Recovering commercial debt in New South Wales usually comes down to four practical steps: a well drafted letter of demand, choosing the right forum, either a statutory demand or court proceedings, and then enforcement. This guide from our Sydney debt recovery lawyers walks through how to recover unpaid invoices from Australian businesses, when a statutory demand is the right tool, and what to do if the debtor still refuses to pay.
Start by Identifying the Type of Debt
Before chasing a debt, the first step is to work out what kind of debt it is. The type of debt determines the evidence you will need, the forums available to you, and the strategy that follows. In practice, four categories come up most often:
Contractual debts
The most common type of commercial debt, for example:
- unpaid invoices
- goods supplied but not paid for
- unpaid service fees
These debts are founded on contract, and the six-year limitation period under s 14(1)(a) of the Limitation Act 1969 (NSW) applies (see below).
Loan debts
For example commercial loans, shareholder loans, and private lending. The recoverability of these debts depends heavily on the quality of the documentation. Check in particular:
- whether a written agreement exists
- how the repayment terms are drafted — especially the repayment due date, which determines when the limitation clock starts
- the payment records
Note in particular: every part-payment or written acknowledgment of the debt by the borrower can restart the six-year limitation period under s 54 of the Limitation Act.
Property-related debts
For example unpaid rent, bond disputes, and settlement adjustments. These disputes often have their own dedicated forums or procedures (such as NCAT's tenancy jurisdiction) and should not automatically be treated as ordinary debts.
Disputed debts
Where the debtor denies that a contract exists, disputes the amount, or challenges the quality of the services or the delivery of the goods, the debt is a disputed debt.
This category must be treated differently from the other three, because the existence of a dispute directly changes the tools available to you. Most importantly, for corporate debtors a statutory demand is only appropriate for undisputed debts. Once there is a "plausible contention requiring investigation", the demand is liable to be set aside — and the creditor may be ordered to pay indemnity costs (see Part 7 below). If the other side has already raised a substantive defence, the correct path is usually litigation, not pressure tactics.
Threshold Questions Before Taking Any Action
Is the debt statute-barred?
Under s 14(1)(a) of the Limitation Act 1969 (NSW), an action founded on contract — which covers most debts, including loans, unpaid invoices, and fees for goods or services — must be brought within six years of the cause of action accruing.
Limitation Act 1969 (NSW), s 14(1)(a) 14 General (1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims— (a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed …
The clock starts on the latest of three dates: the date the money fell due, the date of the last payment, or the date the debtor last acknowledged the debt in writing. This "restart" mechanism comes from s 54 of the Limitation Act (confirmation of a debt by acknowledgment or part-payment).
Limitation Act 1969 (NSW), s 54 (extract) 54 Confirmation (1) Where, after a limitation period fixed by or under this Act commences to run, but before its expiration, a person against whom a cause of action lies confirms the cause of action … the time during which the limitation period runs before the date of the confirmation does not count in the reckoning of the limitation period …
Note s 63: in NSW, once the limitation period expires the cause of action is extinguished — not merely unenforceable.
Limitation Act 1969 (NSW), s 63 (extract) 63 Debt damages etc Subject to section 68, on the expiration of a limitation period fixed by this Act for a cause of action to recover any debt damages or other money … the right and title of the person formerly having the cause of action … is, as against the person against whom the cause of action formerly lay …, extinguished.
This is a harsher outcome than in most other Australian jurisdictions.
What is the debtor's legal identity?
Your recovery strategy differs significantly depending on whether the debtor is an individual, a sole trader (sue the individual personally), a partnership, or a company (sue the ACN-registered entity). Running ASIC and ABN searches at the outset avoids the classic mistake of suing a mere business name.
Is the debtor worth suing?
A judgment against a person with no assets or income is often just an expensive piece of paper. This commercial judgment drives every choice that follows.
The central question in commercial debt recovery is never just can you obtain judgment — it is can you recover money after judgment. The answers to those two questions frequently diverge.
