Insolvency News June 2006
The NSW Legal Profession Bill introduced recently into State Parliament seeks to make changes to the rules surrounding the issue of a costs disclosure by lawyers to their clients. Under the proposed reforms lawyers will not need to issue an initial costs disclosure to
large proprietary companies, liquidators, administrators, receivers, large partnerships and participants in certain joint ventures
Bankruptcy Debt Agreements are being overhauled by the Attorney General and ITSA. The proposed reforms are designed to increase confidence in the system by defining more clearly the responsibilities of administrators of the debt agreements and ensure that capable professionals are available to assist debtors with their unmanageable debt. The changes seek to ensure that debt agreements are used only where the debtor can make a reasonable offer to creditors.
The proposed reforms include:
- regulation of fees payable to debt agreement administrators
- licensing of debt agreement administrators
- ensuring creditors are treated equally
- streamlined procedures for dealing with default
The review report of the proposed changes and further details of the proposed reforms can be found on ITSA's website at: www.itsa.gov.au
The Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2005 (the Bill) was introduced into the House of Representatives on 7 December 2005 and seeks to strengthen the ‘claw back’ provisions in the Bankruptcy Act 1966 (the Act).
The time period in section 120 of the Act has been increased from 2 to 4 years where property was transferred to a related entity [as defined in s.5] during that period for less than market value consideration. For the purposes of ss 120 and 121 of the Act [and Division 4A of Part VI of the Act] there will be a rebuttable presumption of the insolvency of the transferor if it is established that the transferor had not, in respect of that time, kept or maintained proper ‘books, accounts and records.
There are proposed changes to s.121 in respect of the current protection under s.121(4) afforded to transferees by the ‘wilful blindness’ on the part of the transferee of the bankrupt’s divested assets. The effect of this amendment is that a person could only take advantage of subsection 121(4) if they both didn’t know the transferor was seeking to defeat creditors (as at present) AND they could not have reasonably inferred that this was the transferor’s main purpose.
Division 4A of Part VI of the Act allows the trustee to obtain property in certain circumstances from an ‘entity’ that, during the ‘examinable period’, was ‘controlled’ by the bankrupt and benefited from his or her personal services. The purpose of the provision is to allow the trustee to recover a bankrupt’s property in the situation where that property is disguised as an asset of a trust, company or the like. However the ‘éntity’ definition does not always cover the situation where a non bankrupt spouse has an interest in a property and the bankrupt derives a benefit from that interest.
Amendments contained in this Bill will extend these provisions to “natural persons” to cover the spouse or relative owned assets.
An amended time period in Division 4A of Part VI (to bring these provisions in line with the changes to the time periods in section 120) will apply to these amendments.
Other amendments propose to amend the ‘examinable period’ to either 4 years prior to the commencement of the bankruptcy in relation to property acquired by a related entity, or from the first point of insolvency in the year prior to that if the bankrupt became insolvent in that year. The claw back period for non-related entities will also be amended to align it with the changes proposed to section 120. That is, for non-related entities the ‘examinable period’ will be either 2 years prior to the commencement of the bankruptcy, or from the first point of insolvency in the 3 years previous to that if the bankrupt became insolvent in those 3 years.
A further proposed amendment to Division 4A of Part VI will make it clear that it is sufficient that the bankrupt benefited directly or indirectly from the relevant property that the trustee seeks to recover under these provisions. This will overcome the situation where it may not be immediately apparent how the bankrupt has benefited. This was the case in one of the few reported decisions under these provisions- Birdseye v Sheahan [2002] FCA 1319.
The implication from this decision is that, in order to satisfy these provisions, the bankrupt must benefit directly from the relevant property- an indirect benefit is not sufficient.
WARNING WARNING WARNING STATUTORY DEMANDS
We wish to impress upon our clients the importance of dealing with statutory demands immediately, and within the 21 days in which they are served. If you do NOT file and serve on the creditor an “Application to set aside the statutory demand”, before 21 days has expired from the date when the company was served then your company will be deemed to be insolvent for the purposes of an application to wind up the company. The 21 day requirement is strict.
Further, any “Application to set aside the statutory demand” must be properly prepared. If you are claiming that there is a genuine dispute about the debt stated in the statutory demand, you must describe that dispute. If you simply say in your affidavit in support of the Application “there is a genuine dispute” the application will most certainly fail.
There are a number of precautions to be taken to prevent statutory demands causing undue heart- ache namely:
1. Ensure the registered office of your company as recorded with ASIC is an address where you are certain to receive the mail in a timely manner. The clock starts ticking immediately the demand is served or received in the mail at the registered office, and not when you may receive it.
2. Be sure to seek legal advice immediately. The time for filing and serving the “Application to set aside the statutory demand”” is strictly 21 days.
3. Be sure the affidavit in support of your “Application to set aside the statutory demand”” is properly drafted to include the details of any genuine dispute with the debt claimed.
Contact Annette Fontana at ForumLaw on 02 9560 3388 to discuss your insolvency matters.