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Cash flow is key to any growing business. It can be difficult when clients do not pay you on time or if another business owing your business money drops out of contact. It is usually best in these circumstances to send a letter and talk to the person owing money directly. However, sometimes you have little option but to consider how to recover the debt through the court system. This article will:

  • set out your options in terms of recovering a debt through the court; and
  • discuss the District Court in particular as the most common option for businesses.

Debt Recovery Through the Courts

You have some options when considering how best to recover a debt through the court system. As stated, it is usually best to try and resolve outstanding debts before taking the more serious option of court. This is because the court process can be expensive and time-consuming. Further, it has a greater chance of permanently ruining any business relationship you may have with the person owing money. 

However, if you have tried multiple avenues, and the person in question still refuses to pay up, you may have little choice. In terms of the relevant courts, you can go to the:

  • Disputes Tribunal, for some debt-related issues. However, only when the debt is $30,000 or less and when the debtor disputes that they actually owe the debt. The Disputes Tribunal cannot be used as a means of recovering debts that are not disputed;
  • District Court, if the debt is less than $350,000. The District Court is usually the place to start as a business trying to recover a debt; or 
  • High Court, for a debt of any amount. However, because of the higher costs of going to the High Court, most businesses would usually only bring a claim here if the debt was over $350,000.

If you would like to start a court proceeding in the District Court or High Court, it is strongly recommended to seek legal advice. Though legal advice can be costly, court processes can be tricky to follow and having a specialist lawyer to assist makes it more likely you will successfully recover the debt. 

How to Begin a Debt Recovery Claim in the District Court

When seeking to recover a debt through the District Court, the process begins by filing a statement of claim with the court. This gives details of your claim, including the debt amount and a description of what the money is owing for. You should also serve this statement of claim to the person owing the money.

The debtor (person owing the money to you) then has 25 working days to file a statement of defence with the District Court to respond to your statement of claim. They must serve a copy of this to you if they do so. If they do not, the District Court will usually make an order that the debtor owes your business the money. You will be able to enforce that legal order. 

For non-responsive debtors, a District Court statement of claim can sometimes be a wake-up call to either:

  • pay their debts; or
  • recommence contact with you to organise a resolution, such as a payment schedule. 

Note that you only have a certain time limit to recover debts owed to you or your company. This time limit is six years. The six-year time period starts as soon as the debt is owing unless the person owing the money pays part of it. In this case, the time limit starts from the date of the last payment. Six years is usually a sufficient time period to begin a debt recovery process.

Key Takeaways

While court processes can be time-consuming and expensive, sometimes there is no other option if your business needs to recover a debt from someone who refuses to pay. There are different options available depending on the amount of the debt and whether it is disputed or not. If the debt is less than $30,000 and disputed, you can take your case to the Disputes Tribunal. Otherwise, the District Court hears cases of less than $350,000. The High Court is used for debts of any size but should be avoided for small debts as it is more expensive than the District Court. If you want to know more about debt recovery or navigating the courts in New Zealand generally, contact LegalVision’s disputes and litigation lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can the Disputes Tribunal be used to recover a debt?

Only in situations where the debt owed is less than $30,000, and if the debt is disputed (i.e., the person owing the money denies that they actually owe any money). Otherwise, the Disputes Tribunal cannot hear the case or be used for a recovery process.

What is the time limit for recovering a debt?

It is usually six years, starting from as soon as the debt is owed. However, if you acknowledge the debt or pay part of it, then the time limit will start from the date of acknowledgement or of the last payment.

What is a statement of claim?

A document you would file at the District Court if, for instance, you are seeking to recover a debt (or had another kind of claim). The statement should give details of your claim, including the debt amount and a description of what the money is owing for.

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