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Government restrains creditor enforcement action in wake of COVID-19

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

As mentioned in yesterday’s blog, the Australian Government announced it would introduce a bill, to be fast-tracked through the Parliament, to address the economic crisis as a result of COVID-19. The bill was proposed on 23 March 2020 with the third reading agreed to in the Senate on the same day. As at 24 March 2020 it has passed both houses.

Much of the legislation provides substantial subsidies to businesses as well as payments to individuals affected by the economic downturn. However, a significant part of it provides relief to distressed businesses. The main changes are:

  1. An increase in the cap on issuing creditors statutory demands from $2,000 to $20,000;
  2. An increase in the cap on issuing bankruptcy notices from $5,000 to $20,000;
  3. For both statutory creditors statutory demands and bankruptcy notices, the period of compliance has been increased from 21 days to 6 months; and
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Winter is Coming – COVID-19 Changes Insolvency Law

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

The unprecedented financial impact of COVID-19 has forced the laws surrounding insolvencies to change – well at least temporarily.  Analogous to the process of containing the virus, the Government is currently deciding on temporary changes to also flatten the curve of the inevitable insolvencies following this pandemic.

The Treasurer has been given a temporary instrument-making power in the Corporations Act 2001, for a period of six months, in order to provide temporary relief to distressed businesses. This was announced by the Government on 12 March 2020.

By way of summary these changes may include the following:

  1. A temporary increase in respect of the debt for which creditors may issue a statutory demand – from $2,000 to $20,000;
  2. Further, extension of the time for compliance with a statutory demand – from 21 days to six months;
  3. An increase in the threshold for initiating bankruptcy proceedings;
  4. Continue reading…

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Debt Recovery – Why should I use a Lawyer?

By Darrin Mitchell, a Senior Associate in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Meet Darrin

Aside from being a lawyer, Darrin has been involved in debt recovery for 30 years, helping companies and individuals recover monies due and owing to them.

Before Darrin was admitted as a lawyer, he worked for a finance company and a mercantile agent so he saw first hand the nuts and bolts of dealing with debtors.

This experience has given Darrin a boost in assisting clients to recover monies in-house up to the management of a full blown hearing where the debtor defends everything from non-supply of goods to alleging that the goods supplied were defective.  It also allows Darrin to give advice on the implications of debt recovery, so clients can make practical, commercial decisions.

Why should I use a lawyer to collect my debts?

The answer is that in most cases you should not use a lawyer.  Most lawyers don’t have the X factor that will get a debt recovered as for most, debt recovery is just one of many areas of law listed on the firm’s “We Do …” list on their webpage.
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Is there such a thing as an acceptable level of debt?

Economic pundits are fond of debating whether any Federal Government should operate with a recurring budget deficit, or whether the aim should always be to stay in budget surplus.  Inevitably, this debate has extended to individual business operations.

No one likes debt (expect maybe banks).  Even the best business will however enter into debt as a deliberate strategy in order to expand, or to seize upon an opportunity that would disappear without access to more funds than are immediately at hand.  Other good businesses operate within industries where provision of credit to customers or extended payment terms are culturally ingrained.  If cash-flow and collection processes are not strictly maintained (and sometimes even if they are), outstanding payments can grow to a tipping point, where even an immediate change by customers to full compliance with credit terms will not be enough to service debt.  In that environment, can there be such a thing as an “acceptable” level of debt?
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Recovering debt from a company – Statutory Demand v Proceedings

By Hayley Hitch, an Associate in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

The first step to take in recovering a debt is to establish who the debtor actually is and what type of entity the debtor is. Debts may be owed by various types of entities, including partnerships, companies, trustees of trusts, sole traders and individuals.

 

So what are the advantages and disadvantages of commencing proceedings verse issuing a statutory demand when recovering a debt from a company?

The benefits of commencing proceedings are having your claim considered by a court and being made aware of the debtor’s position in respect of your claim to recover a debt. Although it can be a costly process if the proceedings are defended, the court will make a determination in respect of your claim and when aware of the debtor’s position, this may allow for effective settlement negotiations to take place in order to settle the claim.
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Creditor’s Requests – When is it unreasonable?

By Bonnie McMahon, an Associate in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Many external administrators and trustees will have been receiving requests from creditors under section 70-45 of the new insolvency practice schedules, which were first introduced into the Corporations Act and Bankruptcy Act in September 2017.

This new provision allows creditors to request information, reports or documents from an external administrator or trustee.

At this stage, there is not a lot of guidance as to when external administrators and trustees can refuse to comply with these requests, especially as the scope of section 70-45 has only been considered by the Court in one reported case to date.

However, there is some guidance in the Insolvency Practice Rules which insolvency practitioners should be aware of, especially if they are concerned that complying with a creditor’s request may open them up to criticism by another creditor or a third party.

Section 70-15 of the rules, sets out when a creditor’s request will be unreasonable.
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Company Records? I could tell you, but I would have to go to gaol… ?

By Chloe Howard of Matthews Folbigg Lawyers, a lawyer in our Insolvency, Restructuring and Debt Recovery Group

A company is presumed to be insolvent if it fails to keep proper financial records (section 588E(4) of the Corporations Act 2001 (Cth)).

But what if you have the records, but providing them might send you to gaol?

This issue was recently discussed in the matter of Substance Technologies Pty Ltd [2019] NSWSC 612.

In this matter, the director refused to respond to a liquidator’s repeated requests for the company’s financial records because he said the records might contain incriminating material.  He couldn’t be certain but “would suspect there could well be.” (at [42])

Justice Rees drew attention to the similarities between Sections 77(1) of the Bankruptcy Act and Section 530A of the Corporations Act. Both sections require production of records to insolvency practitioners. Her Honour noted that in Griffin v Pantzer (as trustee of the bankrupt estate of Griffin) [2004] FCAFC 113 the Federal Court had held that a claim for privilege against self-incrimination did not override the obligation of a bankrupt to provide records to a trustee in bankruptcy.
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Creditor’s statutory demand issued pending negotiations is upheld

By Andrew Behman, an Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group

In a recent matter which we acted for the Defendant (In the matter of Precise Training Pty Ltd [2018] NSWSC 1383), we successfully defended an application to set aside a creditor’s statutory demand issued by the Chief Commissioner of State Revenue (“the Commissioner“) against Precise Training Pty Ltd, the Plaintiff.

Facts

The Commissioner issued a number of assessments for payroll tax to Precise Training in 2015 as a member of a larger tax group. Precise Training disputed the assessments and lodged an objection on 10 December 2015. The Commissioner disallowed the objection and proceeded to enter into negotiations for payment of the assessments.

Precise Training lodged a second objection on 18 July 2016 and requested that the Commissioner undertake not to commence recovery proceedings while the second objection was being decided and the parties were in negotiations.

On 10 November 2016, the Commissioner responded to the request for an undertaking advising that “recovery proceedings have been on hold” while the objection is being decided and the parties are in discussions to settle the disputed assessments.

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