So before starting any legal process, sketch the debtor's financial profile as best you can:
- Do they own real property? Is any property registered in their name, and is it mortgaged? This determines whether a writ for the levy of property or a charging order will have any real bite later
- Do they have an operating business? A trading business means cash flow, receivables, and potentially garnishable bank accounts or collection agents — all pressure points for a garnishee order
- Do they have a stable income? An employer means wage garnishment is possible, subject to the minimum protected amount under s 122 of the Civil Procedure Act
- Is the company still active? An ASIC search will confirm whether the company remains registered, has been deregistered, or has entered external administration. A deregistered company must be reinstated before it can be sued; proceedings against a company in liquidation require leave of the court
- Is there a liquidation risk? Often overlooked, but critical — see below
Useful search channels include: ASIC company searches and ABN Lookup (entity status); ASIC insolvency and external administration notices; the Personal Property Securities Register (PPSR) — to check whether the debtor's assets are already secured to someone else (if the equipment and stock are all mortgaged to a bank, a writ will yield little); the National Personal Insolvency Index (NPII) — to check whether an individual is already bankrupt; and commercial credit reports. Where a property address is known, a land title search will verify ownership and mortgages.
If the debtor is on the brink of liquidation, even "getting paid" may not be the end of the story. Under the Corporations Act 2001, a liquidator can claw back payments received during a specified period before liquidation as unfair preferences. Money successfully squeezed out of a clearly insolvent company can still be recovered from you months later.
Pre-action investigation is informal, pieced together from public sources. Only after judgment do you gain the formal tools to compel the debtor to disclose their financial position (examination notices and orders — see Part 6). But if the pre-action picture already shows the debtor has nothing, it is usually not worth getting that far.
The Pre-Action Stage: The Letter of Demand
The first formal step is a letter of demand. It has no statutory force of its own — as the State Library's Dealing with Debt guide notes, it is not a court document or order. But it serves three functions: it may prompt payment or negotiation; it demonstrates that the creditor acted reasonably (relevant to the court's later discretion on costs); and it fixes the amount and the deadline. The letter should state the amount owed, warn that legal proceedings will follow if payment is not made, and flag that the debtor may become liable for legal costs and interest. Free alternatives to litigation include mediation through Community Justice Centres (under the Community Justice Centres Act 1983), which is confidential and free of charge.
Choosing the Forum
NCAT (consumer claims)
If the debt arises from a trader supplying goods or services to the applicant — that is, the person chasing the money is a consumer and the other side is a trader — Part 6A of the Fair Trading Act 1987 (NSW) gives NCAT jurisdiction.
Since 18 July 2022, NCAT can determine consumer claims up to $100,000 — increased from $40,000 to align with the $100,000 threshold under the Australian Consumer Law. The cap sits in s 79S, as amended by the Fair Trading Amendment (Monetary Limit on Orders) Regulation 2022.
Fair Trading Act 1987 (NSW), s 79S (extract) 79S Maximum amount for which orders may be made The Tribunal must not, in dealing with a consumer claim, make an order under this Part for the payment of an amount, or for the supply of goods or services of a value, that exceeds the amount prescribed by the regulations for the purposes of this section (currently $100,000).
In Actol Pty Ltd v Rise Products Pty Ltd [2023] NSWCATAP 259, the Appeal Panel held that the increase does not apply retrospectively to claims where the cause of action accrued before the amendment, because the respondent had a settled expectation that any claim above $40,000 would be contested in a court where the rules of evidence apply.
Actol Pty Ltd v Rise Products Pty Ltd [2023] NSWCATAP 259 (holding) The Appeal Panel held that the increase to NCAT's monetary jurisdictional limit for consumer claims effected by the Fair Trading Amendment (Monetary Limit on Orders) Regulation 2022 does not operate on claims where the cause of action accrued, and proceedings were commenced, before the amendment took effect. The respondent had a settled expectation that claims above the former $40,000 limit would be determined by a court bound by the rules of evidence, and that expectation was not to be disturbed retrospectively.
