• Unincorporated business with one owner.
• Owner pays personal income tax on profits.
• Cheapest and easiest structure to establish.
• Individual legally responsible for all aspects of the business.

A sole trader is an unincorporated business with just one owner who pays personal income tax on profits earned. Any debts or losses incurred cannot be shared with other individuals. It is the cheapest and easiest business structure to establish with the individual legally responsible for all aspects of the business.

Ideal for small, low-risk businesses. Simple and inexpensive to set up.

• Arrangement between two or more parties.
• Shares income, losses, and control of the business.
• Must be registered for GST if turnover is AUD 75,000 or more.

A partnership is a formal arrangement between a group or association of two or more parties to manage a business and share its profits. It is relatively inexpensive to set up and operate. All partners share income, losses, and control of the business. The partnership must be registered for GST (Goods and Services Tax) if its annual turnover is AUD 75,000 or more.

Good for businesses with multiple owners. Shared responsibility and costs.

• Legal entity with higher setup and administration costs.
• Run by directors and owned by shareholders.
• Provides some asset protection.
• Regulated by the Australian Securities & Investments Commission (ASIC).

A company is a legal entity with higher setup and administration costs with additional reporting requirements. It is run by its directors and owned by its shareholders. While a company provides some asset protection, its directors can be legally liable for their actions and, in some cases, the debts of the company. Companies are regulated by the Australian Securities & Investments Commission (ASIC).

Suitable for larger businesses. Offers liability protection but involves more regulations.

• Available at the Australian Business Register.

Corporate information can be found at the Australian Business Register: www.abr.business.gov.au.

Access basic corporate information easily online.

• Financial state information available.
• Provided by Australian Business Register and private agencies.

You can obtain information on the financial state of affairs for companies and industry at the Australian Business Register. There are also numerous private reporting agencies offering credit checks.

Utilize credit checks to assess financial health of potential clients.

• Credit reports provide judgment information.

Normally you can obtain judgment information as part of a credit report from private reporting agencies.

Check for any legal judgments against potential business partners.

• Industry reports and statistics available.
• Provided by government and private entities.

Market research reports and statistics can be obtained from various government bodies and private entities. These reports provide insights into industry trends, market size, and competitive landscape.

Leverage market research to make informed business decisions.

• Necessary documents for legal proceedings include invoices, statement of account, contracts, and communication records.

In order to begin legal proceedings, you will need:

• Copies of the invoices
• A clear statement of account indicating the payments and credit notes that have been paid against the outstanding invoices
• Any contracts or terms and conditions binding both parties

As proceedings continue, you may require additional documentation, such as copies of contracts, orders, confirmations, and delivery notes.

In case of dispute, all the notes of the conversations between you and your debtor via letter and email should be kept. In the case of oral negotiations, you may require meetings or notes about what was agreed.

Maintain detailed records and documentation for legal proceedings.

• Personal Property Security Act 2009 (PPSA).
• Effective from 30 January 2012.

The commencement of the PPSA has changed the way businesses that supply goods under retention of title (ROT) terms register their entitlement.

Understand the impact of PPSA on ROT terms.

• Recognised as law without registration.
• Recovery of unpaid goods upon insolvency.

Previously, ROT clauses were recognised as law and did not require registration. Suppliers could recover goods not yet paid for upon the insolvency of the parties in possession of the ROT goods.

ROT clauses were simpler before PPSA.

• Register interest in the Personal Property Security Register.
• Protects the right to repossess goods.
• Single registration for continuous supplies.

Under the PPSA, suppliers can register their interest in the Personal Property Security Register to protect their right to repossess goods if buyers fail to pay. For continuous supplies, suppliers register only once for each buyer.

Register ROT interest to protect your rights.

• Purchase money security interest (PMSI).
• Higher priority if registered within the legislated time frame.

The security interest from an ROT arrangement is referred to as PMSI. If registered within the legislated time frame, it generally has higher priority over other interests.

Register PMSI for higher priority.

• Benefits vs. burdens and costs of registration.

Failing to register an ROT arrangement as PMSI does not render it ineffective, but it will not enjoy higher priority. ROT suppliers need to consider the benefits of registration against the burdens and costs.

Weigh the benefits and costs of registration.

• Not always required by contract.
• Good practice to send a warning notice.

Unless required by the contract (or the personal guarantee), it isn't necessary to send any letter of demand, reminder notice, or other forms of correspondence requesting payment before taking legal action.

However, good practice dictates that a warning notice should be sent. The warning notice should contain:

• The name of the creditor and the basis of the claim
• The total amount of the claim, including any penalty interests
• Prescription on how to transfer the payment, i.e. bank account etc.
• A warning that the claim will be enforced through the enforcement authority in case the claim is not settled within from the date of the notice
• Information on how to object to the claim if not acknowledged by the debtor

If this measure has been taken and the payment still has not been made after a notice period, the creditor may file for enforcement.

