Skip to content

Debt Recovery

Debt Recovery Lawyers Melbourne

If you are acting as a creditor (an individual or entity that has loaned money or assets to another individual or entity, pending repayment), a knowledge of debt recovery procedures, regulations, and services will ensure you receive remuneration in the case that a client is unable or unwilling to pay back what they owe to you.

Bad debt, or credit that becomes useless in the event that a client doesn’t honour their repayment obligations, is often a result of mismanagement of the initial client selection and engagement process.

Debtors (individuals or entities that have received credit in the form of a loan which they must repay under conditions outlined by the creditor/s) may be unaware of their obligations to creditors, in which case a friendly payment reminder may be sufficient means of avoiding any dispute. Occasionally debtors may be unable to meet their obligations due to unforeseen expenses or a one-off circumstance, in which case the issue may be resolved through negotiations with the creditor.

However, debtors may refuse to honour a debt that they owe, or may even claim that they are unable to make the required repayment/s, in which case legal action is likely to be required for the creditor to receive remuneration. Creditors may engage in lawful debt recovery in a variety of ways, including a variety of litigation tactics aimed at ensuring debtors fulfil their legal requirement to repay debt.

Likewise, if you are the target of debt recovery proceedings and believe that the ongoing terms of your credit arrangement are unreasonable or unjust, you may mount a legal defence against a debt recovery claim issued by your creditor/s.

Legal advice regarding debt recovery is provided by Victoria Legal Aid, a free state-run service. Business Victoria also hosts a variety of information that is relevant to both creditors and debtors on its website.

Advice for Creditors

It is recommended that you keep a record of all correspondence between you and the debtor, as well as records of any missed or late payments by the debtor. Such information is highly valuable if you plan to commence legal proceedings in order to recover debt.

Debt recovery is often a process of escalation

In the event that a debtor misses a payment deadline, it is advisable to issue them with a courteous reminder in the form of a phone call, email etc. Debtors may forget the terms of their credit agreement, or be subject to unforeseen consequences that result in them missing a repayment. If this is the case, a courteous reminder may be all it takes to resolve the situation and avoid any further conflict.

Should the reason for a missed payment be more serious, and the reminder does not cause the debtor to make the required payment, you may issue another reminder. In the case that the debtor misses another payment deadline following the first courteous reminder, or if they have failed to contact you since the initial missed payment deadline, you may issue an overdue payment reminder.

If the creditor still has not paid, including with the extended payment deadlines, you may again contact them. You may elect to send them the outstanding invoice along with a formal request for payment as a final notice. At this stage, you may also consider making direct contact with the debtor, i.e. visiting them in person at a reasonable time. This may help demonstrate the severity of the situation, and may even salvage relations between you and the debtor.

Under the state Consumer Credit Code, creditors are required to send specific notices before they may take further action toward collecting a debt. In addition to the methods listed above, a statutory notice such as a letter of demand may be issued to the debtor by the creditor to satisfy this requirement.

A letter of demand formally requests a debtor to pay their debt and informs them that the creditor will sue them if they fail to pay. The creditor may commence litigation if the letter of demand is ignored, or its requirements are not met by the debtor. In the letter of demand, as well as all previous correspondence with the debtor, a creditor must not use language that harasses or intimidates the debtor. If the creditor has harassed the debtor, the debtor may raise this in their defence during any subsequent legal proceedings.

Debt Collectors

As a creditor, you may wish to employ the services of a debt collection agency in an attempt to recover the unpaid credit owed by a debtor. It is important that as a creditor you ensure any agency you employ is adhering to fair debt collection practices as defined by Consumer Affairs Victoria. The Consumer Affairs Victoria website hosts an extensive list of banned debt collection practices and includes guidelines for Debt Collection. It is forbidden for harassment or intimidation to occur as part of a debt collection operation.

Advice for debtors

Occasionally circumstances may dictate that you are unable to make payments on the exact date that they are due. This may be especially relevant for small business debtors. In this case, creditors may understand your predicament and allow for you to pay when you are able. It is important to remember that your creditors most likely do not wish to harm relations with you, as you are a customer to them. With this in mind, it is of vital importance that you are proactive in managing your credit obligations so that you may avoid any legal action that may arise from a failure to pay your creditors.

If you believe that your creditors acting unreasonable in their debt recovery attempts, such as allowing you to be harassed by debt collectors, or imposing unreasonable fees upon you, you may be able to make a counter claim against them in Court or through the Victorian Civil and Administrative Tribunal. It is important that you seek legal advice if you are considering such action, as a failed action may cause you even greater financial harm then your outstanding debts have already created.

Legal Proceedings (Creditor)

If the above measures fail to recover the debt owed by a debtor, you may commence litigation. It may appear obvious from the outset that the debtor is unable to meet their obligations, in which case you may seek the advice of a legal professional to ensure that the above measures are handled in a way that will make any subsequent legal proceedings less complicated. Legal services may also be able to assist you by mediating a debt dispute before litigation commences.

