Congratulations! You have just obtained an adjudication certificate. What comes next if the respondent refuses to pay the adjudicated amount? Knowing how to enforce SOPA debts is essential for construction industry participants who want to exercise their right to receive progress payment.
Two potentially powerful options available to claimants are Statutory Demands and Garnishee Orders.
Adjudication Determinations
Once the adjudicator determines the amount of the progress payment owing, the respondent is bound to pay the adjudicated amount within five business days after the date on which the adjudication determination was served on the respondent.[1]
If the respondent fails to pay the adjudicated amount on time, the claimant is entitled to suspend construction work and request an adjudication certificate.
As soon as the claimant is armed with an adjudication certificate, the claimant can register its certificate with the court as a judgment debt.[2]
Where a judgment is obtained, claimants have several options to enforce that judgment, including Garnishee Orders and Statutory Demands.
Statutory Demands and SOPA.
Statutory demand basics.
A “Statutory Demand is a written demand for payment delivered to a company in accordance with section 459E of the Corporations Act 2001 (Cth) (Corporations Act)[3]. A company will be presumed to have committed an act of insolvency if it fails to comply with a Statutory Demand by either:
- paying the amount claimed;
- negotiating a settlement for the debt to the creditor’s satisfaction; or
- applying to the Court to set aside the Statutory Demand.
With the threat of committing an act of insolvency looming large, statutory demands can place significant pressure on debtors to pay their debts or face being wound up in insolvency by the court.
However, claimants should proceed cautiously when deciding whether to issue a Statutory Demand to enforce judgment debts based on adjudication certificates. As we have previously written, Statutory Demands issued in reliance on a SOPA judgment will not be set aside on the grounds that there is a genuine dispute about the debt. However, a Statutory Demand relying on a SOPA judgment remains vulnerable to offsetting claims. You can read more about SOPA and Statutory Demands here.
That being the case, Statutory Demands remain a powerful tool available to claimants who are confident that the debtor does not have an arguable case for an offsetting claim against them.
Garnishee Orders and SOPA.
A Garnishee Order is a method of enforcing judgments prescribed by section 106 of the Civil Procedure Act 2005 (NSW) (CPA). Garnishee Orders are court orders made against a third party who is a debtor of the unsuccessful party (Judgment Debtor).
Instead of paying its debts to the Judgment Debtor, the recipient of a Garnishee Order is ordered to pay the judgment creditor until the debt owing to the judgment creditor is discharged or there is no further amount payable to the Judgment Debtor.
The most common types of Garnishee Orders are issued against either a Judgment Debtor’s bank or employer. A Garnishee Order served on a bank will direct the bank to pay all available funds in the Judgment Debtor’s bank account to the judgment creditor, less a small administration fee.
However, Garnishee Orders need not be limited to banks. If you are aware of another party that owes a debt to your Judgment Debtor, that party can also be served with a Garnishee Order as long as you have sufficient evidence that the debt exists and remains payable.
If you have a respondent’s bank account (or information about other debts owing to the respondent), Garnishee Orders can be a quick and relatively inexpensive way to recover your SOPA judgment.
Conclusion
Other methods to enforce SOPA judgments are also available; however, they can be more cumbersome and less likely to result in a timely payment to you.
Choosing how to enforce your SOPA judgment depends on the circumstances of each case, including an assessment of the Judgment Debtor’s assets as well as your ongoing commercial relationship. For this reason, you should seek legal advice from Vincent Young when deciding how to enforce a SOPA debt when your Judgment Debtor won’t pay.
If you would like to discuss this article with us, please contact Brett Vincent, partner, or Luis Garzon, foreign construction lawyer on (02) 9261 5900.
[1] Sections 22 and 23 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA).
[2] Section 3 of the Civil Procedure Act 2005 (NSW).
[3] Sections 459E(2) and 459E(3) of the Corporations Act 2001 (Cth).