The (not so simple) art of debt recovery
By Gavin Stuart, Partner at Bartier Perry and Max Mikha, Lawyer at Bartier Perry
Running a successful hire and rental business is never easy. Even when business is booming, businesses are faced with the unenviable task of chasing payment of outstanding invoices. For some, this can be a painful and gruelling task. On the flip side, the unfortunate reality is some businesses struggle.
Consider this scenario: Your business is having a cashflow problem. You have several outstanding invoices and bills to pay. You have no present means to pay the invoices. Creditors and debt collectors are chasing you for payment. You are worried your business will go under. One particular creditor has called and emailed you 100 times a day for the past week insisting ‘Pay up’ or else…
For both above situations, business owners often ask themselves “What do I do?”
Over the past decade, the Australian Competition and Consumer Commission (ACCC) and the Australia Securities and Investments Commission (ASIC) have endeavoured to regulate how debts are recovered. They have released a joint debt collection guideline which aims to further educate businesses on the debt collection process. You can find the current version of the guidelines at: https://www.accc.gov.au/publications/debt-collection-guideline-for-collectors-creditors
The important question: who is a debt collector?
A common misconception is only a debt collection agency or firm is a ‘debt collector’. In reality, a debt collector can be anyone who collects a debt on behalf of a business. If you actively chase debtors for payment on behalf of your hire business, you may be deemed to be a debt collector. Keep this in mind next time you are chasing an unpaid invoice or seeking to recover unpaid debts because in doing so, you may be inadvertently breaching your obligations under the Australian consumer protection laws. No unsolicited daily visits to the debtor’s house requesting they repay any outstanding debt!
When the ACCC comes knocking
Debt collection is constantly under scrutiny from the ACCC and ASIC. Businesses who fail to adhere to the debt collection guidelines and the Australian consumer protection laws risk:
- Damage to their reputation – ASIC and/or the ACCC may commence proceedings against a business which could lead to a loss of customers.
- Costly repercussions – businesses may be forced to spend a significant amount of money defending claims made by ASIC and the ACCC. It may also take time away from the actual running of the business which could have a detrimental impact on the performance of a business.
- The business becomes the public’s business – judgments in court proceedings are often publicly available information and can be read by anyone. Also, ASIC and the ACCC often publish media and press releases when convictions and orders are made.
The do’s and don’ts of debt recovery
The Australia Consumer Law (ACL) sets out a number of protections that debt collectors need to be aware of.
1. Debt recovery is NOT a contact sport
Debt collectors are prohibited from using physical force, undue harassment and coercion when recovering debts. The ACCC successfully brought a claim against a company of which two employees physically held down a person while their vehicle was repossessed. The company was restrained from engaging in conduct of that nature in the future and was required to pay the ACCC’s legal costs. The company employees involved in the physical altercation were also ordered to attend a trade practices compliance seminar.
Tips for collecting debts
- Abusive language will not entice a debtor to pay their debts – it is best to always act reasonably.
- Attempting to negotiate is often more successful that continued harassment and coercion.
Tips if you are being chased for debts
- Keep a detailed log of your contact with debt collectors.
- Keep detailed notes of their conduct during the recovery process
2.Tell me lies, tell me sweet little lies
Debt collectors breach the ACL if they mislead or deceive debtors when attempting to recover debts, even if they didn’t intend to mislead or deceive. The ACCC was successful in a claim against a company that misled and deceived debtors by pretending to be an independent debt collection agency. In this circumstance, the company and two directors were fined over $500,000, the directors were disqualified from being directors for three and two years respectively and an employee was also fined for their involvement.
Tips for collecting debts
- If you are unsuccessful in recovering your debt, engage a debt collection agency or lawyer to act on your behalf. This often saves the stress of having to deal directly with the debtors.
Tips if you are being chased for debts
- Know your rights. The ACCC and ASIC guidelines are informative and easy to read.
- Lodge a complaint with ASIC or the ACCC if you believe a debt collector has acted improperly.
3. The good, the bad & the ugly
Debt collectors are prohibited from engaging in unconscionable conduct. This occurs when a debt collector knowingly takes advantage of a vulnerability of a debtor. Examples of vulnerabilities include a debtor’s age, mental or physical capacity, inability to understand what is happening and a lack of education.
Tips for collecting debts
- If you believe a debtor might be vulnerable or have a special disadvantage, act in a way that objectively takes it into account and encourage them to seek assistance.
Tips if you are being chased for debts
- If there is anything you do not understand when a debt collector approaches you, do not be afraid to say so, ask for help or seek advice.
Please note these are not the only issues that may arise between debt collectors and debtors. You should consider the ACCC and ASIC guidelines or obtain advice if you believe a debt collector has acted improperly.
Contact: 02 8281 7800 or visit: www.bartier.com.au
