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The handcuffs are on debt recovery, but for how long? What you can do in the meantime…

By Jeffrey Brown, Principal at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

As part of the Federal Government’s response to the COVD-19 crisis, a handbrake has effectively been applied to court proceedings aimed at bankrupting individuals and placing companies into liquidation. This has been achieved by lengthening the time for debtors to respond to formal demands, from 21 days to 6 months, for both bankruptcy notices (in the case of individuals) and statutory demands (for payment of debts incurred by companies). As part of the same reforms, the minimum debt amount that can be the subject of bankruptcy or winding up proceedings has been increased to $20,000.00.

The Federal Government intends to keep these extended compliance periods and amounts in place until at least the end of 2020. While they remain in place, debtors will be well aware that creditors have limited options open to them to enforce their debts.

Anecdotal evidence would suggest that many of those debtors are choosing to trade on their businesses well beyond the point at which they have become insolvent (that is, unable to pay their debts as they fall due).
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I don’t owe them money: invoking bankruptcy jurisdiction to ‘look behind a judgment’

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

It is an unfortunate predicament for bankruptcy trustees that they become a new target for the litigious bankrupt. Bankrupts hell-bent on maintaining the original dispute with the petitioning creditor often request bankruptcy courts to ‘look behind the judgment’, an exercise in which a bankruptcy court can determine whether a debt is really owing in substance, notwithstanding that there may be a pre-existing court order.

Such is the saga of the Bankrupt Estate of Shaw, the history of which was set out by Snaden J in Shaw v The Official Trustee in Bankruptcy [2019] FCA 1574 (“the Review Application”), an application by the bankrupt seeking to review the trustee’s decision to admit the petitioning creditors’ debt. The decision in the Review Application has recently been affirmed on appeal in Shaw v The Official Trustee in Bankruptcy [2020] FCAFC 142 (“the Review Appeal”).
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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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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;
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By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

An individual overwhelmed by debt (“the Debtor”) may seek the protection of the Bankruptcy Act 1966 (Cth) (“the Act”) and file a Debtor’s Petition.

Section 55 of the Act provides that an individual may present to the Official Receiver a petition against himself/herself in the approved form and accompanied by a Statement of Affairs which provides details of the person and sets out the person’s financial affairs.

On 1 January 2020 the Official Receiver commenced a new online process for the lodgement of debtor’s petitions in an online portal. A new version of the approved form has been created which combines the petition and the Statement of Affairs.  A sample of the new approved form can be found here.  A Debtor is required to set up an online account to complete the form.  For online access to create an account see here.
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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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I Object!: The Importance of Strict Compliance with the Notice of Objection Regime

By Bonnie McMahon an Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group

In the recent decision of Jones and Inspector-general in Bankruptcy [2018] AATA 3260 (“Jones”), the Administrative Appeals Tribunal has made it clear that a trustee in bankruptcy who files a notice of objection to discharge, needs to comply strictly with the requirements of the s 149D(1) of the Bankruptcy Act 1966 (Cth) (“the Act”), otherwise it is likely that the decision will be cancelled on review, either by the Inspector-General in Bankruptcy or the Tribunal.

The Ground

In Jones, the trustee in bankruptcy (“the Trustee”), had filed a notice of objection to discharge, on the ground set out in s 149D(1)(d) of the Act, that:

the bankrupt, when requested in writing by the trustee to provide written information about the bankrupt’s property, income or expected income, failed to comply with the request.”

As identified by the Tribunal, this provision contains five equally important elements which are as follows:
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