A garnishee notice is a serious issue. It means that a debt has reached the stage where the court has made an order that allows the creditor to seek repayment from a third party, whether it be your bank or your client or customer (or for employees directly from your employer). If you are issued with a garnishee notice you need to act quickly as there are limited options available and time is against you.
At C&D Restructure we are experts in business restructure and commercial outcomes for business. We only deal with business related garnishee notices, so if you have received a personal garnishee notice, we recommend that you contact the community legal organisations in your state or speak with a solicitor.
At C&D Restructure we have specialists based in New South Wales, South Australia, Queensland and Victoria and we visit rural Australia on a regular basis to assist businesses dealing with garnishee orders and the impact for the wider business. We are a responsive firm, working closely with you and your professional advisors to understand the position and find solutions for even the most difficult situations.
What is a garnishee order?
If you owe a debt, a creditor can seek an order to have the debt repaid from a third party. The court issues an order that allows the creditor to seek repayment (without your involvement) from one of these third parties. The garnishee order is provided to these third parties directly, requiring them to direct monies owed to your business directly to them.
These garnishee orders have not only a financial impact, but also a business impact, with creditors and clients of your business being put on notice that you have outstanding debts. Managing these garnishee orders can be tough for business owners. They may not be unexpected, but the receipt of these can be still be a shock. Understanding what is going on and what you can do about it is often a hard part of the process.
Practically, this means that there is a court order forcing you to pay an amount but rather than collecting the money from you they approach a third party, whether it be a bank, customer, client or your employer. Once this garnishee order is made, they are legally forced to comply with the order.
How does a garnishee notice work in practice?
a. Recovering a debt from income
For an employee or business owner receiving a salary (for example a Director fee), the employer is placed on notice, under the garnishee order, to hold onto a portion of your salary and wage and pay this directly to the creditor. There is a limit on the amount that can be left in your account, in New South Wales, this amount is currently $480.50 in living expenses. For people with a mortgage or other debts, this amount can be devastating as normal expenses cannot be met, and you are at risk of defaulting.
The garnishee order does not stop at the first collection and will continue until the debt is repaid in full. These orders are generally very difficult to have removed and for an employee, it is often stuck with them whilst they remain in the employment of the employer served with the notice.
At C&D Restructure, should you receive a personal garnishee order, we recommend seeking immediate advice from a community legal organisation or solicitor. We only deal with garnishee order for debts impacting businesses.
b. Recovering a debt from a bank account
A garnishee order can be made against a bank account and this is often the most common that we see. Depending upon the order made by the Court, this garnishee order will generally also result in the freezing of your bank account. This will not only limit your ability to make other payments, but also to receive payments into your account. In our experience a bank will stop your account from making payments, even those that are scheduled and where there is a balance in the account, the flow on consequence can be terrible if you miss payroll or loan repayments.
If you have received a business garnishee order it is important that you get advice immediately, there are limited options available and ignoring or avoiding this impact for your business can be devastating.
We work closely with businesses in New South Wales, Queensland, Victoria and South Australia in dealing with garnishee notices that have been served on business bank accounts, assisting you to understand the process and formulating solutions to deal with these as simply and practically as possible. We understand that it is a difficult time for business owners and failing to deal with these garnishee notices can result in the loss of your business.
c. Recovering debt from a client or customer
During the last few years we have seen an increase in collections activities directly from customers and clients rather than via bank accounts. This approach to enforcing a garnishee order will, for most businesses, result in severe loss of credibility, as you are now explaining financial difficulties to long standing customers. We have had experiences where business owners have lost long standing clients as a result of the receipt of a garnishee order, these orders causing untold damage to the business if not dealt with quickly and properly.
This type of garnishee order is one of the hardest to deal with in a business perspective and it is where the team at C&D Restructure need to work quickly and closely with you to mitigate any damage that is caused through this garnishee order. Moving quickly is important and communicating with your clients or customers is a must, they need to have confidence with you, as we have experienced businesses failing within a matter of weeks of receiving this type of notice.
With a team happy to travel with limited notice, we will work with you to deal with this garnishee order, being onsite and coming up with solutions to manage the business risk.
Have you received an ATO garnishee order?
There has been a substantial increase in the use of garnishee notices for debt collection, they are able to utilise these under Taxation Administration Act 1953 without the step of needing to go to court in order to receive the garnishee notice. These garnishee orders are similar to a court issued order in that they are able to be issued against your bank account or a customer or client.
Whilst there has been criticism of this approach to debt collection, in normal times this is a result of substantial noncompliance and it is an exception, rather than a normal approach. In our experience, garnishee orders will only be used when all other options have been exhausted and the taxpayer has struggled with either communication or payment terms.
Where an ATO garnishee order is made, these can be directly against a bank account, or equally may be against a bank processing facility (such as PayPal or Square Reader) or additional merchant facility. These garnishee orders can be wide reaching and severely damaging for a business that may have other issues.
These garnishee notices are not issued immediately and there will be a period where there has been noncompliance or a failed payment arrangement, unfortunately. However, for business owners these still can be a shock when they arrive.
The impact of a garnishee order can be substantial. For businesses, this may result in the freezing of trading accounts and direct debits being rejected or failed. We have also seen experiences where banks have foreclosed financial positions on the basis of a breach of banking covenants. It is often the case that this garnishee order will result in the bank placing a facility into bad bank or credit watch.
What can you do?
The issue of a garnishee order is a final step rather than an early one, and for business owners this means that there has been a period of time where debts have been unpaid. Unfortunately, in terms of the garnishee order, there is a legal obligation on the recipient of the garnishee order to follow what is instructed. Short of a payment in full or an agreement for the garnishee order to be ceased, your options are limited.
For ATO garnishee orders, communication is the key and even for those with poor compliance history an open dialogue will give you a better chance of reaching a solution. We work quickly with your professional advisors to get your compliance up to date and where possible take steps to work with the Commissioner to find solutions. Again, it is important to move quickly and get control of the situation.
This doesn’t mean that your options are exhausted, but you will need help in order to deal with the consequences of the garnishee order. The team from C&D Restructure have dealt with garnishee orders for businesses large and small, forging commercial and practical solutions to mitigate damage.
What happens now?
If you are reading this and have received a garnishee order, the team at C&D Restructure are here to help. We can work with your creditors to propose a commercial solution, negotiate terms as to the settlement of the garnishee order, or if necessary, work with you to explore options in insolvency. Happy to travel, we will work closely with you to find practical and commercial solutions, finding options to bring your business back into control. Working early and late, we are available for a call so you can understand your position and what options are available.
We are independent of any insolvency firm and work for solutions that get the best results for you as a business owner, your staff and your creditors. We will review all options, and in conjunction with your other professional advisors, find solutions where others may simply recommend a finality without understanding you as a business owner and what your long-term objectives are.
The impact of a garnishee order can be devastating and often we find that business owners will ignore the impact. Unfortunately, time is often rushed when a garnishee order is received and the longer the delay, the harder it is to turn things around and come up with commercial solutions. We encourage early engagement and provide a complimentary, no obligation discussion about your options, whether that involves trading out, negotiation, administration, liquidation or a combination of all the options.
With team members servicing New South Wales, Queensland, Victoria and South Australia and a willingness to travel to rural areas, we pride ourselves on being your partner through the process. We provide commercial, practical and candid solutions, helping you navigate the insolvency maze with a partner, not just a transaction.