Two important limits:
First, under s 79L, NCAT cannot hear a consumer claim more than three years after the cause of action first accrued — far shorter than the limitation period in a court.
Fair Trading Act 1987 (NSW), s 79L 79L Time limit on making of consumer claims The Tribunal does not have jurisdiction in respect of a consumer claim unless the claim is lodged with the Tribunal not later than 3 years after the cause of action to which the claim relates first accrued.
Second, NCAT cannot determine matters within federal jurisdiction — most notably, disputes between residents of different States, following Burns v Corbett (2018) 265 CLR 304; [2018] HCA 15 (a State tribunal that is not a "court of a State" cannot exercise judicial power over matters listed in s 75 of the Constitution).
Under s 79N, NCAT may order payment, repair or replacement of defective goods, supply of services, delivery of goods, or a refund. Note the direction of Part 6A: it protects consumers who bring claims against traders. A business chasing a customer for an unpaid invoice cannot generally use the consumer claims jurisdiction and must go to court.
Local Court Small Claims Division
Section 29(1) of the Local Court Act 2007 sets the Court's jurisdictional limits: $100,000 in the General Division, and $20,000 in the Small Claims Division.
Local Court Act 2007 (NSW), s 29(1) (extract) 29 Jurisdictional limits of Court (1) For the purposes of this Act— (a) the jurisdictional limit of the Court when sitting in its General Division is $100,000 …, and (b) the jurisdictional limit of the Court when sitting in its Small Claims Division is $20,000.
The procedure is deliberately streamlined: the rules of evidence do not apply, defended matters are generally decided without oral evidence from witnesses (unless the court directs otherwise), and defended matters first go to a pre-trial review before a registrar, assessor, or magistrate, with the aim of promoting settlement before hearing.
Costs are strictly limited: under the Local Court Rules 2009, costs are awarded only in limited situations (discontinuance/dismissal, adjournments caused by a party's default, contested motions, or judgment after hearing), and recoverable amounts are capped. In practice this means even a successful plaintiff will largely bear their own legal costs, which is why the Division is dominated by self-represented litigants.
One practical point: pre-judgment statutory interest claimed under s 100 of the Civil Procedure Act 2005 is disregarded for the $20,000 threshold (Local Court Act s 30(4)), so it does not push the case out of the Division.
Local Court Act 2007 (NSW), s 30(4) (extract) (4) In calculating an amount claimed or in dispute for the purposes of this section, any amount claimed by way of interest under section 100 of the Civil Procedure Act 2005 is to be disregarded.
Local Court General Division and higher courts
Claims above $20,000 and up to $100,000 (in some limited circumstances $120,000) go to the General Division; claims above that amount go to the District Court or the Supreme Court; mortgage-based possession claims go to the Supreme Court.
The General Division applies the full machinery of the Civil Procedure Act 2005 (NSW) and the Uniform Civil Procedure Rules 2005 (UCPR), including the formal rules of evidence and the general "costs follow the event" principle — which restores both the deterrent effect of adverse costs orders and the successful party's ability to recover costs. The District Court's civil jurisdiction is conferred by s 44 of the District Court Act 1973, and the parties can consent to expand it under s 51.
Conducting the Proceedings: Statement of Claim, Default Judgment, and Defence
Proceedings are commenced by a statement of claim. After service, the defendant has 28 days to file a defence (UCPR r 14.3). The reality of debt recovery is that most claims are never defended: if no defence is filed, the plaintiff can seek default judgment under UCPR Part 16 (r 16.6 for liquidated claims) on affidavit evidence, without a hearing.
So the typical sequence is: demand → letter of demand → statement of claim → default judgment (if undefended) or hearing (if defended) → judgment debt → enforcement.
Default judgment is not immovable — the court retains a discretion to set it aside (UCPR r 36.16), applying the principles in Evans v Bartlam [1937] AC 473 (a genuine, arguable defence, plus a reasonable explanation for the default).
