In the matter of Mariconte v Nobarani [2020] FCA 1485, the Federal Court of Australia revisited the Court’s inherent power to set aside bankruptcy notices due to an abuse of process and cautioned against the use of bankruptcy notices as a debt collection method.
The proceedings arose from a six year dispute regarding the administration of a deceased estate. The Applicant alleged that the Respondent impermissibly issued the Bankruptcy Notice as a debt collection mechanism to recover a restitution judgment issued in prior proceedings. The Respondent tactically chose to claim the debt through a bankruptcy notice rather than applying for an ‘obvious order’ for the sale of the Applicant’s property which had been previously offered by the Supreme Court. This decision was made despite Parker J’s suggestions that issuing a bankruptcy notice was unlikely to be the ‘proper way for Mr Nobarani to proceed. The Respondent justified their decision on the basis that they had been entitled to payment for 8 months and believed that receiving the proceeds of sale through a sale order could result in liability as a recipient of disputed trust property or an unfair preference claim.
Although the Applicant had failed to pay or challenge the restitution judgment, the Court determined that it was improper to use bankruptcy proceedings as an enforcement action when other avenues are available. The Court was critical of the Respondent’s failure to make any attempts to enforce the Restitution Judgment or to even make a demand for payment. Interestingly, the Court also held that evaluation of an abuse of process was not impacted by the fact that the Applicant had been served in an aggressive and ‘less than ideal’ manner.
This case serves as an important reminder that parties must strongly consider their purpose in issuing bankruptcy notices and ensure that other avenues of enforcement are contemplated first. Ultimately, the categories of conduct or circumstances for an abuse of process will remain open and responsive to contemporary values of justice. On this occasion, the Court has re-affirmed that the use of a bankruptcy notice to pressure debtors to pay a debt, rather than to invoke the Court’s jurisdiction regarding insolvency, is improper.
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In today’s episode, Chamberlains’ Managing Director, Stipe Vuleta, is again joined by Condon Advisory’s Managing Principal Schon Condon , Associate Gavin King, and Chamberlains’ Director Harold O’Brien, to discuss all things corporate insolvency post COVID-19.
As with all Chamberlains Lawcast episodes, the information provided cannot be considered as legal advice, if you have any questions in relation to any information presented, please contact our office on 02 6188 3600 or visit our website at chamberlains.com.au
Presented by; Stipe Vuleta ft. Schon Condon, Gavin King & Harold O’Brien
Date; 20/11/2020
at Chamberlains Law Firm, Canberra.
Stipe Vuleta: Hi listeners it’s Stipe from Chamberlains again, and we’re back chatting to Condon Advisory and Harry from our property and commercial team. Gentlemen, how are you going?
Schon Condon: Good. Really well.
Gavin King: Yeah, not too bad.
Stipe Vuleta: Look, it’s an auspicious day we’re here chatting about all things, property, all things, corporate insolvency, and a lot of what’s going on with the federal government’s decision with respect to tenants, nationally, Harry have you seen a lot of distress in the market with respect to the tenant side?
Harold O’Brien: Uh, I have in fact, yes. Um, and not only are tenants suffering, but also landlords. Um, and I, and I I’ve seen it on the faces of some landlords… Really genuinely stressed.
Stipe Vuleta: Wow. Um, yeah, look, I guess it’s concerning because something that we worry about a lot in the context of the corporate insolvency space is generally the conduct of landlords and, and even historically the very aggressive action they’ve taken against their corporate tenants.
Uh, you know, we’ll all recall the changes to the, to the voluntary administration regime really very much led by, you know, the conduct of Westfield in South Australia and what it used to do when people would suffer corporate financial distress. Schon, you’ve been in the industry for almost 40 years. Tell us a bit about what happened.
Schon Condon: Look, it’s really interesting. I remember one, one job while I had myself. It was in one of the centres I can’t say that it’s the brand name that you mentioned, but, it was in one of the centres and we got appointed by the courts and we got notification about lunchtime. And I went out to the premises that afternoon and it was an interior decorating shop. So, it had a bit of paint, mainly papers, wallpapers, and all of those sorts of things. I’ve arrived at the, there wasn’t a lot left. Um, the director, um, hadn’t been there that day, so It had been closed up and I managed to access to the premises and there was some fit out, a bit of stock and, and whatnot.
So I ended up going and seeing the centre manager, told him that I was going to get a valuer out, um, the following morning, uh, and went to sort out, uh, whatever it is they deal with, that’s all fine. But I queried him about selling the business and he said, look, we’re not really interested in these types of business there anymore. Um, because its not generating the turnover that we expect to cover the rents that they were demanding. And I accepted that now the following morning when I arrived with my, my, um, valuer. We were confronted with a completely empty stall. And I was bewielded. We went down to city center management and there’s no one around, there was nobody to speak to.