Send a warning notice before taking legal action.

• Interest charges must be outlined in terms and conditions.
• Collection costs not chargeable unless specified in contracts.

You may not automatically charge interest to your debtors unless your terms and conditions and/or contracts specifically outline a penalty for overdue payments.

From a cultural point of view, Australian debtors very rarely agree to pay late payment interest, and it is often used as a negotiation tool between debtors and collectors.

However, if the matters become legal and you file proceedings in court for the debts' recovery, then your claim may include charges for the overdue interest as agreed under each state's laws and the court system. Debtors will almost always refuse to pay any interest in the first instance.

In Australia, debt collections costs are not chargeable to your debtors unless your terms and conditions and/or contracts specifically outline exactly which collections costs become the responsibility of the debtors and when.

If the matters become legal and you file proceedings in court for the debts' recovery, then your claim may include court fees and solicitors' costs as agreed under each state's laws and the court system.

Ensure terms and conditions specify interest and collection costs.

• General limitation period is six years for simple contract debts.
• Limitation period can restart with payment or written acknowledgment.
• Limitation period for enforcing a court judgment is 12 years.

In Australia, for simple contract debts, the general limitation period is six years, starting from the original due dates of the debts. This means that the courts will not hear actions for payment if the debts are outstanding for more than six years. Legal action on such debts is barred by the statute.

However, if the debtors either make payments or acknowledge the debt in writing, the limitation period may start again. Whether such an acknowledgment constitutes sufficient evidence of the debts to restart the limitation period is determined on a case-by-case basis.

The limitation period for enforcing a court judgment is 12 years.

Understand the limitation periods to ensure timely legal action.

• Includes arbitration and mediation.
• Arbitration is widely used in commercial disputes.
• Expert determination for specific disputes.
• Tribunals provide affordable ADR mechanisms.

There are a number of dispute resolution methods used in Australia, including arbitration and mediation. Arbitration is widely used in commercial disputes.

In some instances, the parties will have agreed to refer any disputes arising for expert determination. The independent expert is appointed by the parties to investigate and deliver a binding opinion on the issues in dispute.

In addition, there are a number of tribunals in each jurisdiction which have been established to deal with disputes in a specific area and provide affordable ADR mechanisms.

Understand the available ADR methods and their applicability.

• Statement of claim must be filed in the state where the debtor is registered.

To begin court proceedings, a statement of claim must be filed in the state in which the debtor is registered. Such a statement provides the details of the debt and the necessary instructions for the debtor to either settle or appeal against the claim within 28 days of reception.

Ensure the statement of claim is filed in the correct state.

• Debtor has 28 days to settle or appeal the claim.

If the debtor neither appeals nor settles the debt within 28 days, then a judgment will be issued.

Monitor the debtor's response within the 28-day period.

• Application requires an affidavit and legal representation.

An application for a default judgment in a claim is executed through the filing of a motion including an affidavit and a legal representative of the creditor's company. The affidavit must be filed within 14 days of the notice.

Prepare necessary documents for default judgment application.

• Judgment enforceable for up to 12 years with interest.

A judgment may be enforced for up to 12 years following its issuance, including an accrual of interest.

Understand the long-term enforceability of judgments.

• Handled in the Supreme Court, must be lodged within 28 days.

Any appeals in local court proceedings are addressed in the Supreme Court which can result in increased costs. Appeals must be lodged within 28 days from the date of the decision unless otherwise stated by the court.

File appeals promptly within the 28-day window.

• Standard legal proceedings may take between ten and sixteen weeks.
• Appealed cases could take one year or longer.

Standard legal proceedings may take between ten and sixteen weeks. However, any court procedure in which the debtor has filed an appeal, could take one year or longer.

Plan for potential delays if the debtor appeals.

• Costs vary by state and are a percentage of the principal debt value.
• Summons: AUD 400 – 1,800 in filing fees, 500 – 1,700 in solicitors' costs.
• Judgment: AUD 300 – 750 in lawyer's costs.
• Enforcement: AUD 500–1,000 for various orders.
• Bankruptcy/Winding-up: AUD 8,000 – 10,000.
• Supplementary costs may be added to the principal debt.

The state in which the proceedings take place determines the overall cost which is generally executed as a percentage of the principal debt value.

• Summons: AUD 400 – 1,800 in filing fees, 500 – 1,700 in solicitors' costs.
• Judgment: AUD 300 – 750 in lawyer's costs.
• Enforcement: AUD 500–1,000 for a garnishee order, an examination notice, or a writ for the levy of property.
• Bankruptcy/Winding-up: AUD 8,000 – 10,000.