Interest under the Civil Procedure Act 2005 is calculated in two phases: pre-judgment interest under s 100 (discretionary, running from when the cause of action accrued), and post-judgment interest under s 101 (automatic, at the prescribed rate, on the unpaid judgment amount).
Enforcing the Judgment
A judgment creates a fresh 12-year enforcement period (Limitation Act 1969 (NSW), s 17). The main enforcement tools sit in Part 8 of the Civil Procedure Act 2005 and Part 39 of the UCPR:
Examination notices and orders (Civil Procedure Act, s 108) compel the judgment debtor to disclose their financial position. This is usually the sensible first step, because it tells you which enforcement tool will actually work.
A garnishee order intercepts money before it reaches the debtor: the court can order that money be deducted from a person holding funds for the debtor (for example, a rental agent collecting rent), their employer, or their bank. Wage garnishment is subject to a minimum protected amount (Civil Procedure Act, s 122), so the debtor's weekly income cannot be reduced below the statutory floor.
A writ for the levy of property authorises the Sheriff to seize and sell the debtor's goods (and, in some cases, land).
A charging order (Civil Procedure Act, s 126) creates security over financial assets such as shares. The court can also order payment by instalments, in which case other enforcement is suspended while the instalments are paid.
Bankruptcy and Winding-Up
Individuals — bankruptcy
If the judgment debt exceeds $10,000, you can apply to have the debtor made bankrupt in the Federal Circuit and Family Court or the Federal Court, but this is a costly and complex way to enforce a debt. Procedurally: on a final judgment, the creditor serves a bankruptcy notice under s 41 of the Bankruptcy Act 1966 (Cth); non-compliance within 21 days is an act of bankruptcy under s 40(1)(g), which then supports a creditor's petition under ss 43–44. The $10,000 statutory minimum has applied permanently since 1 January 2021. Strategically, this is usually a poor recovery tool: the creditor is only an unsecured creditor in the bankrupt estate, and the trustee's fees rank ahead of them.
Companies — statutory demands and winding-up
For corporate debtors, this is often the most powerful lever. A statutory demand under s 459E of the Corporations Act 2001 (Cth) requires the company to pay within 21 days; non-compliance gives rise to a statutory presumption of insolvency (s 459C(2)(a)), on the strength of which the creditor can apply to have the company wound up (s 459P). The requirements are: the debt must be due and payable and exceed the $4,000 statutory minimum; the demand must be in Form 509H; unless the debt is a judgment debt, it must be supported by an affidavit verifying the debt; and it must be served in accordance with s 109X. (The minimum was increased from $2,000 to $4,000 on 1 July 2021 by amendment to the Corporations Regulations.)
The company's counter-move is an application to set the demand aside under s 459G — and here two cases are pivotal.
On the "genuine dispute" ground under s 459H, Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 established a low threshold: the company only needs to show a "plausible contention requiring investigation" — a formulation analogous to "a serious question to be tried".
David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265 established that the 21-day time limit under s 459G is jurisdictional and cannot be extended (a single day late is fatal).
The implication for creditors is clear: statutory demands are for undisputed debts. Using one as a pressure tactic on a genuinely disputed debt is an abuse of process — the demand will be set aside and the creditor may be ordered to pay indemnity costs.
A demand can also be set aside on the following grounds: an offsetting claim that brings the net debt below $4,000 (s 459H(1)(b)); defects causing substantial injustice (s 459J(1)(a)); or "some other reason", including improper purpose (s 459J(1)(b)).
Conclusion
The above is general legal information, not legal advice on a specific matter. The correct answer always depends on the specific facts.
Debt recovery is a race against time: evidence gets lost, limitation clocks run, and debtors' assets can be moved at any point. The key is to assess early and choose the right path.
If your business is dealing with unpaid invoices, unrepaid loans, deposit disputes, or partnership breakdowns, contact Sun Lawyers. Our litigation team acts in both English and Chinese, and can provide an initial assessment of the recoverability of the debt, the appropriate forum, and a broad indication of costs, so you can make a commercial decision that fits your business.