Schon Condon: And I ended up managing to speak to one of the other shop owners who took me out the back, into the delivery bay area behind the shops, on the, on the condition of, I didn’t disclose to anyone, who had done it, but he said that what effectively happened, he said mate, five minutes after you left yesterday. They came in and they pulled everything out of the store and put it at the back, and the message was given to all of the shopkeepers that anything that I wanted that could have.
Um, and so with any ability to trade the business on or anything was lost. In that one single action in that bloody mindedness. If we don’t care, um, was, was it, and there is, there is a lot for some certain groups of landlords was, uh, to pay for, and, you know, they’ve driven rents to, to levels, which were unsustainable, which is the first point was the thing that drove, uh, the internet supply people to the position that they were.
I mean, the minute you, you say you’ve got this, a similar situation occurred actually in the taxi industry, um, because you’ve suddenly got an amazing cost to buy the plate. Um, and the return on the plate meant that that had to be added to the, to the cabfare, which meant it became a disproportionate. So Uber’s ability to walk through the door and, and squash it. Uh, was quite successful. And now it’s quite interesting that the cost of a Uber fare in certain instances can be very similar, if not, more than a uh, an ordinary taxi fare. So it’s, it’s really interesting. This change has had come, and I think as Harold was saying, in the current market. Um, this is probably one of the best situations where landlord and tenant need to sit down.
Schon Condon: Um, and work out a solution, which is not going to be what either party wants. But it’s got to be found on common ground. The landlord must understand what’s going on and what potential future demands on business premises could well be. And, um, they can, they can set a level of rent where the bloke says, where the tenant says, I can’t operate at that point. And so they will go and find alternative solutions, whether it’s telling staff to work from home, um, you know, with, with the lack of having the need to bring people in the offices, then you can go and get a, um, factory unit style of thing and have the staff coming in there, and then you’ve got storage space and, and all sorts of options that the whole world is a very changing place. But I think for any landlord, that wants to go for a confrontational approach. Um, and for the very large retailers, cause I think they’re the only ones that are actually driving, uh, a tenant confrontational approach.
Um, I think it could be a very costly decision at the end of the day. One of the interesting quotes that I read the other day coming out of the U.S there’s actually malls now that are buying up the dying [00:06:00] brands. The franchise type brands, and buying them up. So that it’ll switch from being landlord to actually the business owner of a number of stores, which they operate in a number of environments. So the market’s changing underneath everyone right now.
Stipe Vuleta: Wow. That is, um, that’s quite illuminating because what you were saying and what Harry mentioned got me thinking about. Um, this intersection of the preservation of value, you know, for the last 20 years in particular and insolvency, we’re really, we really talk about the preservation of value to the extent that we can. It’s not about being punitive. It’s not just about investigation. It’s about preserving businesses in the VA process or through schemes of arrangement or, preserving value, at least some value for creditors in the context of the liquidation. But this seems to be emerging of how do you preserve the value of, of landlord businesses and their enterprises, particularly the mega landlords across the nation, and the value to society and the potential detriment of their many tenants continuing to face ongoing financial distress.
Harold do you think that there is a way forward for a consensus based landlord tendency advocacy process?
Harold O’Brien: Well, it’s an interesting question Stipe.. I’ve often thought whether it, the landlord and the tenant form, form some sort of cooperative or joint venture in a sense, and tried to share in the profits, let’s say of the business itself and rent be determined in accordance with that somehow. Um, yes. Yeah, it’s a difficult, it’s a difficult question.
Stipe Vuleta: Yeah, look, I mean, I think even, even hearing you work through the question in your mind, I can see that it’s going to require if something like that was to be successful, it’s going to require a shift in thinking, um, for landlords and tenants. Um, Gavin, have you seen any scenarios over the last couple of years where, you know, had some consensus been reached between landlords and tenants? A corporate insolvency might have turned from, I guess, uh, a failure to a success.
Gavin King: Yeah. I think there’s a number of businesses that we’ve been involved in. Like, uh, one that comes to mind is like a little tyre automotive type deal. Um, it was clearly, you know, the business had issues and they had VREO in fact, it wasn’t working in the business anymore. He was more just managing staff and not managing that staff well. Um, but our dealing with the landlord levels effectively absent for most of the appointment, um, went through a VA, do a lick them. Yeah, try to try it on to sell it, um, until it becomes to a point where it was just untenable to sell anymore. Because they couldn’t reach an agreement when we had to get it all out, you know, so effectively a, I say on type value rather than trying to find someone that would take over the lease because the landlord just wouldn’t not negotiate on the lease. They thought they had this prime spot. Anyone would walk into it. Um, you know, I think we took the appointment a year and a half, two years ago. I think it’s still vacant.
