Further to our previous article on the options available when chasing an unpaid invoice, one of the most important questions a creditor should ask before commencing legal proceedings is whether the debtor actually has the ability to pay. A successful court outcome is only part of the equation. The real issue is whether the debt can actually and practically be recovered.

Even where a creditor obtain judgment confirming that money is owed, payment is not automatic. If the debtor does not pay voluntarily, further enforcement action may be required to recover the money and your legal costs.

Judgement Is Not Recovery

It is understandable to assume that obtaining judgment means the matter is effectively over. However In reality, a judgment simply confirms that the debt is legally due.

If the debtor has no assets, no income, or no practical source of funds, enforcement may be futile for a host of reasons.

Therefore a strategic and cost-benefit analysis of the question even if we “win” the court case can the money ultimately be obtained should be undertaken before commencing court proceedings. Legal fees, court filing fees, and enforcement costs can quickly outweigh the amount in dispute, particularly if the debtor is potentially insolvent or difficult to locate.

Costs and Commerciality 

Legal costs are another important consideration.

You have to assume you will be out of pocket even if you “win” the case and the person pays.

Even if you are successful in a court case and obtain a costs order, those costs are usually assessed on a standard basis. This generally results in recovery of only about 50–60% of the actual legal fees actually incurred.

An indemnity costs order is more favourable but it is typically reserved for exceptional circumstances where the other party has acted unreasonably, improperly, or in a way that justifies a more significant costs order. Even in those cases, recovery may be closer to 70–80% of actual legal fees, and sometimes more depending on the circumstances.

Accordingly, the existence of a strong claim does not necessarily mean litigation is commercially worthwhile. The likely recovery outcome should always be weighed against the anticipated legal costs.

Assessing the Debtor's Position

Before commencing the debt recovery process or court proceeding, creditors should make reasonable enquiries into the debtor’s financial circumstances. Some practical steps include:

• Conducting a land title search to determine whether the debtor owns real property;
• Do a company search (if the debtor is a company) or a bankruptcy search (if the debtor is a natural person)
• Identifying whether the debtor is employed, which may assist with enforcement through a redirection of earnings
• Investigating whether any third parties owe money to the debtor, which may support a redirection of debts
• Considering whether there are other assets, guarantees, or corporate structures that may improve recovery prospects

These enquiries can provide valuable insight into whether legal proceedings are likely to result in a meaningful recovery or whether the better commercial decision is to avoid further costs.

Enforcement After Judgment 

If the debtor still fails to pay after judgment, the law provides a number of enforcement options. These include enforcement warrants for seizure and sale of property, redirection of debts, and redirection of earnings, which can allow part of the debtor’s wages to be paid directly to the creditor.

In practice terms, a creditor may be able to enforce against property, redirect income at source, or recover money owed to the debtor by third parties.

However, all of these options depend on the debtor having assets, income or other recoverable funds available in the first place.

A statutory demand could also be issued against a Company debtor.

A Commercial Decision 

Sometimes the most commercially sensible decision is not to proceed if the debtor has little or no capacity to pay. Where there is no meaningful asset base, no employment, and no identifiable source of recovery, additional litigation may simply increase losses rather than improved the outcome.

That is why debt recovery should always be approached strategically. The key question is not simply whether judgment can be obtained, but whether it is likely to result in actual recovery.

A Measured Recovery Strategy 

A staged approach is often the most effective. Issue a demand first, assess the debtor’s financial position, and then decide whether proceedings are justified.

This approach helps ensure that legal action is supported by sound commercial judgment and that enforcement prospects are considered from the outset.

The law can provide a remedy, but it cannot guarantee payment. For creditors, the ultimate objective is not a judgment on paper, but money in hand.

How We Can Help 

If you are considering legal action to recover debt, our Litigation and Dispute Resolution team can help you assess both the strength of your claim and the practical prospects of recovery. Contact Hillhouse Legal Partners to discuss your circumstances and the most commercially sensible path forward.