Information Centre · Litigation & Dispute Resolution
Commercial Debt Recovery in Victoria: From Letter of Demand to Court
Commercial (B2B) debt recovery in Victoria is a structured process — from pre-action credit checks and letters of demand, through statutory demands and Court proceedings, to default and summary judgment. This creditor-focused guide walks through each stage and shows how to keep decisions proportionate to cost and prospects of recovery. For post-judgment enforcement see our companion enforcing a judgment debt guide.
Key points
- Commercial (B2B) debt recovery in Victoria is a structured process: pre-action credit and PPSR checks, a compliant letter of demand, statutory demand where appropriate, proceedings in the Magistrates', County or Supreme Court, default or summary judgment, and — where the debtor still does not pay — enforcement (see our companion judgment-debt guide).
- The letter of demand is the first formal step and — properly drafted — usually resolves the debt without proceedings; it should identify the debt, the contract, the amount, interest and costs, and give a short but reasonable time to pay before proceedings are commenced.
- For undisputed corporate debts of $4,000 or more, a creditor's statutory demand under section 459E of the Corporations Act 2001 (Cth) is often the most cost-effective step — non-compliance within 21 days creates a presumption of insolvency supporting a winding-up application.
- Court selection follows the amount and complexity: the Magistrates' Court hears claims up to $100,000; the County Court has unlimited monetary jurisdiction and hears most mid-market commercial disputes; the Supreme Court is reserved for large or precedent-setting matters.
- Default judgment (where the debtor fails to file a defence) and summary judgment (where the defence discloses no arguable issue) are the fastest routes from proceedings to a judgment debt; both require close attention to service and evidence to survive later set-aside applications.
- Every commercial debt recovery decision is commercial — legal costs, prospects of recovery, damage to the customer relationship and reputational exposure should be weighed at every stage, and settlement remains the right outcome in many matters even after proceedings are on foot.
Before the Debt: Credit Setup
Effective commercial debt recovery begins long before an invoice becomes overdue. The most recoverable debts are those secured by:
- a credit application signed by the correct legal entity;
- a personal guarantee from a director or shareholder — see our companion personal guarantees guide;
- PPSR registration where goods are supplied on credit or retention of title — see our PPSR explainer;
- clear payment terms, interest on late payments and set-off exclusions in the trading terms;
- credit checks appropriate to the credit limit — an ASIC search for corporates, a bankruptcy search for individuals, and a credit-reference report for larger exposures.
A well-set-up credit file materially raises recovery rates and — where the debtor becomes insolvent — improves recovery in liquidation.
Stage 1 — Internal Follow-Up
Before the file leaves the business, most B2B debts benefit from a structured internal follow-up — a reminder statement at 7 days overdue, a phone call at 14 days, and a stop-supply / final notice at 30 days. The person responsible for the debt should also confirm there is no genuine dispute (delivery issue, defect, invoicing error) that will be raised as a defence.
Stage 2 — Letter of Demand
The letter of demand is the first formal step and — well drafted — resolves most B2B debts without proceedings. A compliant letter:
- identifies the parties (using the exact legal entity name and ACN);
- identifies the contract, credit application and unpaid invoices;
- states the total amount owed, including interest and any recoverable costs;
- gives a short but reasonable time to pay (typically 7–14 days);
- refers to any personal guarantee or PPSR registration;
- states clearly that proceedings will be commenced without further notice.
The letter should be sent by both email and post to the registered office (for companies) or last known address (for individuals). For general letter-of-demand issues see our companion letter of demand — what to do guide.
Stage 3 — Statutory Demand (Corporate Debtors)
For an undisputed corporate debt of $4,000 or more, a creditor's statutory demand under section 459E of the Corporations Act 2001 (Cth) is often the fastest and most cost-effective step. The company has 21 days to pay, secure or apply to the Court to set aside the demand. Non-compliance creates a presumption of insolvency under section 459C, supporting a winding-up application. Statutory demands must NOT be used where the debt is genuinely disputed — the Court will set the demand aside and typically order indemnity costs against the creditor.
Stage 4 — Choose the Right Court
- Magistrates' Court of Victoria — up to $100,000. Suitable for straightforward undefended debts and small defended matters.
- County Court of Victoria — unlimited monetary jurisdiction. Suitable for most mid-market commercial debts, particularly defended matters between $100,000 and a few million dollars.
- Supreme Court of Victoria — for large, complex or precedent-setting matters, and matters requiring equitable relief.
- Federal Court of Australia — for federal jurisdiction matters such as winding-up applications.
Stage 5 — Commence Proceedings
Proceedings are commenced by complaint (Magistrates' Court), writ (County / Supreme Court) or originating application (winding-up). The statement of claim / particulars must plead each element of the debt — the contract, the supply, the amount, the demand and the non-payment — and attach or reference the invoices, credit application, guarantee and PPSR registration (as applicable).
Personal service on individuals and — for corporates — service at the registered office in accordance with section 109X of the Corporations Act 2001 (Cth) is critical to any subsequent default judgment application.
Stage 6 — Default and Summary Judgment
If the defendant does not file an appearance and defence within time, the plaintiff can apply for default judgment — an in-chambers judgment for the amount claimed. If the defendant files a defence that discloses no reasonable prospect of success, the plaintiff can apply for summary judgment. These are the two fastest routes to an enforceable judgment.