As a creditor, you have two options when commencing litigation. Under the Victorian Australian Consumer Law and Fair Trading Act 2012, you may be able to submit a claim to the Victorian Civil and Administrative Tribunal (VCAT). VCAT often handles commercial disputes involving amounts under $10,000 (known as small claims). Under the Act, VCAT also processes claims larger than $10,000. However, you must consider the fact that both parties generally have to cover their own legal costs incurred through VCAT proceedings.

Alternatively, you can pursue a debt recovery claim through your local Magistrate’s Court. The Victorian Magistrate’s Court hears claims involving amounts of up to $100,000. A claim may be made to a higher Court for a higher or more complex matter. Generally, legal action must be commenced within 6 years of the dispute occurring.

Should they proceed to Court, a creditor may request a Summons for Oral Examination, where the debtor is called to give evidence of their financial situation, if it is unknown. Other orders that may be made by the Court include an instalment order, attachment of earnings, or enforcement of a successful judgement by the Sheriff’s office under a warrant to seize property.


Under the Bankruptcy Act 1966 (Cth), once an individual is declared bankrupt, creditors are generally unable to take further action against them. Under sections 109 and 116 of the Act, upon being declared bankrupt, an individual’s assets will be placed under the care of a trustee, and subsequently redistributed amongst creditors.

The Bankruptcy Act 1966 as well as the Bankruptcy Regulations 2021 ensure that debtors who are legitimately unable to meet their credit obligations are given a fresh start, and that creditors receive some form of remuneration following the liquidation of a debtors assets. Debt recovery legal action may result in forced bankruptcy if the debtor is unable to pay the amount required.

This situation is not ideal for creditors as the debtor’s liquidated assets may not raise enough money to cover the costs of legal proceedings/ the original amount owed by the debtor. Under the Act creditors may force bankruptcy through litigation in the event that a debtor refuses to meet reasonable credit obligations. 

Winding Up and Administration

If the debtor is a company, the Court has power to ‘wind it up’, which also results in a liquidator being appointed to distribute assets evenly among creditors. If the company is found to have a core business that ensures it can continue to generate revenue, it may be placed under administration. Courts may appoint an Administrator, who is independent of the company.

Administrators may hold a meeting with creditors to decide whether to liquidate the company, or allow it to continue trading under the supervision of administrators in order to generate revenue to pay back creditors. Under these circumstances, the company’s directors will need to execute a Deed of Company Arrangement, allowing creditors to take payment from the company. Once the credit has been repaid, administrators return control of the company to its directors.

Legal Proceedings (Debtor)

If you have received a letter of demand from a creditor, it is advisable that you pay the amount owed immediately if you are able to. If you believe that the amount is unreasonable due to additional fees incurred by you for missing the original deadline, or if the amount exceeds that agreed upon during the original negotiation of the contract, you may defend yourself against the claim in Court.

It is highly advisable that you attempt to resolve the dispute outside of Court in order to avoid legal costs. If you are an individual, the Court may also force bankruptcy should you be unable to pay the amount lawfully required of you, resulting in the liquidation of your personal assets.

Pursuing mediation is likely to be the best cause of action for you as a debtor. The Victorian Dispute Settlement Centre provides free mediation services. However, you may wish to have the mediation conducted on your behalf by a solicitor. At the time of publishing, the general service of the Dispute Settlement Centre of Victoria has been temporarily closed, to focus on renters and rental providers resolving disputes listed in VCAT.

How to Avoid Debt Recovery Disputes

It is important that creditors minimise the risk of creating bad debt by:

  • Performing thorough background checks on individuals or businesses before offering them credit;
  • Imposing ‘safe’ credit limits for customers. The higher the relative amount loaned to a debtor, the higher the risk that they may not be able to meet their credit obligations;
  • Ensuring that it is as easy as possible for debtors to meet their payment obligations, by clearly stating payment options and terms of the credit agreement on invoices and contracts;
  • Offering incentives for debtors who make repayments early.

In addition to the above, it is of vital importance that any staff working for the creditor are aware of the creditor’s payment terms and debt recovery procedures. This ensures that customers will have access to this information should it be required, and that staff are able to better inform debtors of their obligations.

Occasionally, staff may be tempted to ‘bend the rules’ and offer credit to debtors where it may be inadvisable to do so. This may be due to the offering of sales incentives or commissions.

LGM Advisors offer cost-effective and timely debt recovery services, including:

  • Preparing a statement of claim to demand payment from a debtor.
  • Commencing judgement against a debtor should no action be taken within 28 days of the statement of claim being issued.
  • Obtaining garnishee orders, which involves a court ordering a third party (such as an employer) to pay a creditor instead of a debtor.
  • Participating in examination summons, which require a debtor to appear in court to answer questions regarding their financial situation, including assets, debts, and expenses.

The above information is provided by way of an example only, and advice and the debt recovery process may vary for particular situations. If you need the services of a debt recovery lawyer in Melbourne, contact LGM Advisors today on (03) 9832 0608 or by email at

Helpful links:

Magistrates Court of Victoria

County Court of Victoria

The Supreme Court of Victoria

Federal Court of Australia