A statute of limitations — also called a limitation period — is the window within which you must commence legal proceedings to recover a debt. Once it closes, the debt is generally described as "statute barred": the debtor can use the expired limitation period as a complete defence to proceedings, even if they clearly owe the money.
Understanding limitation periods is not a technical exercise for lawyers only. For any creditor managing an ageing ledger, it is a practical deadline that affects what you can recover and what you cannot.
What is a limitation period?
A limitation period is the time limit imposed by legislation within which a creditor must commence legal proceedings to recover a debt. If proceedings are not commenced within the period, the creditor loses the right to sue — regardless of whether the debt is genuinely owed.
The policy behind limitation periods is that old claims should not be held over debtors indefinitely, and that evidence and memories fade over time. For creditors, the practical effect is that an account that sits too long on a ledger may become unrecoverable through the courts.
How long do you have?
For a simple contract debt — such as an unpaid invoice for goods or services supplied — the limitation period is six years in Queensland, Victoria, New South Wales and the ACT. The period generally runs from the date the debt became due and payable.
This six-year figure applies to most commercial trade debts, but it is not universal. Different periods apply to debts under deed (usually 12 years), some statutory claims, and certain regulated debts. If your debt falls outside a standard trade account, obtain advice on which period applies.
What resets the clock?
Two events can restart the limitation period — meaning the six-year clock begins again from that event rather than from the original due date:
- Acknowledgement of the debt — a clear, written acknowledgement by the debtor that the debt is owed. This must be unambiguous; a general "we're looking into it" is unlikely to qualify.
- Part payment — a payment, however small, made by the debtor in relation to the debt.
The rules on what constitutes an effective acknowledgement or part-payment are state-specific and technical. If you are relying on either to restart the clock on an old debt, get legal advice before acting on that assumption.
Statute-barred debts
Once a debt is statute barred, the debtor can raise the expired limitation period as a complete defence to any court proceedings you bring. This does not mean the debt legally ceases to exist — it means you cannot enforce it through litigation.
Importantly, attempting to collect a statute-barred debt requires care. Representing to a debtor that you have the right to sue when you do not — or threatening legal proceedings you cannot actually bring — can contravene the ACCC/ASIC debt collection guideline. If a debt may be statute barred, take advice before taking any further recovery action.
Acting before time runs out
If an account is approaching its limitation period, the time to act is now — not after it expires. Options include:
- Referring the account to a recovery agent immediately, to maximise the time available for contact and negotiation.
- Obtaining a written acknowledgement of the debt from the debtor, if one can be obtained in a way that is technically effective.
- Commencing legal proceedings before the period expires, where the account justifies it.
Recovery rates also fall as accounts age, independently of limitation periods. An account approaching six years is harder to recover on the merits as well as on the law. If you have ageing accounts on your ledger, review them now.
This guide is general information only. It does not constitute legal or financial advice. For advice specific to your situation, consult a qualified professional.