Practical Legal Recovery Tips and Pitfalls to Avoid

Practical tips for Legal Recoveries

How can legal recoveries go wrong? How can I reduce the risk of it going wrong? What else can I do to help the lawyers? Jurisdictions Giving Evidence

How can credit collections go wrong?

How can it go wrong? 1. 2. 3. 4. 5. 6. Credit Application incomplete/altered I did not sign that personal guarantee Wrong legal entity / trust name / the restructure letter Ignore my promises to pay, I will later dispute the account Someone else ordered on my account/did not receive You extended further credit after I signed that guarantee

7. 8. 9. 10. 11. 12. 13. You supplied defective goods or services I have sustained loss from your failure to deliver on time I did not agree to that price PPSR registration not in place or invalid You didn t know, but my personal guarantee is invalid The person who signed did not have authority Misunderstanding between client and lawyer

1. Credit Application incomplete/altered Constant game of cat & mouse Check for alterations to clauses If only the signed pages are sent back, make sure you find the other pages and keep it together Your credit application should change over the years You will struggle to find the version from 5 years ago Debtors are crafty be careful to check that all named guarantors have actually signed, and that there is a witness signature for each guarantor

2. I did not sign the Guarantee Check for lines through the guarantee and charge Guarantees problematic - the first time they are called upon is after things fail, often many years later Finding witnesses after many years can be hard Once you find them may be friendly to directors Take independent steps to check that the signature appearing was actually applied by the director(s) Do not blindly trust the document

2. I did not sign the Guarantee (Part 2) Many ways of doing it ultimately depends on risk Don t trust the contact details on the credit app High risk - Lawyers get 100 points of ID before taking mortgages & have solicitors/JP verify signatures Lower risk ASIC search, call directors & send a letter to the directors addresses on ASIC confirming existence of credit application and personal guarantee, asking them to call if any issue Physical, wet signatures can be checked by a forensic document expert. Same cannot be said of electronic signatures Get independent witnesses Whatever steps you take, document it Consider new guarantees each time limit increases

3. Avoid the wrong legal entity problem Use good credit applications Trust names are not legal entities Do not accept them Good forms require identification of the legally responsible entity persons, companies and associations Ensure the form is actually completed & no alterations Do not let your credit app accrue dust PPSA and Privacy Act reform Never accept letters saying We have restructured, update your records. Massive warning sign Lock it down Get new credit application, close old account, review security ..

4. Ignore my earlier promises to pay

4. Ignore my earlier promises to pay Usual to consider hardship or payment term extensions. Debtors will say anything when they need supply on credit. They will also sign anything. They will recant when they can t comply. If a debtor wants more favourable terms, have a process in place where: Arrangement is documented. Present debt acknowledged & is not disputed Release of any claims against supplier at that date Credit applications are to be reviewed & if they are old new ones signed up Further security taken Current security interests re-considered Debtor commits to paying the old balance & new Acceleration upon default

5. Shaggy It wasnt me! Also known as: Someone else ordered on my account I did not receive the goods Once a credit account is established, how are orders placed on that account? Document the process (in writing) which your team must adhere to before releasing on credit: How you identify which customer is ordering the goods? (PO s? Codes? Emails?) If in writing is it kept? Do you keep delivery receipts? Familiarise your team with the process Regular statements and invoices with a request to notify of any discrepancies promptly (and include in credit app)

6. Stop I only guaranteed $X Fixed with good guarantee documents Guarantee should contemplate: the account limit is increased; there is further time given to the customer to pay; the supplier fails to properly register security; liability even if payment voided as a preference.

7. You supplied defective product It is remarkable. Your best customer, suddenly experiencing financial difficulty, complains that you supplied defective product, for the first time. Your credit application should include a no set-off clause Requires the debtor to pay within terms irrespective of any claims that the debtor may have against the supplier Good guarantees also have the guarantor indemnifying the supplier for any claims brought by the debtor

8. I lost $ because you were late A good credit application will include: Indications as to time for delivery/performance are best estimates only Limitation of liability No claims against supplier for economic loss

9. I did not agree to that price Consider how you establish the price of supply Credit application to include a term requiring customer to raise disputes promptly Statements/Invoices to notify of discrepancies Construction Document variations in writing!

