Australia collection profile

Australia
       

Australia

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2013: 10/189 countries
 
 


Complexity of collecting debt:

grading
Notable High Very High Severe


Executive summary

  • The payment behavior of domestic companies is good compared to international standards. However, delays are registering a deteriorating trend and average DSO now stands at 50 days.
  • The court system is complicated by the country's federal structure and provides no fast track proceedings for the settlement of undisputable claims. The courts are otherwise efficient, but delays and costs tend to be significant and enforcing foreign judgments may prove difficult.
  • Insolvency proceedings are complex and expensive, and chances of recovery are very low.
 
General Information GENERAL INFORMATION arrow-transparent
 
Collection Practices COLLECTION PRACTICES arrow-transparent
Court Proceedings Court PROCEEDINGS arrow-transparent
 
Insolvency Proceedings INSOLVENCY PROCEEDINGS arrow-transparent
 
General Information 

GENERAL INFORMATION

Days Sales Outstanding (DSO)

Payment behavior of domestic companies remain good compared to international standards, with payments in Australia normally taking place within 30 days on average (measured from the end of the month in which goods are deliverd or services are supplied). However, delays are registering a detetriorating trend and average DSO now stands at 50 days (2015 figures).​

 

Late payment interest

Government agencies are required to pay small businesses within 30 days of receipt of a correctly rendered invoice, otherwise penalty interests may apply (as determined under section 22 of the Taxation Administration Act 1996). In business-to-business relations, however, late payment matters are not regulated and must be dealt with by the parties directly.

Collection costs are usually not chargeable to the debtor unless the contract outlines precisely which costs may be considered. Often, the costs are not recuperated as the parties prefer settling claims amicably, but they nonetheless constitute efficient negotiation tools.

 
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collection practice 

COLLECTIONS PRACTICES

Orchestrated negotiation first

Amicable settlement opportunities should always be seen as the most efficient alternative to formal litigation proceedings because Australian law does not provide for fast track legal proceedings.. In practice, the Australian authorities have set up various pre-legal action mechanisms (under the Civil Dispute Resolution Act of 2011) to encourage the parties to negotiate and settle commercial dispute prior to commencing a court trial. Before starting legal proceedings against a debtor, assessment of assets is important as it allows verification as to whether the company is still active and whether recovery chances are at good. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt (see below). For undisputed debt above AUD 2,000, creditors may alternatively send the debtor a request (Statutory Demand) to pay within twenty-one days and threaten to file a petition for liquidation if the time limit is not respected (under section 459E of the Corporations Act 2001).

 
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Court Proceeding 

COURT PROCEEDINGS

The court system in Australia may be complex because the country has a federal government structure and it is composed of two internal territories (the Northern Territory and the Australian Capital Territory) and six sovereign States with reserve powers. Each has its own legal system and laws, which sometimes adds complexity despite ongoing harmonization efforts taking place. There are no specific tribunals for commercial matters, but there are certain specialized divisions within existing courts (i.e. the Commercial List, the Admiralty Division, etc.). Therefore, depending on the quantum of the claim and the cause of action, large commercial disputes are usually brought to the Federal Court of Australia (the FCA sits in all capital cities) or to the Supreme Court in one or another territory. As a general rule, though, Local Courts or Magistrates Courts (names may vary from one State to another) are competent to decide on claims up to AUD 40,000 in South Australia, AUD 100,000 in Victoria and New South Wales, or AUD 150,000 in Queensland. District Courts are competent to decide on claims up to AUD 750,000. Supreme Courts would rather be competent with claims in excess of AUD 750,000.

If the amicable phase fails, or if the debtor questions the claim, the option of starting legal proceedings remains even though it tends to be lengthy and costly when the claim is defended. Ordinary proceedings would typically take place as follows: although there is no mandatory obligation to request payment in writing before taking legal action, a Demand Letter recalling the principal and interest due is advisable. In order to commence formal proceedings, a Statement of Claim must be served to the debtor, who must then abide by the decision or file a defence within thirty days (delays may be granted depending on geographical factors). Failure of the debtor to comply with the rules entitles the creditor to apply for a default judgment. Otherwise, the court would organize hearings and define a timeline for the proceedings (discovery phase allowing lawyers to question the parties, mediation phase). Remedies ordered by the court may take the form of compensatory damages, specific performance orders, restrictive injunctions or restitution orders. Punitive damages are available in tort cases but remain unheard of in debt litigation proceedings. It is also worth adding that commencing the lawsuit before the competent court in the Debtor's place of registration usually helps prevent procedural delays due to lack of jurisdiction arguments. Class Action (lawsuit involving a group) proceedings are also increasingly common in Australia.

 
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insolvency Proceeding 

INSOLVENCY PROCEEDINGS

Insolvency in Australia is merely a cash flow matter and Section 95A of the Corporations Act 2001 (Cth) states that a company remains solvent if (and only if) the company is able to pay all the company’s debts when they become due. Insolvency proceedings are expensive and complex so usually used as a last resort. However, the National Personal Insolvency Index (a public register in electronic format) provides a list of insolvent companies. Therefore, the threat of initiating insolvency proceedings (through a statutory demand letter) may constitute an effective means of pressure whilst collecting unpaid debt. In practice, insolvency proceedings tend to follow a final judgment or result from the debtor's failure to comply with a statutory demand within twenty-one days (in which case proceedings occur before the Federal Court). Section 459P of the Corporations Act provides for different proceedings:

 
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