Whenever legal action is executed via the courts, the law permits a supplementary amount to be added to the principal debt to cater for the extrajudicial interest and costs charged by the courts. Often the debtor will only pay the principal amount and the judge will assign such extra judicial charges either, wholly to the creditor, or split between the parties.

Budget for the costs associated with court proceedings.

• Issued by the court to recover debts from debtor's income.
• Can target bank accounts, wages, or those owing money to the debtor.

A garnishee order is issued by the court and permits the creditor to recover debts through any form of income the debtor has. This includes directly from the debtor's bank accounts, portion of wages, or those owing money to the debtor. The person the order is addressed to is known as the garnishee.

In general, garnishee orders are not always successful as they have strict requirements and are often rejected due to incorrect details.

Understand the requirements and limitations of garnishee orders.

• Used to gather information about the debtor's financial situation.
• Requires filing a motion at court.

When unsure about the debtor's financial situation, the debtor can be asked to provide more information via an examination notice or an examination order. Such an action helps to clarify the debtor's financial position and exactly what assets sit under the debtor's ownership.

Upon filing a motion at court (for a fee between AUD 400 – 600), the debtor (or their director) is served.

Use examination notices to clarify the debtor's financial position.

• Writ for the levy of property allows seizure and auction of assets.
• Debtor may settle debts or appeal upon sheriff's arrival.
• Various fees incurred based on sheriff's actions.

A writ for the levy of property is an order for the sheriff or bailiff to seize and auction moveable assets under the debtor's ownership. The cash proceeds for any sale of assets are first used to settle the costs of the enforcement, with any residual funds distributed to the creditors to clear the outstanding debt.

Should the debtor decide to settle the debts immediately upon the arrival of the sheriff, they may make an instalment application to the court, or indeed appeal against the outstanding value.

The following fees are incurred based on the sheriff's actions:

• AUD 100 for each in-person visit to a debtor's premises.
• AUD 75 for the auction of seized assets with an additional 3% levy on the funds raised at auction.
• AUD 500 for the towing of a vehicle belonging to the debtor.
• Additional fees for the removal of large goods, such as heavy machinery may also be incurred.

Be aware of the costs and procedures for enforcing judgments on movable property.

• Access to real estate assets through bankruptcy or liquidation.

In the event whereby the debtor owns real estate, the creditor may only access such assets through the bankruptcy or liquidation of the debtor.

Understand that real estate assets are accessed through bankruptcy or liquidation.

• Debtor may apply for bankruptcy with an outstanding debt of at least AUD 5,000.
• Bankruptcy notice requires settlement within 21 days.
• Licenced trustee controls debtor's property upon bankruptcy.
• Creditors must lodge a proof of claim.
• Cost of bankruptcy may exceed AUD 8,000.

The debtor may apply for bankruptcy when there is an outstanding debt of at least AUD 5,000 which cannot be repaid. Firstly, the debtor must be served with a bankruptcy notice requiring the debtor to settle debts within 21 days. Should there be no appeal or settlement, creditors may lodge a bankruptcy petition to the Federal Magistrates Court.

Once declared bankrupt, a licenced trustee is granted control of all of the debtor's property. At this point, the creditors must then lodge a proof of claim with the relevant documents and evidence to the trustee for confirmation of the debt.

The cost of bankrupting the debtor may cost over AUD 8,000.

Understand the process and costs associated with bankruptcy.

• Creditors must prove debtor's insolvency.
• Statutory demand issued to the court and notified to the debtor.
• Application for winding-up order if debt not settled within 21 days.
• Proceedings under Section 459P of the Corporations Act.
• Liquidator appointed upon court order.
• Creditors may receive dividends if funds are available.
• Legal costs paid through dividends before creditors receive settlement.
• Insolvency proceedings may last several years.

To wind-up the debtor company, the creditors must prove that the debtor is insolvent and unable to pay debts as they fall due. The creditor should issue a statutory demand to the court which is to be notified to the debtor. If the debtor does not appeal, or settle the debt within 21 days, the creditors can file an application for a winding-up order. Such a method should only be explored as a last resort.

The process of issuing the proceedings is brought under Section 459P of the Corporations Act. If the hearing for the application of winding-up of the debtor results in the court agreeing that the debtor should be wound up, an official order will be notified, and a liquidator appointed.

Upon conclusion of the proceedings, all creditors with confirmed debts may receive dividends if there are any funds to be divided.

The legal costs incurred by creditors to file for the winding-up of the debtor must first be paid through dividends before the creditors receive any residual settlement.

Insolvency proceedings may last several years and are subject to the case type, principal debt value, and the availability of the parties involved.

Understand the winding-up process and its implications.