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Debt recovery and enforcement methods - What options do you have if a customer fails to pay their bills?

Do you need help in recovering a debt? Clients often ask what options they have to recovery money owed by an individual or a business. This article outlines what options are available to you if you need to recover a debt.

Tower of coins

If a company, other entity or person owes you money, you are creditor. The person owing you the money is a debtor.  As a creditor, whether you are a business or an individual, there are various legal remedies available to you for recovering a debt owing to you where a debtor cannot or will not pay.

Before you can exercise any remedies, you must establish that you have a claim against the debtor.  For example, you must be able to show that there was an agreement between the parties to supply a service or a product in return for a payment of those services or products.  Where the amount in claim is ascertained during the formation of the contract, this is considered a claim in liquidated damages.

Alternatively, you may have an unliquidated claim for damages.  For example, you may have a claim in contract for lost profits as a result of a breach of contract.  In this circumstance, the amount owing cannot be ascertained by a simple calculation, and a judicial hearing is usually required.

It is not uncommon, where a debtor fails to pay, for a creditor to have sent reminder letters and final warning notices putting the debtor on notice that they will take further action, but what happens next if the debtor ignores these notices, refuses to pay or denies it owes the debt?

Starting Point

Demand Letter

Where a debtor owes you money, a good place to start is by formally demanding payment by way of a demand letter.  A demand letter will briefly set out why you are entitled to payment and demand payment to be made by a certain date.  A well composed demand letter may prompt a response and sometimes a settlement proposal, as a debtor may perceive that you are prepared to take the matter further and that the debtor may incur further legal costs if they do not pay what they owe.  If the debtor disputes the debt after receiving the demand, this may assist you in making a decision about what method of recovery to use.

Statutory Demand

If the debtor is a company, a legal demand in the form of a “statutory demand” may be issued against the debtor company.  The requirements for a statutory demand are set out in section 289 of the Companies Act 1993.

A statutory demand must be in writing and served on a company where there is no dispute over the debt and the debt is greater than $1,000. A statutory demand is a useful tool in a creditor’s arsenal and may prompt payment from a debtor.  However, a statutory demand is intended to be the first step in putting a company into liquidation and should be used to prove insolvency of a company rather than as a means to collect outstanding money.

The use of statutory demands are a common and effective way of prompting payment from a debtor, but proper care must be exercised to ensure that it is issued and served in accordance with the requirements of the Companies Act 1993.

Commencing Proceedings

If a demand letter or a statutory demand does not prompt payment or settlement discussions, you will need to consider whether to seek judgment against a debtor by issuing proceedings in the appropriate forum.  There are three potential forums in which you can seek judgment: the Disputes Tribunal, the District Court and the High Court.

Before issuing proceedings, you will need to consider the implications, such as costs to do so and the ability of the debtor to satisfy the judgment (that is, does the debtor have any assets to pay the debt?)  Alternatively, you may decide that issuing proceedings is the best way to put pressure on the debtor to pay, to avoid the further cost of litigation, the stigma of having a judgment against the debtor’s name and the impending threat of bankruptcy or liquidation.

Disputes Tribunal

Where the debt is disputed (and only when it is disputed), legal action can be taken to recover a debt in the Disputes Tribunal.  The Disputes Tribunal hears claims up to the value of $30,000.  The Tribunal offers a more informal setting with Referees presiding as decision makers rather than Judges.  Parties must represent themselves and cannot be represented by lawyers at the Tribunal.  However, lawyers may assist with applications to the Tribunal and with preparation for the hearing.  Just like a Court Order, a decision made by Referee is called an “Order” and it will set out what the parties need to do and when it must be done.  A Tribunal Order is legally binding and must be followed.

District Court and High Court Proceedings

A District Court has the jurisdiction to determine any proceeding where the debt is not more than $350,000.  Any proceeding in respect of a debt in excess of $350,000 must be commenced in the High Court.  The High Court also determines bankruptcy and liquidation proceedings.

To recover debts through the District Court, general proceedings are commenced by filing a statement of claim, notice of proceeding and a list of documents relied on.  The person commencing the proceedings is the plaintiff.  Once these documents are filed with the Court, they are served on the other party (known as the defendant) who has 25 working days to file a statement of defence.  If a statement of defence is not filed, and where the claim is for unliquidated damages, the plaintiff may apply for a judgment by default.

