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WA How to Enforce Settlement in Commercial Law Debt Case?

Discussion in 'Commercial Law Forum' started by Michael Franz, 27 May 2016.

  1. Michael Franz

    Michael Franz Member

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    Hi there

    This is a bit of a complicated one. One of my clients, a small business in Perth, changed ownership whilst still owing around $10k for unpaid services. The new owner disputed their liability for old debts, however, the old owner and I reached a settlement agreement in his capacity as a private individual rather than as a director of the company (which he no longer was), that he would settle the business' debt for around $8k. The (rather informal) wording of our agreement which he drafted and sent to me; and which I signed and returned to him was:


    Re: (my business name) and all related entities, suppliers and persons.

    This is to certify that any and all outstanding amounts claimed by any of the above for (my type of business) and related services relating to the (the business's type of business) conducted in (address) is settled upon
    the payment and acceptance by EFT of $8000.00

    Yours sincerely,
    (my name), Sole Proprietor.



    I subsequently waited for quite some time (around 2 years) for him to make good on the settlement contacting him regularly, however, he never did. I have subsequently just filed a case against the firm, not the old director, for both this amount and an additional $1k in unpaid invoices that accumulated under the new management.

    However, I now fear that I may have been too hasty and that I might have been successful in trying to enforce the original settlement agreement against the old owner rather than pursue the company for its debts - which I am dubious of its ability to pay.

    I have only recently filed the claim (1 week ago) and the defendant has yet to respond. I am wondering if it would be possible to modify my claim, to only seek to recover the newly accumulated debt of $1k, and seek to enforce the settlement against the old owner personally. So, two key questions:

    1) is it likely that this settlement agreement was valid/enforceable against the old owner? He entered into it with me after he ceased being a director, and that he was doing so in his personal capacity was clear. Can an agreement to reduce an obligation against a third party count as consideration and hence that our agreement was contractually binding?

    2) have I now breached my own obligations under the settlement agreement by now initiating action against the firm under Commercial Law? If I withdraw or modify my claim now, to the only claim for the newly accumulated debt, would that be sufficient to prevent a breach, and could I still seek to have the original settlement enforced?

    Thanks in advance, any help or clarification would be greatly appreciated.
     
  2. Rod

    Rod Well-Known Member

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    The previous owner by his behaviour has breached the $8k agreement and it can be considered void. You therefore don't have to worry about this agreement, though it should be mentioned in court paperwork. You should only concentrate on the original debt and the new extra debt of $1k.

    Recommend you amend your case if you can to the full original amount of $10k against both the previous owner and current owner, claiming against both as jointly and severally liable for the first debt of $10k, and against the current owner for the additional $1k in new debt. A complication could be the sale agreement between the previous owner and current owner however as you are not privy to that contract don't try to factor it into your thinking at this stage. Let the court sort out the issue and apportion debt as it sees fit.

    Good luck, let us know how you get on.
     
  3. Michael Franz

    Michael Franz Member

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    Thanks! My concern is however that the business doesn't have much in the way of assets, and that even if I am awarded the full 11k, I wouldn't end up receiving much even if I go down the whole path and apply for liquidation. So I'd rather attempt to recover a lesser amount, the 8k against the previous owner first, as it is a safer option, and enforcement proceedings are easier. So would I still be able to enforce the original settlement against him personally before I pursue the business? Would holding them jointly and severally liable achieve this?
     
  4. Rod

    Rod Well-Known Member

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    Not necessarily. Think you're better off trying to get money from two parties at the same time (jointly and severally) rather than one party first then the other later.

    Chances are the owners will still not pay despite a judgement in your favour or will instead request a payment plan so be prepared for the long fight.
     

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