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When does an employee of a company become an “officer”?

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

Later this year the High Court will turn its attention to what makes a person an “officer” of a corporation. Their judgment will be eagerly awaited by those advising companies and their senior management staff.

Earlier this month the High Court of Australia granted special leave to the Australian Securities & Investments Commission (ASIC) to appeal the decision of the Queensland Supreme Court, Court of Appeal in ASIC v King [2019] HCA Trans 104 (17 May 2019).

The Corporations Act imposes civil and criminal penalties on “officers” of corporations if they contravene the Act or neglect their duties.

Mr King was a senior employee of the MFSIM Group of Companies. He, along with a number of other senior employees, was prosecuted by ASIC for contravention of their responsibilities as “officers” of MFSIM.

The Court of Appeal in Queensland concluded that, although Mr King was involved in the management of the affairs of the corporate group and in particular its parent company, in order for him to be an “officer” of the corporation he had to hold a formal “office” or recognised position. Having concluded that he held no such formal recognised office, the Court of Appeal declined to impose a penalty on him under the Act.
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In a Daze about Days – counting the time limit for filing an Application to set aside a Creditor’s Statutory Demand

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

The Supreme Court has today handed down a Judgment that reinforces an established principle about the meaning of the term “within 21 days” in Section 459G(2) of the Corporations Act.

If a company is served with a Creditor’s Statutory Demand, it must, if it wishes to resist the Demand, file an Application with a Court within 21 days. This timeframe cannot be extended, even if both parties agree to do so.

But do you count the day that the company was served with the Demand as day 1 of that 21 day period?

That question was of central importance in Verimark Pty Ltd -v- Passiontree VelvetPty Ltd [2019] NSW SC 455 (26 April 2019). If the day of service is to be counted as Day 1 then, the parties agreed, Verimark was out of time to file its Application.

Her Honour Ward CJ in Eq. reviewed the caselaw thoroughly and concluded that the 21 day period begins the day after the Demand is served, and therefore Verimark’s Application was within time. This decision accords with a strong line of case law authority supporting that view.
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Three reasons why your debt collection efforts should not end when your debtor goes bankrupt

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

Most of us assume that the bankruptcy of a debtor that we are chasing for payment is the death knell for any return. It is true that in most cases the end result of bankruptcy is a minimal or zero return for unsecured creditors. However, there is a lot to say for putting in a relatively small effort to ensure that you are in the mix in case funds become available for distribution.

For example:

  1. The Trustee in Bankruptcy may recover funds from an unexpected source – Trustees don’t simply fill out reports and convene meetings while they administer the bankruptcy. They also search around for possible sources of funds for distribution to unsecured creditors. Once in a while a Trustee will find an asset, or another avenue of recovery, that you did not know existed. For example, a bankrupt may become entitled to a significant asset as part of the deceased estate. The bankrupt could also have made a significant payment to another unsecured creditor within six months of going bankrupt. In both cases, the proceeds of these events can be recovered by the Trustee.
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One year bankruptcy – debt collection is about to get even harder!

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

Proposed amendments to the Bankruptcy Act 1966 which would reduce the duration of a typical bankruptcy from three years to one year have been drafted, and it is a matter of when – not if – the amendments will become law throughout Australia.

The reduction is partly to ensure that bankruptcy does not act as too much of a handbrake on the entrepreneurial spirit.  Business owners should be able to fail once, twice or even more, before succeeding.

That is all well and good, unless of course you are one of the unpaid creditors left in the wake of a failed business venture.

As all of us in business (including me) know, debt collection is difficult enough at present.  When a customer goes bad, one of the few methods to get yourself at the front of the creditors queue is to show that you would be willing to make the debtor bankrupt  if they will not pay.  In future, bankruptcy will be less of a practical burden on debtors, and there will probably be less stigma attached to having been a bankrupt person.
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The Clock is Ticking….

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

The time that is available to recover a debt from a debtor is not infinite. Each State and Territory in Australia has set limitation periods that restrict the time available to a creditor to recover a debt.

In relation to simple contract debts (which can include unsecured personal loans, personal guarantee claims, and credit card debts) all States and Territories (except the Northern Territory, where the period is 3 years), have a limitation period of 6 years from the date on which the ‘right of action’ accrued.  For Court judgments, all States and Territories (except Victoria, where the period is 15 years), have a limitation period of 12 years from the date of judgment to enforce that judgment.

After the limitation period expires, the debts are known as ‘statute-barred debts’. In all States and Territories, except New South Wales, ‘statute-barred debts’ will still be owing to the creditor, however legislation limits the enforcement options that are available. In New South Wales, once the limitation period has expired, the legislation (s63 of the Limitation Act 1969 (NSW)) specifically extinguishes the cause of action, in a sense erasing the debt, therefore giving no further options to creditors of enforcement.
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Paper, who needs paper?

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

In today’s society of evolving technology, contracts between parties can be whipped up in no time. However, what happens when an agreement between two parties is not formalised in writing and a debt is claimed by one party to another. Can the creditor still enforce the payment of the debt? If so, on what terms?

In the recent decision of Saravinovski v Duncombe [2017] NSWSC 1521, the Supreme Court was asked to overturn the decision of a local court magistrate who granted Mr Duncombe, a private investigator, judgment in respect of a debt for unpaid surveillance fees owed to him by Mr Saravinovski. While there was no formal contract signed, the parties had had many discussions regarding particular aspects of the services Mr Duncombe was to provide and which he subsequently delivered.

In particular, the Court was asked to find that it was a term of the contract that the costs would be capped at $10,000 (and not $20,000 as the creditor alleged) and that the results of the surveillance would be completed by 6 March 2015. The creditor argued there was no deadline on providing his results, although it was understood that his work was required to obtain evidence for a hearing commencing on 16 March 2015.
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“Spooked” investors is not reason enough to change the ASIC register (even in the Halloween season)

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

A recent application to remove notification of a winding up application, recorded on the ASIC register, has been dismissed in the NSW Supreme Court.

Playup Australia Pty Limited (“Playup”) received a statutory demand from a creditor Ryan Kay (“Kay”).  Playup failed to comply with the demand and Kay filed an application to have Playup wound up.  Kay lodged notification of his application on the database maintained by ASIC, in accordance with standard procedure.

The parties settled their differences on the morning of the hearing of the winding up application, and the application was dismissed.  It was a term of the agreement between the parties that Kay would co-operate with Playup in seeking to have the reference to the winding up removed from ASIC records, and a direction to that effect was also sought from the Court.  The direction was sought in order to claim potential investors in Playup, who it was said would be “spooked” by reference to a winding up application in the publicly available ASIC records.
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Double Whammy! When cost orders become a further debt

By Hayley Hitch a Solicitor of Matthews Folbigg Lawyers in our Insolvency, Restructuring and Debt Recovery Group

In one of our recent matters, proceedings were commenced against a debtor, and the relevant guarantor, in the Local Court of NSW for recovery of a debt, being non-payment of services rendered by our client to the debtor.

Local Court proceedings

The defendants were at all times self-represented in those proceedings and took steps to file defences, out of time (and without leave) and also failed to appear in Court on several occasions. This ultimately led to:

  1. the defences being struck out;
  2. cost orders being made against the defendants; and
  3. Judgment being entered in favour of our client in the vicinity of $40,000.

Multiple attempts were then made by one of the defendants to set aside the default judgment and the various cost orders.

The last of these applications was held by the Local Court to be an abuse of process and the Court strongly urged the defendant to obtain legal advice before taking any further action.
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