How Temporary Debt Protection affects a creditor
Manpreet owns and operates a coffee bean supply company. He roasts his own beans and sells them to local cafés.
Most of his customers have been impacted by the coronavirus. Cafés have only been able to sell takeaway coffees, which has hurt their revenue. Manpreet’s larger customers went through 10kg of coffee beans in a day, but now many are lucky if they get through 1 kg. Others have simply closed their doors.
Many of Manpreet’s ongoing customers have fallen behind on payments, and now he’s struggling to pay his own bills. Needing to keep up his own business’ cash flow, he contacted a solicitor to act on his behalf in collecting overdue payments from his customers.
The solicitor suggested Manpreet obtain a court judgment against one of his customers – Julia – to give him some enforcement options. Julia is a sole trader who runs a local café, she regularly buys roasted coffee beans from Manpreet.
A judgment usually means that Manpreet could charge interest on the debt owed at the post judgment rate and also consider further steps against the customer, like a wage garnishee order.
Manpreet’s solicitor was able to have the judgment registered, but Julia filed for Temporary Debt Protection (TDP) with AFSA. The TDP stopped Manpreet from being able to use enforcement options such as a wage garnishee, or applying for the sheriff to seize and sell Julia’s assets. Julia is protected for a period of 21 days.
As part of the TDP process Julia completed a brief statement of her financial affairs, which included information about income, assets and debts. As a creditor this information was provided to Manpreet giving him a better understanding of the situation that she was in. Manpreet realised that her debts were widespread and her financial position was made worse by COVID-19.
Armed with new knowledge of Julia’s situation, Manpreet reached out to her directly and was able to come to an arrangement that kept both businesses functioning as best as possible. Even during the temporary debt protection period, Manpreet can contact Julia to discuss their options - they do not have to communicate through solicitors or AFSA.
If you are supplying goods on credit terms to your customers, you may wish to consider making a registration on the Personal Property Securities Register (PPSR). An agreement with your customer, along with an effective registration on the PPSR, is one way to help you get your invoices paid, or your goods back, if your customer doesn’t pay or goes out of business.
Find out more information about the Personal Property Securities Register, or PPSR for short, at ppsr.gov.au.
*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.