10. PPSR registrations defective No easy answer to this one PPSA is fantastic for lawyers Get a good lawyer to check your process If in doubt, you may need to put on multiple registrations Never assume you are safe

11. Invalidated Guarantees Anything which conceivably increased the guarantor s exposure may result in a challenge to that guarantee Consider: Guarantor gives a guarantee in reliance upon an understanding that others will also guarantee or security will be given to support the borrowings Creditor fails to take such other guarantee or security Guarantor can be discharged from obligation Carefully drafted guarantees should avoid this problem

12. Person who signed did not have authority Ie office manager signed on behalf of company but did not have authority Certain presumptions can apply Document what steps you want to take in respect of credit applications and certain limits as to who you require to sign

13. Misunderstandings with lawyer What do you want from the litigation? Do you need to compromise based on debtor s inability to pay? Or is this a trade credit insured debt? Are you chasing a good outcome net of legal costs? Are you trying to salvage the relationship with debtor? Are you trying to send a message and set an example? Does your lawyer know? Good lawyers know the objective.

Any others?

Construction Security of Payment legislation Very fast determinations Pay first, ask questions later Right to suspend works for non-payment Liquidated damages without right to walk off = Risk

Dealing with the Liquidator Place liquidator on notice of security interest Everyone focuses on stock Do not forget proceeds Proofs of Debt Value your security Preference Claims Personal guarantee to cover preference claims Join the director Security Get legal advice if there is exposure before you deal with the liquidator

Who wants to reduce legal fees?

Helping the Lawyers & Reducing Fees Good credit applications and guarantees have security interests Take steps to realise those before court proceedings. Organise documents in chronological, or a logical, order Better to include more documentation If there were key conversations/events consider providing a brief chronology Complete documents check all pages complete

Helping the Lawyers & Reducing Fees Written documentation is much cheaper than proving verbal statements. Ordinary business books and records can be admitted into evidence easily Greatly reduces number of witnesses This generally includes: Credit applications Guarantees Invoices Statements Absence of payment Credit notes Business practices & procedures

Helping the Lawyers & Reducing Fees Identify people who may have information and their contact details Tell your lawyer the full story Lawyer/client privilege We generally have to keep things confidential! The full story will come out We can do a better job if we are prepared

Reducing Fees Get advice early as later litigation is often much more expensive Conduct regular reviews of your processes and procedures

Practices and Procedures Boring and useful Do you have written procedures which document: process to open a credit account; process for registration of security interests; where to store records; how you verify customers; how (and where) invoices and statements are sent; and what criteria is essential before supplies can be made on credit.

Jurisdiction Slight differences Some examples of quirks: Queensland Collection costs (as opposed to legal fees) not recoverable Disclosure Fantastic costs recovery scheme Can be much slower than NSW recoveries New South Wales No real chance of having a decent return net of legal spend for contested disputes < $20,000 A very high percentage of matters will be heard within 12 months of defence being filed Verification of pleadings Written witness statements generally No right of disclosure What does your credit app provide?

Tips for Giving Evidence Before the Hearing Credit collections officers are frequently witnesses Great news you are usually very good witnesses It is usual to be nervous Do not sign a statement if you do not understand it. Adapt it so you understand what you are saying. Giving evidence in NSW often starts at the Statement of Claim verification of pleadings Check the document. Ask if you do not understand it

Tips for Giving Evidence in Person Preparation for the Hearing You should already know the risks, strengths, weaknesses & commerciality of going to hearing Know where you need to be and when (and which time zone) Know how long you are likely to be required If there are multiple witnesses discuss with your legal advisers the lead time you need before you are required If you have previously given statement(s) or affidavit(s), bring a copy with you. Refresh your memory with those statements before the hearing Try to meet with your legal advisers the day before the hearing It will allow you to discuss what is expected You may wish to go to a court room to familiarise yourself with the room

At the Hearing Sit upright Be yourself Tell the truth If you do not understand a question, say so Answer the question (a simple yes or not may suffice) Be frank if you do not know something There is no rush to answer Transcripts do not show length of silence Pause and think before answering Objections are normal

Tips for Giving Evidence in Person Concede facts where appropriate If the matter is adjourned (ie, lunch break) while you are in the middle of giving evidence, you will likely be unable to discuss the case with others

Any questions?