Um, because you know, they just couldn’t see sense in, getting someone back in there with a reduced rent, doing the same thing, versus having an empty shop. So I think that’s where some of these, big, mega sort of landlords, um, they’re going to find a lot of issue. They’re going to be these, bigger retailers, franchise retailers are going to be closing up. I think they’ll find a lot more difficult to find they were going to come in wanting to pay the rents that they’re seeking
Schon Condon: A sobering form of education. Um, Google abandoned, particularly abandoned, um, buildings and structures and things like that. And when you go through and there are complete shopping malls that look like, you know, Western Paramatta, uh, that had been abandoned and abandoned for years full of trees and water and all sorts of things. And it really puts it into perspective, um, that, that these, these are realities that are not of the future. These are realities that can be [00:10:00] found in places around the world right now. Abandoned places.
Gavin King: I seen one the other day on that point on that was, you know, the, the roof had collapsed there also mosquitoes had started getting in and water had gotten in, and I think the locals had all put fish in there, um, to sort of kill the mosquitoes. And so potentially as a food source, but like, it’s just, it’s interesting in that, you know, I think America is a classic example of having these just vacant malls, where they spent, billions of dollars on setting them up and end up having no one in them.
Stipe Vuleta: Yeah. Well, I guess it’s, um, it’s, it’s an interesting thing to talk about and certainly when you jump online, they make for really good browsing. But I guess we’ve just fallen into a recession recently. I mean, not to date this particular recording, but it’s, it’s a big deal first time in 60 or 70 years and, and, maybe something like this will be a reality in the future, but, but that being said, insolvency for the time being corporate insolvency numbers are still pretty flat.
Schon Condon: They’re well down, I mean, I’ve been watching, we get a daily list of what’s what’s happening thats, been diminishing the further we go into these pandemic, um, And that’s probably a lot to do with the hiatus that we seem to have been parked in. It’s almost like a Dick Tracy watch where they say, I hold everything and there’s this pause. And then they sort of think about what’s going on in, in the middle. Uh, and I don’t think that’s really going to change until we get out of that. But the situation is if you’re insolvent before, particularly in the retail space, then I’m not sure that there’s going to be any change to this, that’s going to bring you at the other end and magically make you solid.
Schon Condon: Um, the recessions an interesting point as well, because yes, over the last few days we’ve, we’ve had it announced that, Australia’s now in recession first time in 30 years, um, prior to, well, the last one was in 91, 92. And prior to that, we tended to live in a seven year business cycle, which went from boom to, to the recessional, not quite depression, but a recession or, bust. And in, in many ways it was sort of like a cleansing process. There was an amount of insolvency, it wasn’t massive. I mean, it was talked about in big terms, but it wasn’t catastrophic. And it was when you really looked at it, most of the businesses that went broke were the ones that should’ve gone broke. It was almost that part of the business cycle, that cleaned the system out. And I’ve said for the last 30 years, Um, their have played with cheap interest rates, the whole lot.
Schon Condon: There’s been a lot of businesses kept alive artificially that really should have been out of existence well before now, uh, and strong ones. And you know, when you’ve got, when you’ve got a competitive, you put two shops, let’s call them computer shops. Um, one’s a decent business doing all the right things, and the bloke next door to it, is not paying his tax. And he’s just counting his prices to get the trade by not paying his tax. Well, he will go broke at the end of the day because the tax department will come out after him. But meanwhile, the bloke next door running, the legitimate business will go broke as well because the customers aren’t coming to him. Cause they can get it cheaper next door.
So that’s the damage that’s been done to society? Uh, in, in this process there’s been various industries have been recession within the last 30 years, we as a country haven’t been. And that’s been mining and property and various other things that have kept the overrule up there, but there’ve been certainly component to the Australian economy that have been suffering for years.
Stipe Vuleta: Well, are there any, you know, forget retail because we spent a lot of today’s recording talking about retail and landlords and tenants, but are there any particular industries you think are, are particularly at risk in the context of what is happening and what may very well get worse before we see this cleansing process? You so speak of Schorn or Gavin?
Gavin King: Yeah, I think the cleansing is going to be a lot of industries that rely on other, like the retail add on type stuff. Um, so if you’re supplying shop fitting, you know, all that sort of manufacturing type stuff, it’s probably going to be for a bit of struggle. Um, car tyre manufacturing type stuff, people aren’t driving as much anymore. They’re all staying home. So that sort of thing, that’s probably a big issue as well. And that’ll flow onto the subsidiary issues in that. Um, but I think it’s, there’s a lot of, you know, looking at it and where it goes from the top line to where people aren’t spending money anymore. I see. No, one’s traveling for a long time. Um, so I think we need to talk about travel agents and potential airlines, and they can grow, say nice from the news. Um, we don’t need to spend any more time talking about them. Um, but it’s also the smaller ones.