There are other applications that may be made to the District Court, for example, an interlocutory application for summary judgment.  This can be used as a “fast-track” approach for obtaining a judgment without the need for a trial.  A summary judgment application is made in instances where the plaintiff asks the Court to grant judgment without trial because the defendant has no lawful defence.

Time limits

There are limits on how long you have to issue proceedings after the relevant event or debt arose.  Generally, you must bring a claim within six years from the time of the event that the claim is based on.  There are some exceptions to this rule and these are set out in the Limitation Act 2010.

Enforcing the Judgment 

Once you have successfully obtained a judgment, you can apply for an order to enforce the judgment.  The different methods of enforcement in the District Court include:

  • Attachment order
  • Charging order
  • Warrant to seize property
  • Sale order
  • Garnishee order

Where it is unknown what assets the debtor holds, a financial assessment hearing is usually used as a first step to establish the debtor’s financial circumstances.  At a financial assessment hearing, the debtor must make a declaration under oath outlining exactly what assets and debts they have, what they earn and the amount they can pay in instalments to repay the debt.  Where the debtor is a company, then the relevant company officer is required to attend.  You can also attend to examine and question the debtor on their finances.  During a financial assessment hearing, a Court may also make an attachment order to enforce a judgment.  If a debtor fails to attend, a warrant for their arrest may be issued.

Attachment order 

An attachment order is designed to secure your right to the debtor’s earnings by requiring their employer to deduct money directly from the debtor’s salary or wages.  Deductions can also be made from pensions, WINZ benefits and ACC payments.  However, no more than 40% of the debtor’s net income can be deducted and both parties need to agree on how much can be deducted and how frequently the payments will be made.

Charging orders

You may also be able to obtain a charging order against the debtor’s assets (for example, land or personal property) which prevents the debtor from disposing of the assets that are identified in the order, until the debtor pays the judgment.  A charging order operates as a “stop order”, preventing or restricting a debtor from dealing with or selling property.  If the debtor owns land, a charging order allows for a caveat to be lodged against the title.

Warrant to seize property

A warrant to seize property enables a bailiff appointed by the Court to enter the premises of a debtor to seize their money or goods.  The goods seized may then be sold to satisfy the judgment.  The bailiff is authorized to seize goods of the debtor except for their:

  • Tools of trade to a value not exceeding $5,000; and
  • Necessary household furniture and effects, including clothing for the debtor and their family, to a value not exceeding $10,000.

If, after seizure and the debtor has not paid within five working days, the bailiff may sell the goods at public auction and the proceeds of the sale will be paid towards the judgment sum owing.  A bailiff can also immobilise any motor vehicle belonging to the debtor, pending payment of the debt.

Sale Order

This procedure is only available in the High Court.  However, you may be able to apply to have a judgment transferred from the District Court to the High Court.  As with a warrant to seize property, a sale order authorizes a bailiff to seize and sell property, and there are similar limitations to what can be sold, that is, a debtor is entitled to keep tools of trade and necessary household furniture.

Garnishee Order

A garnishee order enables you to recover the judgment sum from any debts owing to the judgment debtor by a third party.  The court can make a garnishee order requiring the third party to pay money directly to you, for example, a bank may be ordered to pay money directly to you if there is money held in a debtor’s bank account.  You may become aware of the debt owed by a third party at a financial assessment hearing, this is why a financial assessment hearing may be a useful first step to ascertain the debtor’s financial position.


This article is only intended to provide a brief overview of the procedure for pursuing claims and enforcing judgments in the respective jurisdictions.  Drafting court documents and appearing in court can be a complex, time consuming and confusing exercise for those not familiar with court processes.  It is advisable (and often cost effective) to consult your legal advisor for advice before deciding what debt recovery option to take.  If you are successful, costs such as legal fees and disbursements (filing fees and service fees) may be awarded against the unsuccessful party so that can help you cover the costs of obtaining legal advice.

If you have any queries about your debt recovery or enforcement options, please contact one of our team for advice.



This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

Sarah Rawcliffe - Harkness Henry Partner

Sarah Rawcliffe

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