Victor beware

WORDS: Brendan Nyst - Nyst Legal PHOTOGRAPHY Supplied - Lucy Cole Real Estate

Securing a judgment is often the first, not last, step in obtaining money from a debtor.

I’ve got a court judgment in my favour. When do I get my money?

There is a common misconception among many lay people that getting money out of a debtor is as simple as getting a judgment from the Court. Unfortunately, that’s not necessarily the case. Sometimes, obtaining a judgment turns out to be the easy part, while actually getting the money out of the recalcitrant debtor becomes a much trickier and more frustrating exercise.

Of course, the starting point is always to serve notice of the judgment on the debtor and demand payment accordingly. Usually, the judgement will be honoured. But what if it isn’t?

In that case, ordinarily there are two ways of enforcing a judgment. The first is through what are called enforcement proceedings. This is a process whereby the debtor is compelled to disclose to their creditor all manner of information and documents relating to their financial status, from details of their income and assets to car registration details, copies of bank statements and loan accounts. That process gives the creditor an opportunity to fully investigate the debtor’s financial affairs to identify what money or other assets of value they have and where they are held.

Depending on what that process discovers, the creditor can then apply to the court for various orders, including warrants requiring the debtor’s banks to transfer any money held in the debtor’s accounts to the creditor to satisfy the debt, warrants requiring any third party debts due to the debtor to be redirected to the creditor, writs of execution preventing the debtor from dissipating real property assets, or a garnishee order re-directing part of the debtor’s wages or other entitlements to pay the judgment debt.

In determining whether to issue such orders, the court will need to consider whether and to what extent they may cause the debtor undue financial hardship in depriving them of money necessary to meet their daily living expenses. That means, of course, that while the debtor may have some income or assets in their name, the court may not take them if it comes to the view that the individual needs them to live. So, after all that time, expense and effort, bringing enforcement proceedings against a debtor with no significant assets can end up being a completely fruitless, and even costly, exercise.

An alternative to enforcement proceedings is to have the debtor declared bankrupt. If the debtor owes at least $5000 and refuses to pay what is owed, a creditor can petition to have a bankruptcy trustee appointed to manage the assets of the debtor. The role of the bankruptcy trustee involves identifying all assets and income streams of the bankrupt debtor and ensuring they are realised and directed to the benefit of creditors. With bankruptcy comes a slate of restrictions on the debtor, including but not limited to potential travel restrictions and an inability to act as a director of a corporate entity. Additionally, the negative stigma that follows a bankrupt individual, sometimes long after they have been discharged from their bankruptcy, can have a significantly detrimental impact on their ability to do business, obtain finance and enter other commercial arrangements.

For all those reasons, most debtors will want to avoid bankruptcy like the plague. Faced with that prospect, it is not uncommon for even the most recalcitrant debtor to find the money to pay out a creditor threatening bankruptcy proceedings.

In the case of corporate debtors, creditors can elect to issue a Statutory Demand, giving the debtor 21 days to pay, failing which the creditor can apply to appoint a liquidator to the company. As with the creditors petition process, often an application to wind up a company will result in a payment from the company in order to avoid liquidation. However, the process of applying to wind up a company and appoint a liquidator is not a cheap exercise, so any creditor considering going down this path needs to first do a careful cost/benefit analysis to determine whether the option is likely to have real bang-for-buck.

Before launching into any debt litigation, careful consideration needs to be given to the debtor’s asset pool and unique circumstances, to make doubly sure good money is not being thrown after bad.