Um, you know, like healthcare services, personal services, people aren’t getting their haircuts done as much, nails, all that sort of thing, I think will impact as well. Um, when a personal note, my wife, she’s a dog groomer, hasn’t been busier. Um, everyone’s at home with their pets.
Stipe Vuleta: It’s funny you raise that. I mean, um, Harry and I were working on a restructure of a business, uh, sort of over the last few months and the superficial indicators during the context of Corona sort of implied that they, they might really struggle. And, and we were looking at it from the context of a tendency advocacy perspective. You start looking at the structure of a business and trying to get out of inefficient leases and really just prod them in the right direction so they can continue to be profitable. And as people started approaching the end of the lockdown period, this particular business boomed, because they supplied premium goods for the household and people were sitting at home and deciding they want, those new things around them to make them feel better about all this time they’re spending at home.
So I think there’ll definitely be some winners, uh, but I feel like, you know, for every winner there might be more than a few losers. And, do you guys think that the current insolvency industry is going to be, is going to be able to handle all this corporate insolvency?
Schon Condon: Absolutely. I don’t think, I mean, there are people coming through the profession. Um, the industry has been smashed for awhile, the largest contractor, all of it has been, um, the, the treatment of the industry. And that’s very sad. Um, but there is a need for insolvency that as long as people are lending, there will be people don’t break and therefore you need a proper system and a properly organized system to deal with that. Um, but with the, the onslaught, we have been under utilized for some time now, and this will just mean that we will get busy. We’ve been busy before and there’s, I think Gavin won’t let her come in a little bit earlier. Um, when you’ve gotta hook in, we hook in, and you get the job done and you do it. Hopefully what this might do is, give everyone a chance to look at what parts of these are inefficient, and maybe now’s the time to get some of the garbage out of the system, um, in how we deal with things. Something that can be done in 15 minutes, takes two and a half hours because of the red-tape that gets added to it. They’re the sorts of things that could truly be focused on at this point in time.
Stipe Vuleta: Yeah. It’s an interesting point because you, you circle back to things like creditor outcomes and, and I guess the primary goals of the, the corporate insolvency system in Australia, at least outside of the voluntary administration process and, and you think how much better would creditors be if it was just cheaper and easier for those independent persons like yourselves who are involved in industry to get better outcomes for them? I mean, ultimately red tape doesn’t help anyone other than government, but it’s, um, it’s an interesting thought as well. I think in the context of. People really thinking about where they will be six, 12, 18 months from now.
So not so much insolvency practitioners and lawyers, but our clients in the industry. Um, am I someone who hasn’t yet fully appreciated the financial, social, cultural impacts of this recession or of what’s about to happen in my sector? Um, am I being supported by government stimulus and incentives? And maybe now is the time for them to get advice. Um, at a previous session we had about personal insolvency, we talked about getting good advice early, being decisive, taking action and mitigating risk. Uh, I genuinely fear that there are a lot of industry participants, a lot of small businesses who are sticking their head in their sand at the moment. And the ultimate loser for that will be society.
Gavin King: Yeah, I think I agree. Stipe. The issue with most of the people putting it down with insolvency is, they do put their head in the sand, they don’t look at their options. Um, and they tend not to look at those options until they’re forced to, either a creditor, pushing them towards something, the ATO chasing its debts, or, you know, your suppliers putting you on CAD and you’re going well, I don’t have any cash anymore. Um, how do I [00:19:00] deal with it? Um, and I think it’s a huge swath of businesses out there that are, that are being funded by the government at the moment that will not debate.
Um, but again, really struggled with some of the benefits of the current situation staff being removed, um, and will ultimately, you know, the best thing they should be doing right now is going well, my I am being funded by the government right now. Maybe I need to go speak with unsolved practitioner so I can clear some of the old Deadwood that’s in my business, grow through a proper restructure and then be able to come out on the other side, clean up leaner a bit more mean because you’d have to go through this process and really had to have the hard conversations with some, professionals about what your business needs to look like to make money in the future.
Stipe Vuleta: Look, I think that’s a really pertinent and meaningful point to end on. I think this is all about helping people to continue to make money and to continue to be prosperous. And if you’re not getting advice today, then maybe you’re not going to get the outcomes that you want. So gentlemen, it’s been lovely chatting and thank you for coming on today.
Schon Condon: Thank you very much for the opportunity. It’s been, really good.
Gavin King: Thank you.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
In the recent decision of Sandoz Pty Ltd v H. Lundbeck A/S [2020] FCAFC 133 the Court had to consider what the parties intended when they entered into a contract.
