The options which are available to creditors to pursue debtors for payment of their debts are varied and creditors are entitled to pursue a range of procedures for recovery of debts, particularly where there is a principal debtor and a guarantor so separate procedures may be required to be pursued against different parties and in different Courts.
However, engaging the Sheriff to take steps for seizure of a debtor’s property as well as pursuing winding up proceedings or bankruptcy proceedings at the same time requires careful consideration. There may be expensive ramifications for the creditor taking concurrent enforcement procedures when it is not entitled to do so.
Even if the personal property is seized by the creditor, steps should first be taken to sell the personal property and determine the shortfall (if any) in respect of the debt owed to the creditor. Once the personal property is sold, the shortfall may be less than the statutory threshold limit for the issue of a Creditor’s Statutory Demand which may then mean that one should not be issued in the first place and then winding up proceedings cannot be substantiated.
Even if the statutory threshold limit for the issue of a Creditor’s Statutory Demand can be satisfied, once the personal property has been sold, there may be no jurisdiction at all to issue a Creditor’s Statutory Demand.
The debtor may successfully oppose the winding up proceedings on the basis of solvency but also upon the basis that the Creditor’s Statutory Demand was defective and lacked jurisdiction (such arguments can only be raised if leave to oppose under section 459S of the Act is obtained).
The debtor can obtain a costs order against the creditor upon the successful opposition of the winding up application, particularly as a result of the creditor taking the steps which it should not have pursued against the principal debtor. Those steps will also have repercussions in any proceedings against the guarantor – as a result of the debt being reduced by the sale of the personal property, the amount sought to be recovered and any costs may be on a lower Court scale.
Where a creditor obtains a judgment debt, it may engage the Sheriff to execute a Warrant to Seize Property and some property may be seized by the Sheriff. If the creditor also issues a Creditor’s Petition to seek recovery of its judgment debt, there may be issues arising from these steps taken at the same time.
Pursuant to sections 119(1) and 119(2) of the Bankruptcy Act 1966 (Cth), once a Creditor’s Petition has been issued, a Sheriff must refrain from seizing property by any execution process issued by a creditor and the Sheriff must not pay to the judgment creditor any proceeds from any realisation of seized property until the Creditor’s Petition has been dealt with by the Court.
Whilst it may seem best to pursue both a principal debtor and a guarantor at the same time to maximise the amount recoverable, creditors should be aware of the ramifications of taking concurrent enforcement procedures against debtors because it may result in court proceedings being dismissed with costs orders in favour of the debtors (and often on an indemnity basis).