Default judgment entered against you? But you have no idea what it’s about?

Every so often, a default judgment will be entered against an apparent debtor, but the debtor has no idea about the court proceedings having been commenced against it, or indeed about the debt itself.

The first time they know about it is when the sheriff comes knocking on their door, or when they are served with a Statutory Demand threatening to wind up the company unless the debt is paid within 21 days.

This begs the question – how can legal proceedings be allowed to progress so far against an alleged debtor without the debtor’s knowledge?

There are various points in the debt recovery process at which the creditor has the opportunity to put the debtor on notice that legal proceedings are about to commence, or that certain steps will be taken in the proceedings.  The first point is typically by sending a “letter of demand”, requesting payment of the amount allegedly outstanding, otherwise court proceedings would be commenced.

However, whilst it is a usual part of the debt recovery process, it is not a legal requirement for a creditor to send a letter of demand.  Sometimes creditors will just head off to the Local Court to commence proceedings to recover the debt – this is done by drafting and filing a Statement of Claim at the Court.  The Court rules require the creditor to then serve the Statement of Claim on the debtor, following which the debtor has 28 days to prepare and file a Defence to the claim.

“Service” of a document is the process of making sure that any person who is required to be given a copy of an application to the Court or any other legal document is given it in a way which complies with the relevant legal rules.

The rules for service differ, depending on whether the creditor is:

The risk, then, when serving a Statement of Claim on a corporation by simply sending it in the ordinary mail is that the Claim will go missing and not arrive.  It is more prudent to send it by Express Post, so that the delivery can be tracked.

As mentioned above, once the Statement of Claim is served, the debtor has 28 days to file a defence.  If no defence is filed, then the creditor has the right to apply to the Court for a default judgment – meaning that the Court makes an order in favour of the claimant that the outstanding debt, together with interest, costs and fees, is payable by the debtor.  Once default judgment has been entered, then the creditor has the right to enforce the default judgment against the debtor, whether by way of a garnishee order, examination notice, seizure of assets etc.

It is sometimes possible that the first time a debtor is aware of the court proceedings against them is only once default judgment has been entered

There are a number of reasons as to why you may not have been aware about the court proceedings:

  • you were overseas at the time the documents were left at your family company’s registered office;
  • you were in hospital sick;
  • you have moved houses and did not update your company’s records;
  • the documents were left with a relative who is not of sound mind and who did not make you aware of their service.

If that’s the case, then the debtor may be able to apply to the Court to have the default judgment “set aside”.  The debtor needs to show to the Court:

  • that you have a good reason for not filing a defence within the required 28 days from the date that the plaintiff claims the documents were served on you;
  • that you have some evidence to support your proposed defence of the claim;
  • that you have filed the application (called a Notice of Motion) to set aside the judgment as soon as possible.

At the same time, you can apply for a “stay of proceedings”, to prevent the creditor from enforcing the default judgment against you until your application to have the default judgment set aside has been dealt with by the Court.

If you require legal assistance to set aside a default judgment, contact Melissa Lammers on 9526 3444 or mlammers@shirelegal.com.au

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