A patent holder and a generic drug manufacturer got into a legal dispute, which was eventually settled by agreement in 2007. The agreement included a term that allowed the generic manufacturer a royalty free licence to use the patent 2 weeks before it expired. In effect this granted the manufacturer early access to the market.
On 13 June 2009 the patent expired.
In 2014 the patent was retrospectively extended from that 13 June 2009 expiry date to 9 December 2012. Pursuant to s79 of the Patents Act 1990 (Cth) if a patent-holder has a patent extended, it may sue for breach of that patent for the time period between the original expiration of the patent (in this case, 13 June 2009) and the extended expiration date (in this case, 9 December 2012).
The Court had to consider the length of the licence. Noting how s79 works, was the licence simply from 31 May 2009 until the expiry on 13 June 2009 or did it extend further?
At first instance, the Court found the licence was for two weeks only. The generic drug manufacturer appealed.
On appeal the Court had diffciulty with the idea that the parties intended the generic drug manufacturer could enter the market for two weeks only, only to have to withdraw again. The Court found that the settlement agreeement’s language was clear, granting an irrevocable licence from 31 May 2009 with no end date.
This outcome was not found to be one lacking in commercial sense. The Court found it was the natural result of the facts and assumptions in place at the time the settlement agreement was entered into. The generic manufacturer enjoyed a right to enter the market on 31 May 2009 without the need to concern itself with the (then apparently remote) possibility that an extension to the patent might reapplied for.
This decision highlights the importance of clarity when drafting agreements. While the patent-holder succeeded at first instance, the interpretation it argued for was ultimately rejected. If the “two weeks only” licence was indeed what the patent-holder wanted in 2007, a well drafted agreement would have guaranteed it.
If you have questions or concerns about intellectual property agreements, contact one of our intellectual property lawyers today.
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Countless businesses, including restaurants, bars, hairdressers and gyms, are struggling due to COVID-19 related business interruptions.
As we noted earlier in the year, there has been a lot of concern and ambiguity with respect to whether or not your insurance policy will respond to the COVID-19 pandemic affecting so many.
Yesterday, the Court of Appeal, Supreme Court of New South Wales gave some further guidance to assist us in understanding whether an insurance policy will respond. In HDI Global Specialty SE -v- Wonkana No. 3 Pty Ltd [2020] NSWCA 296, the defendants were insured against business interruption. Claims were made on their policies for interruptions relating to COVID-19. Those claims were denied on the basis of an exclusion which read:
“The cover…does not apply to any circumstances involving ‘Highly Pathogenic Avian Influenza in Humans’ or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendment.”
The difficulty for the insurers in relying upon this exclusion was that the Quarantine Act 1908 (Cth) was repealed on 16 June 2016, and replaced with the Biosecurity Act 2015 (Cth). Notwithstanding, it was the insurers’ position that the exclusion clause should be interpreted as extending or referring to “diseases determined to be listed human diseases under the Biosecurity Act 2015 (Cth)”, either due to the Biosecurity Act 2015 (Cth) being a “subsequent amendment” or on the basis that the reference to the Quarantine Act 1908 (Cth) was an obvious mistake.
The Court of Appeal, Supreme Court of New South Wales rejected this position and declared that COVID-19 was not a disease declared to be a quarantinable disease under the Quarantine Act 1908 (Cth) and the exclusion clause was not enlivened in the circumstances.
We have received reports of claims being denied where businesses have held an insurance policy that has a similar, or identical, exclusion clause. In our view, those denials should be the subject of significant scrutiny noting the decision made by the Court of Appeal, Supreme Court of New South Wales. Whilst we anticipate that the decision in HDI Global Specialty SE -v- Wonkana No. 3 Pty Ltd [2020] NSWCA 296 will be subject to an appeal to the High Court of Australia, it is our view that if you hold an insurance policy which may respond to any losses suffered as a result of the COVID-19 pandemic, or you have been subject to a denial of an insurance claim as a result of COVID-19, you should seek advice and assistance immediately.
The Chamberlains Insurance Law Team of experts is ready, willing, and able to assist and we invite enquiries in relation to this issue.
Lawyers often send settlement offers when dealing with disputes. These are sometimes in the form of “Calderbank” offers, named for the decision of Calderbank v Calderbank [1975] 3 All ER 333. Other times, offers may be made in accordance with the Uniform Civil Procedure Rules 2005 (NSW). The outcome of a “Calderbank” offer versus a “UCPR” offer can be very different.
Recently, in the decision of CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 3) [2020] NSWSC 1562, the Court considered the impact of a UCPR offer made by some defendants to a plaintiff. The Plaintiff was suing for some money, and for possession of some land. He failed in his claim against the Third and Fourth Defendants.
