Getting paid: from letter of demand to judgment

Before anything else, check the limitation period

An action on a simple contract debt must be brought within six years of the date the cause of action accrued: s 14(1)(a) of the Limitation Act 1969 (NSW). A part payment or a written acknowledgment of the debt restarts the clock. If the debt is close to six years old, that determines everything else.

The sequence

• Letter of demand. States the amount, the basis, and a date for payment. A court will read the letter later when it decides interest and costs. Overstating the debt or the basis can be used against you.
• Statutory demand, if the debtor is a company and the debt is over the statutory minimum and not genuinely disputed. Section 459E of the Corporations Act 2001 (Cth). Failure to comply within 21 days creates a presumption of insolvency. Do not use a statutory demand where the debt is genuinely disputed, because it exposes you to an application to set aside with costs.
• Statement of claim. Local Court to $100,000, District Court to $1,250,000. Filing fees scale with the amount and the court.
• Default judgment, if no defence is filed within 28 days.
• Enforcement. Garnishee order against wages or a bank account, writ for the levy of property, or an examination notice to find out what the debtor has.

Where recovery stops being economic

Below about $5,000, once filing fees, service and time are counted, a firm letter of demand and a payment arrangement usually beats litigation. Above $20,000 against a solvent debtor with assets, proceedings are generally worth running. In between, the decision turns on whether the debtor can pay.