July 2014 | Scott FreidmanFiona McLay

Harris Freidman recently advised Joe* and Bob*, who were both seeking to recover a significant amount of money for construction work they had done on a large property development project undertaken by the Black Enterprises Group*.

At the start of the project Joe had his solicitor draft a personal guarantee from Mr Black, the director of the company that he contracted with. Bob thought Joe had a great idea and so he prepared his own guarantee and had Mr Black sign it.

Part way through the development, the companies in the Black Enterprises Group went into liquidation and the project was never finished.

Joe sued Mr Black relying on the personal guarantee and was able to negotiate judgment against Mr Black for the full amount he was owed plus interest at 10% per annum if there was any delay in payment of the judgment by installments. It took Joe some years to recover the debt from Mr Black but he was compensated by the interest payments.

Bob also tried to sue Mr Black. Unfortunately when Bob had prepared the director’s personal guarantee Bob had not named the company in the Black Enterprises Group that owed him money but another similarly named company. Bob’s signed personal guarantee was useless.

The moral of the story?

There are ways you can protect yourself and make it easier to recover your hard earned money.

1. Know who you are dealing with. Often companies in a group have similar names. Make sure you know which company in a group you are dealing with and consider doing a credit check before you start work.

2. Modify your terms of trade. Get a solicitor to check that your terms of trade allow you to recover from the company you are contracting with (or its directors) whether by taking security over an asset, getting a personal guarantee from directors or some other form of security.

3. Have a properly drafted retention of title clause in your terms of trade so you can recover goods supplied but not paid for.

The best time to seek debt recovery advice is before you do the work or supply goods and before the debt falls due. Once a debtor has gone into liquidation or bankruptcy, lawyers can help you join the queue with the other creditors but it is too late for anyone to help you move ahead of other creditors in the queue.

* Not their real names

Written by Scott Freidman and Fiona McLay
(02) 9231 2466

If you do not have security for the debt owed to you, it can be difficult and expensive to recover your money.Harris Freidman Lawyers can help you take effective steps to protect yourself from unrecoverable debts. Contact Scott or Fiona on 9231 2466 or email sfreidman@hflawyers.com.au or fmclay@hflawyers.com.au.

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