Debt Collection in New Zealand: Legal Guidelines for Businesses

In Short

• Familiarise yourself with key legislation such as the Fair Trading Act 1986, the Credit Contracts and Consumer Finance Act 2003, and the Privacy Act 2020 to ensure your debt collection practices are lawful.
• Before pursuing legal action, send a formal demand letter detailing the amount owed, due date, and any applicable interest or fees.
• If the debt remains unpaid, consider filing a claim with the Disputes Tribunal for debts under $30,000, or escalating to higher courts for larger amounts.

Tips for Businesses

Ensure your debt collection practices are transparent and comply with relevant laws. Always provide accurate information about the debt, including the amount owed, interest rates, fees, and repayment terms. Maintaining clear and honest communication with debtors can facilitate timely repayments and preserve business relationships.

Collecting owed payments from customers or potentially other businesses is an important aspect of your commercial well-being. As a result, knowing the legal framework of debt collection is key to maintaining a financially healthy and stable business. This article will serve as a legal guideline for debt collection in New Zealand.

The Legal Framework

The first step to understanding the legal guidelines for debt collection is to know where they come from. The table below outlines the relevant sources.

Legal Processes

Furthermore, there are mandatory processes you should undergo when collecting the debt you are owed. These ensure that the party that owes you money, also called the debtor, has an opportunity to repay you. It also allows you to avoid seeking legal redress immediately. We explore the steps you should take in more detail below. 

Sending a Formal Demand Letter

Before taking any formal legal action, you should send a formal demand letter to the person who owes your business money. This letter should include: 

• the amount owed;
• the due date; and
• any interest or fees.

The letter should also include details relating to what will happen if the debt is not paid. This might include taking legal action. This step is essential because it shows your attempt to resolve the issue without legal intervention. It also provides a valuable opportunity for the other party to clarify any misunderstanding and pay off their debt. 

File a Claim With the Disputes Tribunal

You might be able to file a claim at the  Disputes Tribunal. This depends on the debt's size, noting the Tribunal will only review debts under $30,000.

The major benefit of the Tribunal is that it is informal and cost-effective compared to other legal avenues. Instead of a judge, a Tribunal Referee will listen to both sides and make a binding decision.

Apply to the District Court

Larger debts and more complex cases require you to  take action in the District Court. This process is more formal than the Tribunal. Some of the key steps involved include:

• filling a Statement of Claim;
• serving the other party with your legal documents; and
• attending one or more course hearings.

If you are successful, the Court will issue a judgment containing a legal action to pay off the debt. This might include seizing assets or taking the wages of the person who owes your business money.

The District Court will hear cases up to $350,000. Anything exceeding this amount will go to the High Court.

Enforcement of Judgements

If payments are not made on time, a range of measures can be taken to enforce a judgment.

Property Seizure

If the owing party does not pay you, you can apply for a Warrant to Seize Property. This warrant allows an authorised legal officer (bailiff) to seize and sell property to pay the debt. 

Attachment Orders

An attachment order allows you to deduct money directly from the owing party's wages or bank account. This requires the court's approval and involves providing detailed information about the other party's financial situation. 

Charging Orders

A charging order charges the debtor's property to secure the debt. This might include real estate. If the person sells the property, then you may have a right to receive payment from the sale. 

Consumer Protections

If you are collecting debt from your customers, it is equally important to consider their rights. For example, the Commerce Commission has strict rules against unfair debt collection practices. These requirements mean you must treat anyone who owes you funds with respect. For example, you should avoid any threats or phone calls. Failure to comply with these requirements may result in major fines or other legal consequences.

In addition, the CCCFA has protections for consumers who are  experiencing hardship. They may be able to apply for relief, such as:

• extending the repayment period; 
• reducing interest rates; or 
• temporarily pausing payments. 

You should consider such requests carefully and work with your debts to find reasonable solutions. Failure to do so may negatively impact your business's reputation.

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Best Practices

Developing a debt collection policy that aligns with best practices is a good way to avoid legal issues and protect your business's reputation. Below are some of the best debt collection practices your business can implement. 

Clear Communication

Effective debt collection starts with clear communication. You should provide anyone who owes your business funds with accurate and detailed information about their debt. This helps avoid misunderstandings and disputes and makes it easier to maintain your relationship despite the dispute.

Record Keeping

Maintaining thorough records is essential in debt collection. This includes keeping copies of any:

• contracts;
• invoices; 
• payment records;
• correspondence; and 
• any agreements you have made with the owing party. 

This is a good way to have evidence available for any legal action you take.

Engage a Professional

Engaging a legal professional to assist you with resolving a debt collection dispute is a great way to manage the debt recovery process. This ensures compliance with the applicable laws, which can help resolve the matter quickly without neglecting your reputation. 

Key Takeaways

Solid debt collection practices are important for ensuring that your business's financial health is intact. Importantly, the debt collection process begins with sending the owing party a letter of demand before you may consider taking the issue up to the Disputes Tribunal and, potentially, the courts. Whilst undertaking this process, you should also be aware of: 

• the legal framework;
• how to enforce a judgment;
• consumer protections;
• best practices; and
• why you should engage a professional.

Frequently Asked Questions

What is the Credit Contracts and Consumer Finance Act (CCCA)?

The CCCFA is an important part of New Zealand's debt collection landscape. It ensures that consumers are treated fairly and transparently by both lenders and debt collectors. The CCCFA requires businesses to provide accurate information about debt, including the amount owed, interest rates, fees, and other repayment terms.

What is the role of the Disputes Tribunal in debt collection?

The Disputes Tribunal is a quicker and more affordable way to resolve disputes than going to court. You can apply to the Tribunal to settle claims of up to $30,000. Hearings are overseen by a referee who will come to a decision on the issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.