New guidelines introduced in July 2015 by the Australian Competition and Consumer Commission (“ACCC”) and the Australian Securities and Investments Commission (“ASIC”) impact upon how creditors (or their agents) go about collecting debtor arrears.
The Debt Collection Guide (Guide) is designed to help debt collectors or those who use external collection agencies to understand how the Commonwealth Consumer Protection Laws (“CCP Laws”) apply to them.
It is important to understand that under the CCP Laws, a creditor may be responsible for their agent’s collection activities even if the agent acts in a way that is contrary to an agreement or understanding between the creditor and agent about how the collection is to be undertaken.
A creditor may also remain liable for conduct regarding a debt despite having sold or assigned the debt.
Whilst the Guide does not have legal force, both the ACCC and ASIC are encouraging businesses engaged in debt collection to follow the Guide and incorporate these into staff training.
What is in the Guide?
The Guide provides 24 guidance areas for reference when a creditor or their agent is seeking to collect an outstanding debt. Various case studies or practical examples are provided to assist the reader in interpreting the Guide. The importance of this is that it gives strong guidance on what a creditor or their agent should and should not do if they wish to minimise the risk of breaching the CCP Laws.
These steps range from making contact with a debtor (including what constitutes ‘contact’) to the types and frequency of contact that can be made to repayment negotiations and complaints handling.
An overview of the applicable CCP Laws is also provided in addition to other Statutory and Common Law obligations and remedies.
Some of the key takeaways include:
- When making contact with a debtor, ensure you are dealing with the debtor and that you identify yourself (i.e. confirm their identity and do not misrepresent your identity).
- If the debtor advises they are unable to pay, you are entitled to make reasonable enquiries regarding their financial position, particularly if they are seeking to make repayments over time.
- Legal obligations under the Privacy Act 1988 attach to the information collected from or about a debtor.
- Do not disclose information about the debtor to third parties (e.g. if an individual this includes work colleagues or spouse).
- Avoid contacting the debtor via a method that they have specifically requested not be used.
- Contact with a debtor must be made during reasonable hours (e.g. 7:30am to 9pm).
- Excessive contact with a debtor may constitute undue harassment (e.g. more than 3 times per week).
- A debtor is entitled to respect and courtesy and contact is to be free of intimidation or humiliation.
- The Guide considers face-to-face or “field” visits to be an option of last resort (particularly if seeking repayment from an individual at their workplace).
- Do not trespass.
- If a debtor has an authorised representative (e.g. financial advisor, solicitor or carer) then you should no longer contact the debtor directly.
- You should maintain accurate records of your dealings and communications with the debtor.
- Evidence of the debt being pursued should be provided on request.
- Care should be taken when making representations about the consequences of non-payment or the legal status of the debt.
Does this stop me getting my money back
The short answer is No. The Guide does not impact upon the legal enforceability of debts that a debtor owes to a creditor. This Guide is mainly concerned with non-court debt recovery processes and informal collection activities before a court action is commenced or after a court judgment.
The Guide does not limit any right creditors (or your client) may have to:
- take legal action to collect a debt;
- conduct legal repossession activities and other legal enforcement of legitimate security interests;
- seek and obtain pre-judgment remedies, e.g. orders to prevent the removal or transfer of property from the jurisdiction;
- enforce judgment through a court process – including examination hearings, instalment orders, orders for the seizure and sale of property, garnishment or attachment orders; or
- undertake all necessary procedures (e.g. for serving documents) associated with these actions.
However, the Guide does state that you must not threaten action (legal or otherwise) that you are not legally permitted to take, do not have instructions or authority to take, or you have no intention to take. How legal action is threatened or taken can, in certain circumstances, amount to misleading or deceptive conduct, unconscionable conduct or harassment. It also reinforces that when seeking to collect a debt a creditor also must not misrepresent their legal entitlement to seize goods.
Outside of any contractual rights that may exist between a customer and supplier of goods on Retention of Title, the Personal Property Securities Act establishes the rights and obligations that suppliers of goods on Retention of Title must comply with in order to repossess the supplied goods in the event that the debtor does not pay.
What if a debtor doesn’t pay?
If a debtor doesn’t make payment and you are looking to either have them made bankrupt or put into liquidation, please contact us as we may be willing to act for you and all creditors as either the bankruptcy trustee or court appointed liquidator.
What if the debtor collapses after I get paid?
If a debt is recovered and then within six months of receipt of that payment the client either goes bankrupt or into liquidation, you may be forced to repay these funds as an unfair preference to the liquidator or bankruptcy trustee.
Unfair preferences are payments or transfers of assets to a creditor that gives them a ‘preference’ or advantage over other creditors. (i.e. they are paid instead or in preference to another creditor as a result of the action they took in attempting to recover their debt).
The recipient of an unfair preference must have suspected or had reason to suspect that the debtor was insolvent at the time of when the payment to them is made.
Often this knowledge accrues in the mind of the creditor as a result of the collection process they have undertaken and the information provided to them during this process by the debtor.
What happens if a liquidator demands I repay funds?
One of the first actions you should take before corresponding with the liquidator or bankruptcy trustee is talk with an expert in this field.
At Brooke Bird we have been working with creditors for over 50 years in assisting them to defend against the predations of liquidators and trustees.
There are statutory defences available that creditors need to consider in addition to conducting their own internal investigation into what they know regarding the debtor.
It is important to understand the strength of your defence before liaising with the liquidator or trustee. It may be that the demand you receive is an ambit claim hoping to elicit an uneducated payment from you.
* Both Robyn Erskine and Adrian Hunter are Official Liquidators within the practice of Brooke Bird – Restructuring, Turnaround and Insolvency Specialists. Ph: (03) 9882 6666 E: Info@brookebird.com.au www.brookebird.com.au
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