1. Do Bankruptcies lasts 3 years?
Not for one unlucky person, who did everything right (or so everyone thought).
John knew he was about to be made bankrupt in court in September 2016, so he took it upon himself to fill out his statement of affairs (“SOA”) and sign it a few days before he was made bankrupt.
The SOA is the document that kick starts the 3 years and 1 day bankruptcy period.
Once he knew, he gave his SOA to his Trustee to promptly submit same to Australian Financial Security Authority (AFSA). AFSA rejected the SOA telling Ken it couldn’t be dated pre-bankruptcy.
Ken re-submits by post a newly dated form, bypassing the Trustee, directly to AFSA (but they never receive it).
3 years later:
Ken’s finally told in July 2019. He has to apply to court seeking a backdating of the 3 year period to Sept 2016. The court, without reasons, declares that the relevant date that the SOA was filed is November 2016.
Some lessons:
- Don’t be too over-eager and pre-date your SOA
- Give your SOA to your trustee to submit!
- Ask your trustee every 6 months if there are any issues with you being discharged after 3 years. It’s unclear how this wasn’t picked up for 3 years, but it’s a timely warning.
2. Does 8 minutes late render the Deed of Company Arrangement void?
12.08 am on the 16th business day, the Deed of Company Arrangement (“DOCA”) was signed and sent to the then Administrator.
Does 8 minutes late render the DOCA void? Not according to a recent case, where the Court changed the wording of s444B(2)(a) from ’15 business days’ to ’16 business days.’
DOCA = “Deed of Company Arrangement,” which is a proposal made to creditors to allow the company to continue in existence, and one that gives creditors a better return than a liquidation scenario.
There exists a pretty handy provision in the Corporations Act, s447A, which in effect grants the Court an almost unlimited power to order whatever it thinks reasonable. The High Court even said this in Australasian Memory (2000) 200 CLR 270. So in this case, the reasonableness issue came down to the fact that:
- the majority of creditors (in value and number) voted in favour of the DOCA;
- the mistiming was inadvertent, and arose as a result of ‘protracted negotiations;’ and
- no opposition (from ASIC included) to the extension of time.
3. Did you know that you can set aside a statutory demand in the Family Court?
This is exactly what happened in a recent case, when AXL received a statutory demand (SD) from a creditor. When you receive a SD, you have 21 days to serve on the creditor an application to set it aside. Alternatively, you could pay the debt, or appoint formally an insolvency practitioner of your own choosing.
In theory, you are allowed to do this in the Family Court (FC). The FC is included in the definition of Courts: per 58AA of the Corporations Act. Also, the debt the subject of the SD arose from FC proceedings.
But in practice is it a good idea? Probably not.
When AXL lodged the application to set aside the SD, the FC took its normal approach to filing and stamping documents. Unfortunately, this meant the documents were not stamped until some time after the 21 days. Despite the repeated attempts of AXL.
Justice Black (from a different court) was at pains to say that the FC registry staff did not follow the correct procedures (Rule 25.02 of the Family Law Rules applies the Federal Court (Corporations) Rules to corporations matters in the Family Court).
Instead, Justice Black said that the FC Registry staff should have promptly returned the application to AXL (whether on the same day or a reasonably short time after).
Accordingly, AXL had not served the creditor within the 21 days and so the winding-up application remained valid.
This is an unfortunate tale, and it shows how strict Courts apply the winding-up provisions.
4. The who and how of a successful bankruptcy notice
- The ‘who’: Tradie Pty Ltd is owed a debt by John, and so Tradie decides to commence court action against John for unpaid debts. Tradie wins, but some time passes before it does anything to enforce its rights. In the meantime, Tradie changes its business name to Cheap-Trades Pty Ltd. On the bankruptcy notice issued to John, the name Cheap-Trades is only used (not Tradie). According to the Court, this notice was invalid because it did not adequately or reasonably describe the who.
- The ‘how’: The bankruptcy notice sent out by Cheap-Trades says that payment of the debt owed by John can be paid to XYZ Lawyers, PO Box 123, QLD 4000. According to the Court, this notice was again invalid because a PO Box does not allow John a reasonable opportunity to know how to pay the debt.