The Court had to consider what costs order was appropriate, particularly whether the Plaintiff should have to pay the Third and Fourth Defendants’ legal costs regularly or on the more generous “indemnity” basis. During the litigation – and before the Plaintiff’s failure – the Third and Fourth Defendants had made a settlement offer, which the Plaintiff did not accept.
The offer was made pursuant to Uniform Civil Procedure Rules 2005 (NSW). The way the relevant rule (r42.15A) operates is that, if an offeror makes an offer that is more favourable to the offeree than the eventual outcome of the litigation, the offeror will have its costs paid on the indemnity basis from the date of the offer unless the Court orders otherwise. In this case, the offer was more favourable than the eventual outcome. This meant the Plaintiff had to argue this was an “exceptional case” to avoid an indemnity costs order.
While this case was exceptional in one sense (the Third and Fourth Defendants were victims of a forgery perpetrated by the Second Defendant!), the Plaintiff failed to move the Court to waver from the usual r42.15A position. The Third and Fourth Defendants received their costs on the indemnity basis from the date of the offer.
Interestingly, if the offer was a Calderbank offer, it is not sure that the outcome would have necessarily been the same. All the more reason to think carefully when making and receiving offers…
3.1 How do I declare bankruptcy?
Essentially, there are two ways to declare bankruptcy, either voluntarily or by way of a creditor in whom you owe money to. Pursuant to section 55 of the Act, you may lodge a debtor’s petition in order to declare yourself bankrupt. You, in your capacity as a debtor, will be deemed bankrupt from the day the petition is accepted by the Official Receiver.
Alternatively, a creditor may lodge a creditor’s petition, simply applying to make you bankrupt due to debts owed and the inability to meet those debts. A creditor may apply for a bankruptcy notice once they have received a court judgment concerning the debts. This usually relates to two or more debts, as well as multiple creditors.
3.2 What happens when I become bankrupt?
A bankrupt is listed on the National Personal Insolvency Index permanently which can be searched by members of the public. A bankrupt will be required to disclose his or her bankruptcy to creditors if seeking credit over the prescribed limit, which is approximately $5,880.
A bankrupt will also have to disclose his or her bankruptcy if trading under a business name and according to section 206B of the Corporations Act 2001 (Cth), a bankrupt cannot manage a company without Court approval.
Bankruptcy may also affect your employment and your ability to hold specific licences, as well as obtain a security clearance. It is advised that, should you declare bankruptcy, you should confirm the conditions of your employment in regards to bankruptcy.
3.3 What are my options? Do I have other options aside from bankruptcy?
Bankruptcy is just one formal option available under the Bankruptcy Act[?] to manage your debt. Other formal options include six-month relief and a debt agreement.
A bankruptcy alternative is a Personal Insolvency Agreement (PIA). A PIA involves the appointment of a trustee to take control of your property and make an offer to your creditors. The offer may be to pay part or all of your debts by instalments or a lump sum. Entering a PIA may have a severe impact on you. It may affect your employment, ability to get credit and will appear on a public register permanently.
Additionally, a debt agreement (DA) is available pursuant to Part IX of the Act. It is an agreement between the debtor and his or her creditors to compromise by paying a percentage of the debts owed over a period of time.
3.4 What do I have to do when I become bankrupt?
When you are bankrupt:
(a) you must provide details of your debts, income and assets to your trustee.
(b) your trustee notifies your creditors that you’re bankrupt – this prevents most creditors from contacting you about your debt.
(c) your trustee can sell certain assets to help pay your debts.
(d) you may need to make compulsory payments if your income exceeds a set amount.
3.5 What are the consequences of bankruptcy? How will bankruptcy affect me?
You are automatically disqualified from managing corporations and cease to be a director, alternate director or secretary of a company unless you have been given leave by the Court to manage corporations.
Bankruptcy may affect your employment, entitlements to hold specific licences, ability to obtain clearances and the ability to travel internationally. You may be required to surrender your passport to the trustee.
3.6 What happens to my debts?
If you enter bankruptcy, you will find that most debts are covered. This means that you no longer have to repay them. In some cases, your trustee may sell your assets or use compulsory payments to help pay your debts. It is essential to confirm the types of debts owed and whom those debts are owed to.
Moreover, where it is determined the debts are secured or unsecured, this will assist in determining exactly what happens to those debts and how the debt is dealt with.
3.7 Will bankruptcy affect my partner’s assets?
There is the possibility that bankruptcy may affect your partner/spouse’s assets. For example, should your partner hold an asset such as a house where you have made monetary contributions to the house, you may hold an equitable interest in the property and hence may affect your partner’s asset.
