Civil debt recovery options

As NZ moves beyond the COVID-19 pandemic, there will be increased demand for debt recovery. Patrick Shanahan-Pinker of K3 Legal shares some of the options available for creditors

Civil debt recovery options

In the wake of the economic climate left behind after COVID-19, an increase in debt recoveries is inevitable, as both individuals and companies seek to secure their finances.

But it’s not necessarily an easy process. Patrick Shanahan-Pinker, solicitor at K3 Legal, notes that the biggest barrier that clients tend to have in obtaining a beneficial outcome isn’t in the dispute-resolution process. Rather, it’s in recovering a debt after an award has been made by a court or tribunal.

“The most practical advice we give before a client considers litigation, is that there should be a clear path for recovery,” says Shanahan-Pinker. “It’s important to establish whether you are throwing good money after bad and whether the debtor has any way of satisfying the judgment.” 

However, there are a range of options available to creditors, depending on the particular circumstances, such as whether recovery is against an individual or a company. Shanahan-Pinker notes that there are three common options for debt recovery – liquidation, charging and sale order, and a garnishee/attachment order.


When there’s no sign that a company is able to repay a debt enforceable by judgement, it may be put into liquidation. The most common way in which liquidation is commenced is for the creditor to issue a statutory demand. As a result, if the demand is not paid, then there is a presumption that the company is insolvent.

“If there are multiple creditors with a claim against the company, there are benefits to being the first to commence a liquidation application,” Shanahan-Pinker says. “You’ll be first in line for recovery of your application costs and will be able to appoint the liquidator of your choosing.” 

An application is then made to the High Court for an appointment of a liquidator. Once a liquidator is appointed, there are a several avenues for the liquidator to explore to recover funds for the creditors:

  • Whether the company is owed money from its own trading debtors
  • Whether there are any outstanding tax refunds owed to the company
  • To “claw back” and recover any payments made by the company while it was insolvent (known as voidable transactions)  
  • If the director was trading insolvently or was in breach of any of their other director’s obligations, whether a personal claim can be made against that director

Charging and Sale Order

Charging and sale orders are a good choice for when a debtor is unwilling to pay, or unable to pay because of cashflow issues, but owns significant assets, such as land or other property.

“A creditor is entitled, as of right, to apply for both a charging and sale order once a judgment is obtained,” Shanahan-Pinker says.

A charging order, he explains, is the first step – it prevents the debtor from selling or transferring a particular asset. A sale order, by contrast, is a powerful instrument which applies to all of the debtor’s land and personal property (except necessary “tools of trade” and “necessary household furniture and effects”). A sale order, once obtained from the High Court, allows the creditor to instruct the sheriff of the court to at first seize and then sell the debtors’ assets, normally at a public auction, until the judgment debt is satisfied.

Shanahan-Pinker does note that there can be significantly more cost involved in obtaining charging and sale orders in comparison to other debt recovery options.

“Before you go ahead, you need to seriously consider a few other aspects,” Shanahan-Pinker says. “Does the debtor actually own the asset, or is it in the ownership of a trust? Are there any other creditors with claims over the property, such as a mortgagee, that might be paid in priority? And will the value of the property actually cover costs and the judgement?”

Garnishee/Attachment Order

Garnishee/attachment orders are often used as a “self-help” option for those who have been to the Disputes Tribunal or District Court. It is usually obtained against an individual debtor who doesn’t have any significant assets. It’s less costly and a relatively simple application to fill out. Additionally, Shanahan-Pinker notes, prior to the garnishee/attachment order,  if a creditor is unsure where a debtor works or how much they earn, they can request that the debtor provides a statement of their financial details. The debtor will be compelled to provide that information.

“The order effectivity requires part of a debtor’s income to be paid to the creditor directly, the payment being made by the debtor’s employer,” says Shanahan-Pinker.

However, there are limitations. Garnishee/attachment orders are only helpful where the debt is small or there are no other options for recovery. Small payments being made periodically from the debtor’s income can mean there will be a long wait for full repayment of the debt, especially if the debtor’s only income is a government benefit.

“For most, facing a debt recovery process will require the consultation of an appropriate lawyer who works in this area,” Shanahan-Pinker says. “Working with your client, you can find the best possible means to recover their debt.”

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