Perils of Debt Collection and Debt Collectors

Background

In a recent matter, our client, a trade contractor, was owed approximately $9000. Before calling us, he had engaged a debt collector.

The debt collector told him to issue a Statutory Demand which, with the help of the debt collector, he did.

As you will see, that was a very bad move, leaving our client more out of pocket than he already had been.

What is a Statutory Demand

A Statutory Demand is a document that you can issue to a company which owes you money requiring it to pay the debt within 21 days or bring an application to the Court to set aside the Statutory Demand.

If the debtor company does not do either, the debtor company will be presumed insolvent and, unless you get a suitable agreement to be paid, you can wind up the debtor company. If the company has a QBCC licence, not only will that licence disappear but the directors of the debtor company will almost certainly lose their licence too.

If the debtor makes an application to Court to set aside the demand and is successful, then the debtor may recover the legal costs of the Court application. So, you should not issue a Statutory Demand unless you are pretty certain the debtor will not be able to have a Court set aside the Statutory Demand.

The Court can set aside a Statutory Demand for a number of reasons including:

The debtor company has an offsetting claim against you, which would reduce the debt below the statutory minimum, currently $4,000; or

There is a genuine dispute about either the amount of the debt or the debt itself.

When a Court is considering whether there is a ‘genuine dispute’, it will not consider the merits of the dispute or make a substantive determination on the issues. This means it is relatively easy to set aside a Statutory Demand.

This feature of Statutory Demands means that you must take particular care when issuing them in the context of building disputes.

The reality in building disputes is that it is relatively easy for the other party to assert that you carried out defective work or you have engaged in some other breach of contract which means that they have a claim against you which would result in the demand being set aside.

What Went Wrong

Our client told the debt collector that he had walked off the job. The debt collector said nothing about that and stuck with his recommendation to issue a Statutory Demand. However, by walking off the job when he was not entitled to do so, our client was in breach of contract and the other party who owed in the money, immediately had a counterclaim for damages for breach of contract.

In those circumstances no lawyer, especially one with building and construction law experience, would recommend the issuing of a Statutory Demand. But the debt collector did.

After the Statutory Demand was issued, the debt collector was sent a letter by the debtor’s lawyer setting out the claims which the debtor alleged they had against the client seeking payment, including for breach of contract.

The debtor’s lawyer said that their client would bring an application to set aside the Statutory Demand unless it was withdrawn. The debt collector did not recommend to our client that they withdraw the Statutory Demand as they could have, without suffering any adverse costs implications. Nor did the debt collector provide any other useful advice. The Statutory Demand remained.

The debtor issued an application to set aside the Statutory Demand. When the contractor was served with the Court proceedings, they contacted us.

We had to give him the bad news, that it was clear that the Statutory Demand he had been told by the debt collector should succeed in getting him paid, would be set aside and that if he fought it, the Court would order him to pay the debtor’s legal costs, which would be thousands of dollars.

Fortunately, we were able to negotiate an agreement with the debtor’s lawyer under which our client paid a much smaller amount than the debtor was entitled to by way of costs.

Naturally, our client was most annoyed at having to pay money to a debtor who owed him thousands of dollars but, because of the poor advice he had received from the debt collector, he had no choice.

Using the debt collector turned out to be anything but cheap!

Key Takeaways

Contractors should be wary of using debt collectors to recover debts arising out of building and construction work. Debt collectors may have their place but they are not lawyers and can sometimes cost you a lot more than a lawyer who has the required legal knowledge.

Remember, as a member of the associations listed below, you are entitled to 20 minutes of free legal advice in relation to your legal position on any matter about your business, including when you are owed money.

Members of eligible industry groups can have Cornwalls send a solicitor’s letter of demand to your debtor, free of charge (debts must be over $550 plus GST). It is surprising how often this results in contractors being paid debts which they have had no success in pursuing themselves.

Visit the Members Portal on your association website below to find out more, or call and speak directly with our Building & Construction team on 07 3223 5900.

Eligible Industry Groups

Queries

Please contact the author, or any member of our Building & Construction team, should you have any questions about this article, or if wish to discuss how we may be able to assist you and/or your business.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.

Building & Construction

Perils of Debt Collection and Debt Collectors

10 March 2026