Debt Collection: $153,000 of 'uneconomical to pursue' monies collected from phone company debtors during liquidation Written by Kaizen Enterprises Pty Ltd
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Case Studies

 

Client: PricewaterhouseCoopers

Project: To collect approximately 600 small debts classified as ‘uneconomical to pursue’ by the liquidator

Service: Debt Collection

Key achievements:

  • Conducted a thorough review of available supporting documentation
  • Visited each of the approximately 600 debtors in person
  • Collected $153,000 over a three-month period

Synopsis:

Kaizen Enterprises was engaged by PricewaterhouseCoopers (PWC) to collect around 600 small debts, towards the end of their liquidation of a small phone services provider.

When PWC approached us, the liquidation phase was nearing its conclusion, and the major assets had been sold. PWC had already attempted to collect the company’s outstanding debts, and the remaining monies had been classed as ‘uneconomical to pursue’ with a view to writing them off completely when the statutory liquidation period expired. We agreed to work on the debts in a last-ditch attempt to recover what was possible within the remaining liquidation period. To eliminate the issue of viability for PWC, we also agreed to work on a fully ‘results-only’ basis.

The vast majority of the debtors were small stores and street kiosks which had been phone card resellers. The debtors were mainly located in Sydney and Melbourne, and were mostly people from non-English speaking backgrounds.

The biggest problem faced by PWC was that the proofs of delivery for the cards – demanded by the holdout debtors – were no longer readily available. In addition, many resellers naively believed that the debt had been voided when the company entered liquidation, when in fact they would only be extinguished at the conclusion of the liquidation period. Lastly, PWC had encountered a substantial language barrier as nearly all of the shop owners spoke very little English, making it difficult to negotiate by phone.

Before approaching the debtors, Kaizen Enterprises conducted a thorough review of the available delivery proofs. A representative twice visited a warehouse in Queensland where the company’s old records were stored, and opened all of the 300 plus large unmarked records cartons to retrieve the available delivery proofs. The costs of the visits were born solely by Kaizen Enterprises, as part of its ‘results-only’ agreement with PWC.

We then visited each of the 600-odd resellers. In addition to the difficulties encountered earlier by PWC, we found that many resellers tried to stall our attempts to collect the debt. This included strategies such as:

  • Shop attendants being deliberately unhelpful, playing up communication difficulties and refusing to disclose the contact details or visiting schedules of absentee owners;
  • Shop attendants claiming that the owner (or other responsible person) was overseas and would not be returning in the foreseeable future; and
  • Owners claiming that they had paid the debt in cash prior to the company’s collapse, something that was impossible to confirm because the company’s staff had been terminated during the liquidation.

The phone company had specialised in cheap calls to China, so the geographic footprint of the resellers followed the locations of the ethnic Chinese communities, such as Chinatown, Chatswood, Hurstville in Sydney, and the central business district and south-eastern suburbs in Melbourne. The cross-cultural nature of the assignment and the obstructionist behaviour of many shop attendants meant that there was a lot of waiting, travelling and many repeat visits, all of which were made at our expense.

Despite these problems, we collected $153,000 over a period of three months. In many cases, we had to overcome the attempts to shield the owner from our approaches, and then convince the owner that despite the lack of documentation and the liquidation of the company they were still legally obligated to pay.

Although there were times when owners, once identified, simply refused to honour the debt without proof, in a large number of cases we were able to collect the debt even though there was a lack of supporting documentation.

All of the money we collected had previously been earmarked for write-off due to the difficult nature of the debts. By working on a ‘results-only’ basis, Kaizen Enterprises was able to offer PricewaterhouseCoopers a risk-free opportunity to collect a substantial portion of the outstanding monies.