Insolvency News September 2007
PERSONAL INSOLVENCY
Debt agreements and changes to the Bankruptcy Act
On 15 February 2007 the Attorney General, Mr Ruddock introduced to the House the Bankruptcy Legislation Amendment (Debt Agreements) Bill 2007.
As stated by Mr Ruddock in his second reading speech, debt agreements are an important feature of the personal insolvency system. They provide debtors with unmanageable debt who can afford to make some payments to creditors with an opportunity to do so. Many debtors want to consider making a debt agreement as it gives them an opportunity to recover a damaged financial reputation and avoid bankruptcy. Accordingly the bulk of the reforms revolve around what was formerly known as a Part X arrangement.
The amended legislation aims to provide for:
- regulation of debt agreement administrators by restricting appointments to natural persons or companies who have not been insolvent or involved in other disqualifying circumstances;
- encourage creditors to make decisions based on the debtor’s capacity to pay;
- provide an effective means of dealing with debtor defaults, notifying creditors of arrears in payments, and accounting for interest on funds deposited
- rules for terminating the debt agreement upon a default by the debtor; and
- new processes for varying the terms of debt agreements
Trying to set aside a Bankruptcy Notice by applying to pay a judgement debt by instalments
When a judgment debtor is served with a Bankruptcy Notice, there is no point in trying to have the Bankruptcy Notice set aside by applying to the Court to pay the debt by instalments. This became apparent in a recent matter in which we were instructed. The Federal Magistrates Court has made confirmed the law on this point recently in the case of Davis v. Fletcher [2006] FMCA 1620 (23.10.06) which followed the previous ruling in Re: Kim Schekeloff, ex parte Kim Schekelkoff And: The Hopkins Group Pty. Ltd. and Ranier Pty. Limited Nos. B1981 and B.1065 of 1988 FED No. 1222 Bankruptcy 22 FCR 407.
The point to be remembered is that you should apply to pay the judgement debt by instalments as soon as you incur the judgement debt, and do not wait for a creditor to issue and serve a Bankruptcy Notice.
CORPORATE INSOLVENCY
Directors’ powers during receivership – a case note
A recent decision in the Federal Court considered the issue of a director’s prerogative to defend winding up proceedings brought against two (related) companies of which she was a director.
ASIC had sought to wind up the two companies under s459C of the Corporations Act (Cth) (alleged insolvency provision), as a result of the appointment of receivers and managers to the companies.
Ms Carey-Hazell the director of Lanepoint Enterprises Pty Ltd and Bowesco Pty Ltd sought to resist ASIC’s winding up application, and applied to the Court for leave to intervene in the proceedings.
Under ss236 and 237 of the Act, she argued she was entitled to intervene in the proceedings, and at any rate she had an entitlement at law to defend the proceedings as she was acting in ‘good faith’ and in ‘the best interests of the company’.
It was held that as a matter of law Ms Carey-Hazell was entitled to defend the winding up applications as the judge held the view that a director’s powers are not suspended when a company is in receivership.
Accordingly, the following can be gleaned from the decision:
- a director retains residual powers when a receiver is appointed to the company; and
- although a director need not ask permission of the court to defend the winding up proceedings, the director must still act in accordance with its statutory duties of care, diligence and good faith as imposed under the Act.
Take care to keep your company’s records up to date with ASIC
There are serious consequences for failing to keep your company’s records up to date with ASIC, not the least of which include failure to receive statutory demands of claims for payments under the Building & Construction Security for Payments Act, and other serious notices. In a recent case of Perpetual Nominees –v- Masri Apartments [2004] NSWSC 500, the Court refused to set aside a statutory demand on the basis that the company’s officers had not received the statutory demand. The excuse that the company had moved its registered office was not a defence, where the company had failed to notify ASIC. The creditor was entitled to rely on the address for the registered office in the ASIC records, and thus the company was deemed to be insolvent and it was subsequently wound up.
The same applies to the addresses of directors, who are the intended recipients of Director Penalty Notices from the ATO. Strict deadlines apply to compliance with these notices and a defence of failing to update director’s addresses with ASIC is not likely to be successful. This was the case in the recent ruling of Deputy Commissioner of Taxation –v- Keck & Anor [2006] NSWSC 677.