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CREDITORS AND THE INSOLVENCY LAW REFORM ACT 2016

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

As the 2017 year draws to a close, creditors would be aware that both instalments of the Insolvency Law Reform Act 2016 (“the ILRA”) have come to pass.

What should creditors be aware of under the new regime?

The ILRA is an attempt to reform the insolvency law but also to provide an improvement in the confidence of the public in the overall performance of the trustees and liquidators appointed to the various estates and administrations that are commenced every day.

Under the Corporations Act 2001 only the liquidator of the company can commence an action for preference payments or voidable transactions. The ILRA allows a liquidator to assign a voidable transaction to a third party (including creditors!). This may result in claims being commenced which the liquidator thought were not commercial to pursue.

Under the ILRA creditors are given significant additional powers to call meetings, request information, and documentation regarding the administration of a bankrupt or corporate insolvency administration. This gives control, upon the passing of a resolution, to give certain directions to the trustee or liquidator and in addition, to remove the trustee or liquidator, although the practitioner has a right to apply to the Court to avert removal.
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A matter of some interest…

By Jeff Brown, a Principal of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.

A recent Supreme Court decision serves as a timely reminder of the care to be employed when deciding whether a statutory demand requires a verifying affidavit.

Merlo Group Australia Pty Ltd (“MGA”) obtained a judgment in the District Court against GTH Equipment Pty Ltd (“GTH”). A judgment/order was entered by the Court, recording that “[MGA’s] motion for summary judgment is granted so far as the claim for $143,000 is concerned. Judgment in favour of [MGA] in the sum of $143,000 together with interest under the contract from 3 February 2015.” (Emphasis added).

The claim arose under a contract which included a term that GTH would pay interest at the rate of 15% on all overdue accounts.

A couple of months after judgment was entered, GTH sent to MGA a cheque in the amount of $143,000. Just prior to receiving the cheque, MGA instructed its solicitors to issue a statutory demand in the amount of $198,425.23 comprising the judgment sum plus an amount calculated as interest at the rate of 15% per annum up to the date of the statutory demand.
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Signing on the dotted line: making sure you bind your customer to a contract.

By Jeff Brown, a Principal of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.

We all know the importance of getting a customer “signed up”. But how do you know that the person signing a supply agreement on behalf of a potential customer has authority to do so, and does it even matter if that person does not have authority?

This issue commonly arises when we advise clients on credit collection policies and when we work with sales teams on how to cut down on errors at the point where a sales lead becomes a customer. These errors can have catastrophic effects when seeking to chase a customer who has become a bad debt.

In some cases a customer will be able to escape liability completely if they can establish that the person who executed a contract on their behalf had no authority to do so, and it was not reasonable for the supplier to assume that the person had authority.
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Guaranteed Win?

By Bonnie McMahon Solicitor of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.

Guarantees are a vital part of any credit agreement, however enforcing them is often a major headache for creditors, especially when collecting money. It is often the case that guarantors will argue that a guarantee is invalid or was never incorporated into the credit agreement: see Singh v De Castro; Dhaliwal v De Castro; Brar v De Castro [2017] NSWCA 241 (“Singh”).

So how can debt collectors avoid guarantors trying to get around a guarantee when they are trying to recover a debt? The simple answer is by foreseeing the issues which may arise in respect of a guarantee and eliminating them now.

In Singh, the guarantors argued that whilst they had signed the back page of a loan agreement, they had not signed the version of the loan agreement containing a guarantee that the creditor was now seeking to enforce.
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Fresh evidence – how fresh is fresh enough?

By Hayley Hitch, Solicitor and Stephen Mullette, Principal of Matthews Folbigg in our Insolvency, Restructuring and Debt Recovery Group.

It is the stuff of the classic cop show or court room thriller. The bad guy is about to get away with the crime, until there is an application to introduce “fresh evidence”.

But how fresh is fresh enough?

In the real world, if the application is found to be just an attempt to re-hear a matter without in fact bringing new evidence before the Court, the application will be dismissed and potentially a cost order may be made against the applicant.

In Baycorp Collections PDL (Australia) Pty Ltd v Reaper [2016] FCCA 2458, the bankrupt, Mr Reaper, sought a stay of orders made a year earlier, for the sale of the bankrupt’s property by his trustee in bankruptcy. He did so, (despite having previously failed “in separate appeals or applications made by Mr Reaper to Pagone J, Davies J, Tracey J, Middleton J and Mortimer J”) on the basis that he had obtained “fresh evidence” that his bankruptcy should be annulled. This would prove, according to the bankrupt; that the judgment debt, on which he had been bankrupted, was obtained irregularly.
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When is a letter Delivered?

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

A letter can be posted today and yet be received by the recipient on any number of days thereafter due to various issues that impact on the process between sender and recipient. The Government has attempted to regulate a standard time frame for receipt by various statutory measures to assist to work out the delivery time … but has it?

The need in legal circles to be precise about the date of receipt of a letter became instantly necessary when the High Court of Australia in David Grant and Co Pty Ltd v Westpac Banking Corporation [1995] 184 CLR 265 held unanimously that the time limit of 21 days after service set for the setting aside of a Creditor’s Statutory Demand (“Demand”) was 21 days, a number not to be fudged by any external factors.

A number of parties resort to service of a Demand by post to the registered office of the debtor company. This is an accepted method of service pursuant to section 109X of the Corporations Act 2001 (“the Corporations Act”). The difficulty arises when attempting to determine when the 21 day period for a response to the Demand expires as allowed for under section 459G of the Corporations Act.
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Interstate Judgment Registration

By Renee Smith a Solicitor of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group

Imagine this situation. You obtain an order in your favour against the judgment debtor in relation to debts owing to you. You go to collect your monies and realise the judgment debtor has moved states! Can you still enforce the judgment and collect on your debt?

The answer is yes. There is a process which is regulated under the Service and Execution of Process Act 1992 (Cth) which creates the required national rules and procedures so that court decisions can be registered and enforced in any state of Australia.

It is important to check with the particular state in which you wish to register the judgment, however in general, to register an interstate judgment you will need to:

  1. Obtain a sealed or certified copy of the interstate judgment or order;
  2. Lodge the appropriate completed application along with a supporting affidavit and the sealed copy of the interstate judgment or order with the registrar of the appropriate court with the jurisdiction; and
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Out of Time (“Missed it, …. by THAT much”)!

By Bonnie McMahon a Solicitor of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.

Recent amendments to the Corporations Act 2001 (“the Act”), introduced by the Insolvency Law Reform Act 2016, now require registered liquidators to renew their registration with ASIC every 3 years: see s 20-75 of Schedule 2 of the Act (“Schedule 2”).

Under the transitional provisions, liquidators who were registered before 1 March 2017 remain registered until the first anniversary date of their existing registrations occurs: see section 1555 of the Act. For example, if a liquidator was registered on 10 November 2001, the date upon which the liquidator’s transitional registration will expire is 10 November 2017.

It is essential that registered liquidators are aware of their first anniversary date and ensure their renewal application is lodged with ASIC before their registration expires. Otherwise the liquidator will need to make the walk of shame to the court for an order extending the time within which to lodge their renewal application.
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