defence is filed and payment has not been made, you are entitled to apply to the court for Default Judgement. To apply, you will need to submit an Affidavit confirming the debt is still owed and an Affidavit of Service to confirm that the Statement of Claim was served on the debtor properly.

A Default Judgement is a judgement made by the court where the debtor has failed to respond to the Statement of Claim. Here the court will make a decision based on the information presented in the Statement of Claim and if it is drafted correctly, the court may award judgement in your favour and the debtor will be legally required to make payment of the debt to you.

It must be noted that even if a court enters a Default Judgement against the debtor, there is no guarantee they will make payment or that they won’t try to have the Default Judgement revoked. If a Default Judgement is entered and the debtor still refuses to make payment, you may need to take enforcement action to recover the debt, which would now be referred to as the Judgement Debt.

Defended Proceedings

However, if your debtor does not believe that they owe the whole or part of the debt, they will likely file a Defence with the court. The Defence will outline why they believe they are not required to pay the debt.

Common Defences in a debt recovery matter include:

1. The debt has been paid;
2. The goods have not been supplied or they were defective; or
3. The services were not performed or they were not performed to the appropriate standard.

From here, the court will make orders to get the proceedings underway.

Step 3 – Evidence and Hearings

From this point, there will be several court hearings. They include:

1. Initial Hearing / First Call-over – the court will list the matter, generally six weeks from when the Defence is filed. The purpose of this call-over is to give parties directions on how the proceedings are to go ahead.
2. Directions Hearing – this hearing is generally 28 days after the initial hearing / first call-over. At this hearing the court will set a review date, set a trial date and give any additional directions.
3. Pre-trial Review – the purpose of the pre-trial review is to allow the court to review and confirm that all the previous court directions have been complied with. It also allows the court to check that the proceedings are ready for trial and see if a settlement can still be reached.
4. Final Hearing – this is the final hearing where the Judge or Magistrate determines the claim, gives their judgement and finalises the proceeding.

At the final hearing, the court will enter a judgement stating whether the debtor is required to pay in full or part, the debt.

If the court finds in favour of the creditor, you may also be entitled to payment of interest and your costs.

Step 4 – Enforcement

You may be required to enforce a Judgement Debt, if the court finds in your favour, whether that be at a final hearing or with a Default Judgment.

Enforcement will be required where, despite the judgement made against them, the debtor still fails to make payment.

Read our article “You have a judgment debt in your favour – now what?” for an in-depth summary of enforcement methods.

Contracts Debt Recovery Dispute Resolution & Litigation

Can I recover legal costs as part of debt recovery?

Can I recover legal costs as part of debt recovery? Operating a small to medium-sized business can be highly rewarding both personally and professionally. However, it also has potential to present some challenging situations, especially when a debtor is unable or unwilling to pay money for products or services provided....

Read more

Debt Recovery Dispute Resolution & Litigation Restructuring and Insolvency

Debt collection basics for business

Debt collection basics for business If you are owed money for goods or services, the first step in attempting to recover it is generally to send a letter of demand to the other party setting out the amount of money outstanding and giving them a defined period of time within...

Read more