However, bankruptcy will not affect your partner’s assets if the assets are registered/insured in the name of your partner, and you have no legal or equitable interest in the asset. You should confirm the status of the assets and your interests with a solicitor.
3.8 Will I lose my job?
Bankruptcy may also affect your employment and your ability to hold certain licences, as well as obtain a security clearance. It is advised that, should you declare bankruptcy, you should confirm the conditions of your employment in regards to bankruptcy.
3.9 Discharge from bankruptcy
A bankruptcy currently lasts three years pursuant to section 149 of the Act. A bankruptcy may end early however if an arrangement can be made to annul the bankruptcy.
A bankrupt may seek an annulment of the bankruptcy by making an arrangement with his or her creditors pursuant to section 73 of the Act. This will require the bankrupt to submit a proposal for consideration and the bankruptcy trustee to prepare a report to creditors and to hold a meeting of creditors for them to vote on the proposal.
A trustee may also apply to extend a bankruptcy by objecting to the bankrupt’s discharge pursuant to section 149A of the Act. The grounds upon which an objection may be based are set out in section 149D of the Act and amongst other things include voidable transactions and not providing information to the trustee when required, including disclosing income.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
2.1 What happens to my assets?
An asset is anything of value that you possess, such as real estate, vehicles, cash or money in a bank account and tools.
During bankruptcy, your trustee may be able to claim and sell some of your assets. The proceeds from the sale of your assets can be used to repay the money that you owe to creditors.
2.2 What assets can I keep?
During bankruptcy, you are able to keep:
(a) ordinary household items;
(b) tools used to earn an income with a value of up to $3,800; and
(c) vehicle(s) with a value of up to $8,000.
It is important to note that any assets acquired during the period of bankruptcy will also vest in the trustee.
2.3 Will I lose my assets?
Under the Bankruptcy Act 1966, you cannot sell or deal with any of your assets that are not protected (protected assets are ordinary household items; tools and vehicles). The remainder of your assets vest in the trustee.
It is important to note that any assets acquired during the bankruptcy will also vest in the trustee.
2.4 Will I lose my car?
You can keep your vehicle that you use mainly for transport with a value of up to $8,000.
2.5 Will I lose my house?
A house is considered property and thus an asset. Property may include a house, apartment, land, farm or business premises. In bankruptcy, the trustee becomes the owner of the share of any house or property you own. The trustee has control over your property and can sell it to help pay your debts.
2.6 Will I lose my income?
If you earn over a certain amount, half of what you earn above this threshold can be used to pay off your bankruptcy. This threshold amount is updated twice a year and varies depending on several factors such as dependant persons, income tax payable, fringe benefits and child support payments.
There are many misconceptions surrounding income and what happens to it in bankruptcy. There are various jobs that are the responsibility of the trustee in managing a bankrupt’s income. If you have any questions or concerns, do not hesitate to contact our office to discuss your matter.
2.7 What happens to assets that have not been sold by the trustee by the discharge date?
Assets that have not been sold continue to be controlled by the trustee, despite the bankruptcy being discharged.
2.8 Can I avoid bankruptcy by accessing my superannuation to pay my creditors?
Superannuation can be accessed to assist in severe financial hardship, however only in some instances. Contact your superannuation fund to find out whether you are eligible to access your superannuation.
2.9 Can I keep my tax returns?
Tax refunds received from your income earned before the date of bankruptcy is regarded as an asset. Therefore, the tax refund amount vests in the trustee.
2.10 Do I still need to lodge a tax return if I am bankrupt?
Yes, you are still required to lodge a tax return if you are bankrupt.
2.11 What happens if I come into possession of money/assets of a high value?
If you come into possession of a large quantity of money or a valuable asset, such as receiving an inheritance of money, property or other assets; winning the lottery, or becoming the beneficiary of a deceased estate, and this significantly exceeds your unsecured debt, you may be in a position to end your bankruptcy.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
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1.1 What is bankruptcy?
Bankruptcy is a legal process which declares that a person is unable to pay their debts. It can absolve them of most debts and allow the person to have a fresh start. It can be seen as an exchange of a person’s assets and financial control for legal protection from the person’s creditors.
There are two ways to enter bankruptcy. You can either:
(a) enter voluntary bankruptcy; or
(b) someone you owe money to (a creditor) can make you bankrupt through a court process.
1.2 Who manages my bankruptcy?
When you become bankrupt, a trustee is appointed to manage your bankruptcy. This can be either:
(a) the Official Trustee in Bankruptcy of the Australian Financial Security Authority (AFSA); or
(b) you can nominate a registered trustee of your choice.
The trustee’s fees are generally paid out of the funds recovered in the administration of the bankruptcy.
1.3 How long does bankruptcy last?
The period of bankruptcy usually lasts for three years and one day.
This period can be extended by the trustee for up to 5 or 8 years.
