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Debt Recovery Options in Western Australia: When a Letter of Demand is Ignored
- Nikolina Milošević
- Jul 24
- 5 min read
You have sent a properly drafted letter of demand, the deadline has passed, and the debtor has not paid or engaged in any meaningful way. What now?
In Western Australia, there are five main options, and the right one depends on how much you are owed, whether the debtor is an individual or a company, whether the debt is disputed, and whether the debtor has the means to pay.
This blog covers each option, what it costs, and when it makes sense.
Option one: negotiated settlement
Even when a letter of demand is ignored, escalation to court is not always the best next step. A follow up call from your solicitor, or a second letter putting the debtor on notice of imminent proceedings, can produce a response that a first letter did not.
If that response is a settlement offer, whether for the full amount, a reduced amount, or a payment arrangement, that outcome needs to be documented in a properly drafted Deed of Settlement and Release. This is the document that closes the matter cleanly. Without it, a settlement is just an informal promise, and informal promises about legal debts have a habit of unravelling.
A well drafted Deed of Settlement and Release does three things:
It records the settlement terms clearly, including any payment schedule and what happens if the debtor defaults on the arrangement.
It releases the parties from further claims arising out of the underlying dispute, which prevents the debtor from later raising a related counterclaim.
And it provides an enforceable document you can rely on if the debtor breaks the arrangement.
For most debtors who engage in good faith after a demand, a Deed of Settlement and Release is the right endpoint. It costs a fraction of court proceedings, closes the matter definitively, and gives both parties certainty.
Option two: mediation
For disputed debts, where the debtor claims the money is not owed or is owed in a different amount, mediation can be a faster and cheaper resolution than court proceedings.
In Western Australia, the Small Business Development Corporation offers a low cost mediation service for eligible small business disputes. Private commercial mediators are also available, with fees varying by mediator and complexity.
Mediation is not binding unless the parties reach an agreement and document it, but the resolution rate is high for disputes where both parties genuinely want to move on. As with a negotiated settlement, any agreement reached at mediation should be documented in a Deed of Settlement and Release.
Mediation is most useful when the underlying commercial relationship has some ongoing value, or when the dispute is likely to require expensive evidence to resolve in court. It is less useful when the debtor is simply refusing to pay a clearly owed amount.
Option three: court proceedings in the Magistrates Court
If negotiation and mediation are not viable, court proceedings are the next step, and where you file depends on how much is owed.
For debts up to $10,000, the Magistrates Court of Western Australia hears the matter under its minor cases procedure. This procedure is deliberately less formal than the general procedure. Filing fees are lower, the rules of evidence are relaxed, and lawyers are generally not permitted to represent either party unless all parties and the court agree. This keeps costs down but also means the process rewards claimants who understand what they are doing.
For debts between $10,000 and $75,000, the Magistrates Court hears the matter under its general procedure. This is more formal, filing fees are higher, and legal representation is the norm.
For debts over $75,000, the matter proceeds in the District Court of Western Australia or, above $750,000, the Supreme Court.
Court proceedings in WA typically involve filing an originating claim (a Form 4 Minor Case Claim or a general procedure claim as applicable), serving it on the debtor personally, and dealing with any response. If the debtor does not respond within 14 days of service, default judgment can be sought. If the debtor responds and defends the claim, the matter proceeds to a hearing.
The commercial question at this point is whether the amount owed justifies the cost and time of proceeding. For debts of a few thousand dollars, the answer is often no. For debts in the tens of thousands or more, it can be, particularly when the debtor is solvent and the debt is not genuinely disputed.
Option four: statutory demand against a company debtor
If your debtor is a company and the debt is at least $4,000 and is not genuinely disputed, a statutory demand under section 459E of the Corporations Act 2001 (Cth) may be the fastest and most effective option.
A statutory demand requires the company to pay the debt within 21 days. If the company fails to do so, it is presumed insolvent, and you can apply to wind it up. The prospect of a winding up application produces a payment response in a large percentage of cases, because company directors understand what that would mean for their business.
Statutory demands are not appropriate for genuinely disputed debts. A company that receives a statutory demand for a disputed debt can apply to have it set aside, and the creditor can face cost orders. For undisputed debts against solvent companies, however, the statutory demand is one of the most effective tools available.
Option five: bankruptcy proceedings against an individual debtor
If your debtor is an individual and the debt is at least $10,000 (as of the current bankruptcy threshold, which is subject to change), bankruptcy proceedings are available as a recovery mechanism.
The process involves obtaining a judgment, issuing a bankruptcy notice, and, if the debt remains unpaid, filing a creditor’s petition. The process is longer and more complex than a statutory demand against a company, and the practical recovery from a bankrupt debtor is often limited. Bankruptcy is generally a last resort rather than a first choice.
Enforcing a judgment
Winning a judgment is not the same as receiving payment. If the debtor still does not pay after judgment, enforcement is the next step.
Under the Civil Judgments Enforcement Act 2004 (WA), enforcement options include property seizure and sale orders, garnishee orders on wages or bank accounts, examination summonses requiring the debtor to disclose their financial position under oath, and, for company debtors, winding up applications built on the unsatisfied judgment.
Enforcement takes time and adds cost. It is why the assessment of the debtor’s ability to pay, done at the very start of the recovery process, matters so much. Obtaining a judgment against a debtor with no assets and no income produces a piece of paper, not money.
Choosing the right option
For most WA business debts that reach the point of an ignored letter of demand, the right sequence is:
• A second letter or solicitor follow up call, testing whether the demand can still produce a response
• If a response comes and settlement is possible, a properly drafted Deed of Settlement and Release
• If no response comes and the debtor is a solvent company, a statutory demand
• If no response comes and the debtor is an individual, or the debt is disputed, court proceedings in the appropriate WA court
None of these paths are automatic. Each involves assessing the debtor, the debt, and the commercial return on the recovery effort. That assessment is what a Strategy Call is designed to work through.
This blog is intended for general information purposes only and does not constitute legal advice. The content is based on Australian law and may not be current at the time you read it. Legal requirements may vary depending on your circumstances. Always seek independent legal advice tailored to your specific situation before acting on any information provided.
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