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Debt Restructuring legislation proposed for SMEs

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

The Treasury has today announced its Draft Bill designed to create a new, affordable restructuring mechanism for distressed small to medium businesses. The legislation seeks to resolve problems SMEs face in affording the costs of expensive Voluntary Administration processes. The Australian Government’s “Debt Restructuring” solution is a new process similar to a Part IX debt agreement available to insolvent individuals under bankruptcy legislation, as well as Chapter 11 arrangements available to companies in the US.

The Debt Restructuring process allows company directors to retain control of the company while putting a proposal to creditors for consideration, provided they meet the “eligibility criteria”, to be prescribed in regulations. Notably, the company’s total liabilities must be limited to a certain size in order to meet the eligibility criteria (as with Part IX debt agreements).

Whilst it is not a new proposal (ARITA has been advocating for such a mechanism since 2014), it has been picked up by the Government amidst the COVID-19 economic crisis in the hope of limiting fallout as a result of collapsing businesses once the faucet of stimulus is turned off and other temporary relief measures come to end, which is currently scheduled for the end of the year. As such, the new legislation will be effective from 1 January 2021.
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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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Debt Collection – Who Signed the Document?

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

In the current age of technology, with capabilities to do just about anything, it seems redundant and “old fashioned” to be asked to execute a document by hand writing your signature on a sheet of paper! Because of this, debt collection can be a distinct (and difficult) exercise.

When opening a credit account, a supplier of goods and/or services will generally forward a Credit Application and a Deed of Guarantee to the customer. These documents are helpful in debt collection as they include information from the customer as to the customer’s financial viability, and security for the repayment of amounts owing should debt collection become necessary. In days gone by, these documents were to be completed by the customer physically writing on the forms as required, then posting these back to the credit provider, or perhaps giving the documents to a sales representative for the supplier.
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Debt Collection – Liquidated or Unliquidated Debt?

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


Is your debt collection for a liquidated or an unliquidated amount? What is the difference?

In a debt collection action, the debt is often defined by the amount specified in tax invoices issued for the supply of goods or services. Debt collection for these types of debts involves a “liquidated” debt. This is because the debt which is the subject of the debt collection is ‘liquid’, in the sense of having a specific monetary value. There may be an ability to claim interest in debt collection proceedings for a liquidated debt, but again this will be a defined amount and calculated in accordance with the terms and conditions of the agreement between the parties.

Debt collection for an “unliquidated” debt is quite different. This is where there has been a claim which requires quantification, such as debt collection for loss claimed by a party, or damages suffered where the amount of loss or debt is not certain. Unliquidated debt collection will arise when the amount a person has lost cannot be simply defined and needs to be the subject of evidence and determination by the Court. Examples of debt collection for unliquidated debts might include motor vehicle accidents or defamation claims.
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Collecting Money? Avoid Going It Alone!

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

Collecting money, especially from people you know, is always a delicate business.

Collecting money requires you to be persistent, and all too often becomes something that we let slip to the back of our mind to avoid the hassle, inconvenience, and sometimes even embarrassment of chasing valued customers for unpaid debts. Certain debts, even large ones, can be placed in the “too hard basket”, and never followed up on. Certain timelines for recovering debts can then expire, or more simply, debts can be forgotten or ignored.

Matthews Folbigg Lawyers understand these issues. When it comes to collecting money we are very experienced, and know that handing over the problem of collecting money to lawyers is normally only considered after the last resort has failed. However, at Matthews Folbigg Lawyers we can go about collecting money in a way that suits your special relationship with your customers. Whether you would like a gentle reminder or a final warning, if you are not getting anywhere with your own attempts at collecting money, we would be happy to assist.
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Debt Collection Sydney – Statutory Demands and the Expiration of the Coronavirus Economic Response Package Omnibus Act 2020 amendments

As a result of the COVID-19 pandemic, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) was introduced, which resulted in various temporary changes to the Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth) in respect of statutory demands.

These temporary changes include extending the time period for a company to respond to a statutory demand from 21 days to six months, and increasing the monetary threshold for a creditor to issue a statutory demand from $2,000 to $20,000.

These changes, which came into effect on 25 March 2020, are currently only applicable for a six month period which is due to expire on 25 September 2020. This means that any statutory demands served on or before 25 September 2020 must comply with the temporary changes.

Importantly, these changes only apply to statutory demands which are served between 25 March 2020 to 25 September 2020; not for debts which are incurred during the same period. This means that, on the basis that there are no extensions to these temporary amendments, a creditor can issue a statutory demand pursuant to the original requirements for debts incurred 25 March 2020 to 25 September 2020, as long as the statutory demand is served after 25 September 2020.
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Recovering costs for debt collection services

Recovering costs for debt collection services

Fees and costs, including legal costs and costs for third party debt collection services can only be collected from a debtor if there is an agreement between the creditor and debtor providing for those costs to be payable to the creditor. Attempting to recover costs in the absence of a clause in the relevant agreement can be misleading deceptive and conduct in contravention of section 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)), section 154 of the National Credit Code (Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)) as well as Section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”).

This issue was raised in Australian Competition and Consumer Commission v Sampson [2011] FCA 1165 in which a solicitor was found liable for, amongst other things, asserting that debtors were liable for legal costs of $30 on top of the debt for unpaid video rental fees, when sending letters of demand and notices to customers of a video rental company. There was no entitlement for the video rental company to recover pre-litigation legal costs and so the Court found the statements made by the solicitor were misleading and deceptive.
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Clearing your debtor ledger – Get in touch with your not too friendly Debt Collection Lawyer!

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

Do you hate debt collection? Do you have a list of debt collection tasks that is getting longer every day? Have you been unable to accomplish the critical debt collection part of debt collection? If only debt collection were easier, and there was some way of moving those pesky debtors off the debt collection ledger! And don’t forget the cashflow side of debt collection – wouldn’t you like to have a bit extra cashflow back in your budget?

You need a Debt Collection Lawyer!

Matthews Folbigg assists clients with a range of debt collection services, including issuing letters of demand, negotiating settlements, negotiating instalment arrangements with debtors, and where the debt collection process requires, commencing court proceedings and enforcing judgments. We can also assist with debt collection before it even becomes debt collection – making sure you protect your interests by reviewing your terms of trade and where applicable, assisting with the registration of caveats, or personal property security registrations. Debt collection doesn’t need to wait until debts are overdue. We want to help you come through COVID-19 with a breath of fresh air and a tidy debt collection ledger.
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