AFSA may assist in determining when your bankruptcy ends, as well as discussing with your Official Trustee.
1.4 How do I confirm if someone is bankrupt?
The Bankruptcy Register Search (BRS) is an online service that allows access to personal insolvency information. For the cost of $15, a search can be conducted on the register to find information about a person’s financial position.
Do I have to appear in Court if I am bankrupt?
You are not necessarily required to make court appearances for becoming bankrupt.
Depending on your circumstances, you may be required to attend an examination before a Court if you have failed to meet your obligations as a bankrupt.
1.5 Is my bankruptcy advertised?
Your bankruptcy is generally not advertised. However, A bankrupt is listed on the National Personal Insolvency Index permanently, which can be searched by members of the public.
If you have any questions or concerns regarding bankruptcy please contact Chamberlains and talk to one of our insolvency lawyers today.
Will kits are often marked as a cheap and easy way to conduct your estate planning without the assistance of a Wills & Estates lawyer. Will kits, however, are mostly ineffective in organising large and complex estates, and can even create complications for simple estates. In many instances, people are better off seeking legal advice in the first place.
The recent decision of Marlow v Croft [2020] NSWSC 251 demonstrates the complications that may arise when using a will kit.
In this case, the testator used a will kit to gift the residue of his estate to his wife:
“I give the residue of my estate to MY WIFE VIOLET MARLOW AND TO STAY AT (address) TILL SHE DIES THE HOUSE OR BELONGINGS NOT TO BE SOLD UNTIL THE DEATH OF MY WIFE VIOLET MARLOW ALSO ALL MONEY IN BANK GOES TO MY WIFE. But if he/she/they predecease me, then I give the residue of my estate to MY CHILDREN.”
Following his death, the testator’s wife moved to live with a relative in Queensland.
The Court was left to decide what was to happen to the house, as the will did not contemplate the testator’s wife moving away. The Court had to consider whether the testator had left his wife a right of residence (whereby she had a right to live in the house); a life interest in the house for the duration of the rest of her life; or an absolute gift of the house, whereby she could do with the house as she chose.
The Court said that the house appeared to have been given as an absolute gift to the testator’s wife; however, a complete gift of the house was inconsistent with the direction not to sell the house until his wife dies, indicating that she had a right of residence.
The Court also considered the possibility of a life interest; however, the will did not dictate what was to happen to the property when the wife died, other than for it to fall into the residue.
The Court concluded, after debating between an absolute gift, right of residence, or life interest, that the testator likely intended to make an absolute gift of the property. The Court also cautioned, however, that if that conclusion were wrong, it would be a life estate and not a right of residence.
Thus, although a will kit may seem like a cheap and easy way to do your will and gift your estate, particularly if you have a small estate and are planning to gift everything to your spouse and then to your children, it can end up in extensive and expensive litigation.
It may therefore save time and money by simply speaking to a wills and estates lawyer in the first place to ensure that your estate is gifted and then administered efficiently.
**Assisted by; Caroline Reilly**
Contact Chamberlains for a free first consultation with one of our wills & estates experts.
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It is common for people to leave the rest and residue of their estate to their children or grandchildren in their Will. While some identify their children and grandchildren by name, others simply refer to them collectively as those of “my children” or “my grandchildren” who survive me.
While referring to your intended beneficiaries collectively as “my children” or “my grandchildren” may ensure no one is excluded (and avoid having to update your Will if a new child or grandchild is born). It could create complications when administering your estate if children or grandchildren are being born around the time of your death.
The recent decision in Re Lapalme; Daley v Leeton [2019] VSC 534 considered just that, as the deceased in this case left her residuary estate in her Will to “those of my grandchildren as shall survive me and attain the age of eighteen (18) years as tenants in common in equal shares”.
At the date of the Will, the deceased had one grandchild. At the date of her death, she had three grandchildren, and at the date, the application for a grant of probate was made, she had five grandchildren.
The Court had to consider whether the collective phrase “my grandchildren” included those grandchildren born after her death.
The Court found that to ‘survive’ the testator means to outlive the testator, and further considered the deceased’s circumstances at the time the Will was signed, finding that it was unlikely she would have intended to exclude grandchildren born after her death.
The Court concluded that all of the deceased’s grandchildren, born before or after her death, were entitled to a share in her estate upon turning 18 years old. Still, any grandchildren born after the first grandchild turns 18 will be excluded per the class closing principle.
Therefore, you should consult a solicitor when you are conducting your estate planning and considering whom you would like to benefit from your estate to avoid mistakenly excluding anyone whom you would like to benefit from your estate, such as future grandchildren or other family members. Get in touch with our Wills and Estates specialists team today.
Assisted by Caroline Reilly
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