CRISIS FEATURE
DEBT RECOVERY IN TIMES OF CRISIS It is no surprise that the multiple lockdowns and restrictions imposed by governments due to COVID-19 have caused serious financial strain on many Australian businesses. Although we can now see the light at the end of the tunnel, some businesses are yet to recover and/ or are struggling to re-establish their cash flow to keep them trading solvently. This has a domino effect on the industry, where one business fails to pay their debts on time, thus affecting another businesses cash flow and so on. However, there are ways to help reduce, if not prevent, falling into this pattern.
4. Offering early payment discounts ½
½
Review and understand the following clauses in your agreements: ½ ½
½
½
director’s guarantee clause;
½
penalty interest clause;
½
enforcement costs clause;
½
enforce the agreement where necessary – don’t shy away from referring to it in your correspondence and enforcing it when you need to.
2. Accurate and safeguarded payment claims ½
½ ½
½
½
payment clause; each party’s responsibilities set out clearly;
all details, figures and itemisation of work is included; payment terms reiterated; Security of Payments Act phrasing included – “This is a payment claim made under the Building and Construction Industry Security of Payments Act 2002 (Vic)”.
½
½
½
have a set time for invoices to be sent out pursuant to your agreements ;
do not release goods and materials until payment is received;
½
½
½
do not release compliance certificates etc. for services until paid.
½
enforce the Security of Payment Act in the first instance; mediation and/or arbitration.
Internal process
½
½
½
always obtain deposits for work upfront;
Unfortunately, business is rarely black and white and regardless of implementing policies and procedures it is important to ensure you are aware of your rights and responsibilities to ensure you come out with the maximum return.
½
Debt collectors/solicitors
include and enforce PPSR clauses in your agreements ;
6. Dispute resolution avenues
½
3. Consistency with invoicing and reminder notices
organising payment plans can help keep cashflow in the green.
5. Strategic supply of goods and services
½
1. Your Contracts/Sub-Contracts/ Service Level Agreements
offering a small discount on invoices can help you get paid faster and build long-term working relationships ;
having automated reminders sent out assists debtors to pay outstanding invoices; sending a final notice when escalating matters; making direct contact to avoid lengthy legal process and assist in building a better working relationship; formally putting them on notice with a Letter of Demand.
½
enlisting a debt collection agency for a fee or percentage of the debt – they can register defaults on credit reports on your behalf, which gets flagged when creditors seek loans and credit accounts; engaging solicitors to escalate matters when necessary; remember, you are never guaranteed a favourable outcome, and will have some out-of-pocket expenses; in some cases, this can be the trigger to get some debtors to pay;
Voluntary administration/liquidation ½
½
½
½
regularly check the insolvency notices website to see if debtors are facing financial difficulties; contact administrators’ and negotiate for a percentage of debt to be paid or a payment plan and look at entering into a debt agreement, request a proof of debt form from the liquidators to be recognised as a creditor; attend creditor meetings or request the minutes so you can see, if any, the assets of the debtors against its debts; understand you may not get a return at all, and if you do it may be only 10%.
If you have questions on any of the above or require assistance with managing bad debts, contact your local NECA legal team – NECA ACT/QLD/NSW/TAS . . ... 1300 361 099 NECA SA/NT . . .................................. (08) 8272 2966 NECA VIC ........................................... 1300 632 247 NECA WA ........................................... (08) 6241 6129.
make sure invoices are sent out promptly and on time; send out periodic reminder notices, and if payment is not received after a set time issue final notices.
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Reem Hacioglou Constructive Legal Solutions www.constructivelegalsolutions.com.au
June 2022