Stage 7 — Settlement
The vast majority of commercial debt matters settle before hearing. Options include a Deed of Settlement with lump sum or instalments, a consent judgment supported by an instalment order, and a Deed of Settlement combined with security (a mortgage over real property, a PPSR-registered charge or a director's personal guarantee). A well-drafted settlement includes a default clause that allows immediate re-entry of judgment for the balance on default. For general dispute-resolution options see our companion resolving business disputes before court guide.
Stage 8 — Judgment and Enforcement
A judgment is not payment. Where the debtor does not voluntarily pay, the creditor moves to post-judgment enforcement — oral examinations, warrants, garnishees, charging orders and, where appropriate, bankruptcy or winding-up. See our companion enforcing a judgment debt in Victoria guide.
Commercial Considerations
Every debt recovery decision is a commercial decision. Legal costs, prospects of recovery, damage to a valuable customer relationship, and reputational exposure all matter. A well-managed recovery pipeline triages debts by size and prospects, and preserves senior lawyer time for the matters where a good outcome is realistically achievable.
Related Guides
See enforcing a judgment debt, personal guarantees, PPSR explained and unfair contract terms.
Frequently Asked Questions
What should a compliant letter of demand include?
A properly drafted letter of demand identifies the parties and the contract or invoice, sets out the amount owed (including interest and any recoverable costs), refers to the relevant clause or statute supporting the claim, gives a short but reasonable time to pay (typically 7–14 days), and states clearly that proceedings will be commenced without further notice if payment is not received. The letter should be sent by both email and post and, for individuals, comply with the ACCC and ASIC debt collection guideline (no misleading conduct, no undue pressure).
Can I issue a statutory demand against a company?
Yes — for a debt of $4,000 or more that is due and payable and not genuinely disputed, a creditor's statutory demand under section 459E of the Corporations Act 2001 (Cth) is often the most cost-effective step. The company has 21 days to pay, secure or set aside the demand. Non-compliance creates a presumption of insolvency under section 459C, supporting a winding-up application. Statutory demands must not be used for disputed debts — a genuine dispute usually leads to set aside with an indemnity costs order.
Which court should I sue in?
Court selection follows the amount and complexity. The Magistrates' Court hears claims up to $100,000. The County Court has unlimited monetary jurisdiction and hears most mid-market commercial debt claims — it is often the most cost-effective court for defended debts above $100,000. The Supreme Court is used for very large claims, novel points of law and matters requiring urgent equitable relief. Federal Court is only used for federal jurisdiction matters such as Corporations Act winding-up applications.
What is default judgment?
Where a defendant fails to file a defence within the prescribed time (usually 28 days in the Magistrates' Court and 30 days in the County Court from service), the plaintiff can apply for default judgment — a judgment in the amount claimed without a hearing. Default judgment is a fast route from proceedings to enforceable judgment, but requires careful proof of service and must not be sought where the debtor has entered an appearance or is in genuine dispute; a default judgment against a legitimately-defending party will be set aside.
What is summary judgment?
Summary judgment is available where the defendant has filed a defence but the defence discloses no reasonable prospect of success. The Court can enter judgment for the plaintiff without a trial. The test is stringent — the defendant must be able to point to a genuine triable issue — but well-suited to commercial debt claims where the debt is documented and the defence is only delay or set-off without evidence.
Can the debtor set off other claims against the debt?
Yes — set-off is a defence where the debtor has a cross-claim against the creditor. Common set-offs include defective goods, incomplete services and warranty claims. A well-drafted claim anticipates likely set-offs and either brings the counterparty's cross-claim within the same proceedings or narrows the amount claimed. A creditor with contract terms that limit or exclude set-off should ensure the clause is enforceable under the unfair contract terms regime — see our companion UCT guide.
How much interest can I claim?
The starting point is the contract — many commercial contracts specify an interest rate on late payments. Where no contractual rate applies, statutory interest under the applicable court's rules generally applies (Magistrates' Court Act 1989 (Vic) section 100; County Court Civil Procedure Rules; Supreme Court Rules). Post-judgment interest continues at the rate under the Penalty Interest Rates Act 1983 (Vic) — see our companion judgment-debt guide.
When does personal recovery against a director become available?
Directly, where a director has signed a personal guarantee — see our companion guide on personal guarantees. Indirectly, where a director has traded the company while insolvent (section 588G of the Corporations Act 2001 (Cth)), the liquidator (not the creditor directly) can pursue the director for insolvent trading damages. Personal guarantees remain the single most valuable creditor protection in B2B trade credit.
What if the debtor is disputing the debt?
A genuine dispute changes the strategy — a statutory demand is not appropriate and a bare letter of demand may inflame rather than resolve. Options include: a without-prejudice offer with a proposed payment plan, a formal negotiation or mediation, or issuing proceedings and applying for summary judgment on the parts of the debt that are not in dispute. In some sectors (retail lease disputes, franchising disputes) a mandatory pre-action process applies before proceedings can be commenced.
Do I have to give warning under the National Credit Code?
Only if the debt is a regulated consumer credit debt — typically loans to individuals for personal, domestic or household purposes. Ordinary trade debts between businesses are not regulated consumer credit and the Code does not apply. The ACCC/ASIC Debt Collection Guideline still applies to any dealings with individual debtors (for example, a director acting as guarantor) and prohibits misleading conduct, harassment and undue pressure.
Litigation & Dispute Resolution
Unpaid B2B debt? Move it forward — commercially.
Parke Lawyers runs commercial debt recovery for Victorian businesses — letter of demand, statutory demand, Court proceedings, judgment and enforcement — with an eye on cost, recovery and the client relationship.
This article is general information only and does not constitute legal advice. Please obtain advice tailored to your circumstances.