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A DEBT COLLECTION AGENCY VERSUS A DEBT COLLECTION LAWYER

By Anica Cunanan, Solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

The debt collection process is one which causes a lot of hesitation and frustration which can lead to a misunderstanding of what the key differences are between a debt collection agency and a debt collection lawyer.

Some creditors choose to handle such matters on their own whilst others choose to engage with a debt collection agency at first instance. That being said, engaging with a debt collection lawyer is a step which many avoid due to some misconceptions of how lawyers deal with the debt recovery process and by the same token, engaging a lawyer can seem daunting.

Well, what approach should you take and are there certain circumstances where one is more appropriate than the other?

There are various factors that need to be considered when deciding on whether to engage a debt collection agency or debt collection lawyer, such as:
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Debt Restructuring Part 3 – Restructuring plans

This is the third part in a blog series discussing the new debt restructuring regime, which commences on 1 January 2021. This blog discusses the the process of putting forward a restructuring plan to creditors.

The regime will be implemented through substantial amendments to the Corporations Act 2001 (Cth) (“the Act”) and the Corporations Regulations 2001 (Cth) (“the Regulations“). Relevant links are:

How a restructuring plan is to be proposed is guided by the Regulations (Division 3, Subdivision B). The process is again somewhat similar to a voluntary administration, but instead it avoids the need to call creditors meetings. A regime for the restructuring practitioner to resolve disputes about creditors’ debts is tied into the process. A brief overview of the process follows.

  1. The company has 20 business days (the ‘proposal period’) to prepare and execute a restructuring plan with an accompanying restructuring proposal statement.
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Debt Restructuring Part 2 – affects on a company under restructuring

This is the second part in a blog series discussing the new debt restructuring regime, which commences on 1 January 2021. This blog discusses the effects on a company entering debt restructuring, and its creditors.

The regime will be implemented through substantial amendments to the Corporations Act 2001 (Cth) (“the Act”) and the Corporations Regulations 2001 (Cth). Relevant links are:

Conduct of the company’s business

Section 453L of the Act will prohibit the directors from entering the company into any transactions dealing with the company’s property, unless one of the following applies:

  1. The transaction was in the ordinary course of business;
  2. The restructuring practitioner consents to the transaction (which can only be given if the restructuring practitioner believes it would be in the interests of creditors);
  3. The transaction was entered into by order of the Court;
  4. The transaction was with a bank, and was made in good faith and in the ordinary course of the bank’s business.
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Debt Restructuring Part 1 – Introduction, Eligibility & the Restructuring Practitioner

This is the first part in a series of blogs discussing the new debt restructuring regime, which commences on 1 January 2021. The regime will be implemented through substantial amendments to the Corporations Act 2001 (Cth) (“the Act”) and the Corporations Regulations 2001 (Cth). Relevant links are:

The amendments will include a new Part to the Act – Part 5.3B, titled “Restructuring of a company”. The Part sets out the regime (referred to as a ‘restructuring’) for directors of insolvent companies to propose and enter into a ‘restructuring plan’ with creditors. The process is overseen by a ‘restructuring practitioner’, who must be a registered liquidator (s 456B of the Act). The focus on this process is that it allows directors to retain some control of the company, reducing the costs of having an insolvency practitioner involved in day-to-day operations.
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Don’t Go Chasing Waterfalls – COVID-19 Safe Harbour is (still) not Safe

The temporary safe harbour protection from director liability for insolvent trading expires on 31 December 2020. However the Government has not corrected a critical timing issue which exists in the COVD-19 safe harbour legislation. This means directors must appoint an external administrator to their company on or before 31 December 2020, if they wish to take advantage of the COVID-19 safe harbour protection from insolvent trading .

The temporary protection is found in section 588GAAA of the Corporations Act 2001 (Cth). There has been some recent debate about whether the words “before any appointment during that period” of an external administrator, mean what they appear to say, namely that any appointment must take place “during that period” of the temporary safe harbour expires.

Our Stephen Mullette has recently responded to the alternative view – that an appointment can be delayed until the new year. Unfortunately, the conclusion is that the better view is still that to take advantage of  the safe harbour defence, the directors must have appointed an external administrator before 1 January 2021. You can read the further consideration here, and make up your own mind.
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SME Debt Restructuring Legislation Passed

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 has been passed in the Senate as of yesterday. The legislation will take effect from 1 January 2021.

The centrepiece of the legislation is the introduction of a new restructuring mechanism for SME’s, called ‘Debt Restructuring’. The process allows insolvent SME’s to put forward a proposal to creditors to resolve unsecured debts and allow the company to continue trading. The process is similar to Part IX debt agreements available to insolvent individuals under the bankruptcy legislation.

Other amendments included in the legislation are:

  1. A temporary safe harbour period for directors’ liability for insolvent trading whilst they are attempting to appoint an external administrator – this operates from 1 January 2021 and ends on 31 March 2021.
  2. A ‘Simplified Liquidation’ regime for small businesses, which is designed to reduce the time and cost involved with liquidating a corporate small business.
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Debt Restructuring legislation proposed for SMEs

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

The Treasury has today announced its Draft Bill designed to create a new, affordable restructuring mechanism for distressed small to medium businesses. The legislation seeks to resolve problems SMEs face in affording the costs of expensive Voluntary Administration processes. The Australian Government’s “Debt Restructuring” solution is a new process similar to a Part IX debt agreement available to insolvent individuals under bankruptcy legislation, as well as Chapter 11 arrangements available to companies in the US.

The Debt Restructuring process allows company directors to retain control of the company while putting a proposal to creditors for consideration, provided they meet the “eligibility criteria”, to be prescribed in regulations. Notably, the company’s total liabilities must be limited to a certain size in order to meet the eligibility criteria (as with Part IX debt agreements).

Whilst it is not a new proposal (ARITA has been advocating for such a mechanism since 2014), it has been picked up by the Government amidst the COVID-19 economic crisis in the hope of limiting fallout as a result of collapsing businesses once the faucet of stimulus is turned off and other temporary relief measures come to end, which is currently scheduled for the end of the year. As such, the new legislation will be effective from 1 January 2021.
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It’s not your money: director refused access to company’s frozen funds

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

As an interim measure to recovering a debt, creditors may seek freezing orders against debtors where they feel there is a risk that the defendant will dissipate its assets so as to avoid orders. Litigants will usually be allowed limited access to frozen funds so as to fund the litigation they are involved in as well as pay for their reasonable living expenses.

In Super Vision Resources Ltd v AC Holdings Co Pty Ltd [2020] NSWCA 244 the NSW Court of Appeal considered an application by AC Holdings to access funds that were the subject of freezing orders. AC Holdings had successfully opposed Super Vision’s claim to recoup the proceeds of a property sale as being a transfer to defeat creditors pursuant to section 37A(1) of the Conveyancing Act 1919 (NSW), in which AC Holdings was the purchaser. Super Vision was appealing that decision.
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