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When is it too late to collect a debt?

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

When life gets busy, sometimes we put off important jobs to deal with more pressing matters. But when it comes to debt collection, this can only be put off for so long before debts become ‘statute barred‘. At this point the debts the subject of debt collection are no longer capable of being collected.

Most States and all Territories have time limits within which debt collection must be completed. In New South Wales, if too much time passes and the limitation period expires, section 63 of the Limitation Act 1969 (NSW) extinguishes the debt, meaning recovery of the debt is no longer possible..

In NSW, as in most states, the debt collection clock generally starts running from the date the cause of action first accrues. This is often the date of default; when the debtor fails to repay the debt, although there are some traps for the inexperienced in debt collection (for instance debts without a due date or which are ‘at call’). Once a default has arisen the creditor then has 6 years to commence the debt collection process formally, after which time the legislation restricts recovery, the debt becomes statute barred, and debt collection almost certainly impossible.
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Money for Nothing? Or, Something Instead of Nothing.

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Before commencing potentially costly court proceedings, there are a number of debt recovery options which should be canvassed by a wise creditor. One such option is that of a payment plan, or payment arrangement.

The benefits of a payment plan include;

  1. Regular payments from the debtor assisting with cashflow;
  2. Debtors are more likely to be able to repay a debt when it is broken down into smaller repayments;
  3. Potentially keeping relationships with valued customers;
  4. Opens up a channel of communication with the debtor;
  5. Avoiding disputes over the amounts owing.

A payment plan can take the form of an informal arrangement, or even just simply letting the debtor pay the debt off in smaller amounts without objecting or suing for the balance. On the other hand the terms may be set out in a formal deed.  There are advantages and disadvantages to both approaches, and much will depend upon which of the benefits set out above are most attractive to the creditor.
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COVID-19: Will my hearing go ahead? – Part 3

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

This is part 3 of our series on what will constitute valid grounds for an adjournment of a pending hearing, due to COVID-19 and the global coronavirus pandemic.

In Talent v Official Trustee in Bankruptcy & Anor (No 5) [2020] ACTSC 64 the Plaintiff sought an adjournment of the trial hearing, arguing that he was an ‘at risk’ person because he suffered from leukaemia. Doctors had recommended that he remain isolated.

Submissions were made about the Plaintiff’s legal team being at risk, as well as the Defendant’s senior counsel withdrawing because she was at risk and could not fly down for the hearing. However, those matters were expressly not considered.

The court did consider that a lot of the hearing could be conducted from a remote location. However, on balance the Court granted the adjournment application, based on the Plaintiff’s right to observe the hearing and the need to provide prompt instructions. The Court drew a distinction between final hearings and other court procedures:
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The “arid technicality” of Bankruptcy Notices?

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

At a high level the process for applying to make someone bankrupt may appear simple and straightforward. But, as the old adage goes, the devil is in the detail. At a granular level, the rules in bankruptcy proceedings are rather technical and procedures must be strictly adhered to. Often enough, a party will make a mistake where the consequence is they must start all over again, adding to lost time and increased costs.

The recent judgment of Metledge v Hopkins [2020] FCA 561 is one such case. The creditor, Ms Metledge, applied to the Federal Court of Australia for a sequestration order against the debtor, Mr Hopkins – that is, an order placing the debtor into bankruptcy and for a trustee to be appointed over his property. The creditor relied on the debtor’s failure to comply with a Bankruptcy Notice.
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COVID-19 and Corporate Insolvency: What does an increase in corporate insolvency mean to creditors?

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

In these difficult times, recent legislative amendments provide assistance for debtors, but risk for creditors. Going forward, it will be important for creditors to carefully monitor their credit policies. Creditors are likely see more spikes in default rates over the next months while government restrictions and businesses’ staff isolation plans remain in place. Where a debtor is placed into external administration, they should be aware of their rights (and duties) during the insolvency process.

Creditors should take note of the changes to the bankruptcy and insolvency regimes designed to protect debtors during the coronavirus period. The changes will limit options to creditors in respect of certain enforcement action. They include:

  1. An increase in the threshold for issuing statutory demands from $2,000 to $20,000;
  2. An increase in the threshold for issuing bankruptcy notices from $5,000 to $20,000;
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WINDING UP BECAUSE ITS JUST AND EQUITABLE

By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

In a dispute between directors of a corporate entity, one resolution can be to place to company into liquidation on “just and equitable” grounds.

Section 461(1)(k) of the Corporations Act 2001 (Cth)(“the Act”) makes provision for a court to wind up a company if the court is of the opinion that it is just and equitable to do so.  Should an order be made to wind up the company, it is usual that the costs of the application be paid by the company as per section 466 of the Act and as was ordered in the matter of Re Riverside Spares Pty Ltd [2019] NSWSC 1900

However, discussions between the parties prior to the commencement of proceedings can have consequences with respect to costs if a party causes delay or loss.

We recently acted for a director of a company who was in dispute with his co-director and shareholder, primarily over the financial direction of the company.  Prior to the commencement of proceedings, an agreement was made that the company be wound up, however, the other director failed to respond to the method.  Ultimately, the threat was made that proceedings would be commenced to wind up the company and costs sought against the director personally.  No response was received.
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BANKRUPT MAN CONVICTED OF CRIMINAL OFFENCES

By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

The idea of bankruptcy began in England in the early sixteenth century when merchants and traders conducted business on credit.  A bankrupt person could face imprisonment until released by the Lord Chancellor after disclosure of all debts and various tasks had been completed.  In the late seventeenth century Lord Kenyon reasserted the old sentiment that “Bankruptcy is considered a crime and a bankrupt in the old laws is called an offender.”

The term “bankruptcy” comes from “banka rupt” or “broken bench”.  The system of bankruptcy evolved as more and more businesses used credit as a form of trade following the onset of the industrial revolution to what we have today where any person unable to pay their debts can petition to be declared bankrupt.

Bankruptcy today is sometimes considered to be an easy option to paying debts.  However, attempting to buck the system can still result in criminal charges being brought against you under the Bankruptcy Act 1966 (Cth)(“the Act”) and if convicted, a gaol term maybe imposed.
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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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