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If you hold a NSW court judgment and the debtor still has not paid, a garnishee order lets you collect the money directly from a bank, employer or customer that holds funds for the debtor. If a company director signed a personal guarantee, you can also sue that director personally and garnishee their wages or bank accounts once you have judgment.
Understanding Garnishee Orders in NSW
A garnishee order is often the fastest way to turn a judgment into money. With cash flow tight across many industries, more debtors are ignoring judgments and waiting to see whether the creditor will act. Our debt recovery lawyers act for creditors in garnishee applications and at every stage of enforcement.
This guide explains how garnishee orders work, which third parties can be garnisheed, what debtors typically do in response, and how to recover from a director who personally guaranteed the company’s debt. For an overview of the whole process from demand to judgment, see our guide to recovering outstanding debts in NSW.
What is a Garnishee Order?
A garnishee order enforces a judgment debt. Instead of waiting for the debtor to pay voluntarily, the creditor obtains the money directly from a third party (the garnishee) that holds or owes funds to the debtor.
Garnishee orders are one of the enforcement methods available under section 106 of the Civil Procedure Act 2005 (NSW), alongside writs and charging orders. For a full comparison of every option, see our article on NSW judgment enforcement methods.
Who are the Common Garnishees?
The garnishee is the third party that holds or controls the debtor’s money and must redirect it to the judgment creditor. Common garnishees include:
- Financial institutions: banks, credit unions and building societies.
- Employers: paying part of the debtor’s wages or salary.
- Trade debtors: the debtor’s own customers who owe it money.
- Head contractors: progress payments due to a subcontractor debtor.
- Legal professionals: solicitors or accountants holding the debtor’s funds in trust.
- Property purchasers: buyers or agents holding proceeds from the sale of the debtor’s assets.
Because payment comes from a third party, the debtor loses control of those funds. That is why a garnishee order often produces payment, or a serious settlement offer, faster than further demands.
What are the Main Types of Garnishee Order?
The right order depends on where the debtor’s money is held. An examination notice or order can identify the debtor’s bank, employer and customers before you apply.
Garnishee Order for Wages or Salary
Served on an employer, this order requires part of each pay to be paid to the creditor until the debt is cleared. The employer must leave the debtor a protected weekly amount, which is currently $626.10 per week under section 122 of the Civil Procedure Act 2005 (NSW). The amount is adjusted each April and October. A wage garnishee is slow but steady, which suits individual debtors and director-guarantors in regular employment.
Garnishee Order for Bank Accounts
Served on a bank, this order captures the funds in the debtor’s account at the time of service, up to the judgment amount. For individual debtors, an account holding very little may not be caught, and a minimum balance must be left. Check the Local Court’s current garnishee amounts before relying on a figure. Timing matters: serving when funds are likely to be in the account, such as after a payday or a large receipt, improves recovery.
Garnishee Order for Debts Owed to the Debtor
This directs the debtor’s own customers, or a head contractor, to pay the creditor instead of the debtor. It is particularly effective against businesses with regular receivables, including subcontractors on active construction projects.
How Does an ATO Garnishee Notice Differ From a Court Order?
The ATO does not need a court judgment. It can issue a garnishee notice directly under section 260-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth). If the ATO has already served a notice on the same bank or employer, less may be available to private creditors. An examination of the debtor will usually reveal this, and it may point to a statutory demand or bankruptcy as the better route.
Recovering the Debt From a Director Who Signed a Personal Guarantee
Many credit applications, supply agreements and leases include a personal guarantee signed by the company’s directors. If the company does not pay, the guarantee gives you a second debtor: the director personally.
- Check the guarantee. Confirm the director signed in their personal capacity, whether the document is a deed or an agreement, and whether it requires a written demand on the guarantor before you sue.
- Serve a demand on the guarantor. Follow the notice terms in the guarantee exactly, and keep proof of service.
- Sue the director. The director can usually be named as a defendant in the same proceedings as the company. Claims under a guarantee signed as an agreement generally must be brought within 6 years of the breach, or 12 years for a deed, under the Limitation Act 1969 (NSW).
- Enforce the judgment. Once you hold judgment against the director, you can garnishee their wages or bank accounts, issue a writ against their property, or examine them about their assets.
- Consider bankruptcy. If the judgment against the director is $10,000 or more, you can serve a bankruptcy notice, which the director has 21 days to comply with. Our insolvency and bankruptcy lawyers advise on this step.
If the company has collapsed: liquidation of the company does not by itself release a director from a personal guarantee, so the claim against the director can continue. During a voluntary administration, however, a guarantee cannot be enforced against a director without the court’s leave under section 440J of the Corporations Act 2001 (Cth). Get advice as soon as an administrator is appointed so you are ready to act when that period ends.
Where the dispute is about the underlying contract rather than payment alone, see our contract and commercial disputes lawyers.
Why Garnishee Orders Work for Creditors
- Speed: a bank garnishee can recover funds within days of service.
- Low cost: the application is made on court forms, usually without a hearing.
- Pressure: losing control of payroll funds or receivables often prompts a debtor to pay or propose terms.
- Precision: an order can be aimed at the exact account, employer or customer identified in an examination.
The main limit is that a garnishee order only captures money that is there. If the debtor has little in the account or no regular income, a writ, a charging order, a statutory demand or bankruptcy may be more effective.
What Debtors Do to Stop a Garnishee Order, and How Creditors Respond
Debtors commonly respond in three ways, and creditors should be ready for each.
- Applying to pay by instalments. A debtor’s first instalment application generally stops enforcement while it is decided. Respond with evidence of the debtor’s real capacity to pay, and ask that any order include a default clause.
- Applying to set aside a default judgment. The debtor must explain the delay and show a genuine defence. A well-documented claim and prompt service make these applications harder to win.
- Moving funds or entering insolvency. Act quickly after judgment, and consider a statutory demand for companies or a bankruptcy notice for individuals or guarantors.
Next Steps for Creditors
If you hold a judgment that has not been paid, or a company owes you money and a director has guaranteed the debt, the sooner you act the more likely the funds are still there. We act for creditors across Sydney CBD, Parramatta, Chatswood, North Sydney, Liverpool, Penrith, Ryde, Bondi Junction, the Inner West, Sutherland Shire, Hornsby, Burwood, Bankstown, Manly, Newtown and regional NSW.
Call (02) 9233 7737 for a free initial phone consultation about recovering your debt, or contact us online.
