Commercial Litigation, Debt Recovery & Insolvency

Bankruptcy Law

Unpaid Wages and the Fair Entitlements Guarantee

By //  by 

Unpaid Wages and the Fair Entitlements GuaranteeThe Fair Entitlements Guarantee (“FEG”) is a statutory safety net where the Australian Government will pay employee entitlements to eligible employees of a company that gets wound up in insolvency, or for people who have been made bankrupt.

The Federal Government will pay:

  1. Up to 13 weeks of unpaid wages;
  2. Any unpaid annual leave and long service leave;
  3. Up to five weeks payment in lieu of notice; and
  4. Up to four weeks per full year of redundancy pay.

The fair entitlements guarantee is provided in the Fair Entitlements Guarantee Act 2012 (Cth) (“the FEG Act”) and the Fair Entitlements Guarantee Regulation 2012 (Cth) (“the Regs”).

Our lawyers can advise and assist with statutory demands, winding up applications, Fair Entitlements Guarantee claims, and the review of decisions in the Administrative Appeals Tribunal

DEDICATED TEAM – COMMERCIALLY FOCUSED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

What is the Fair Entitlements Guarantee?

Section 6 of the FEG Act defines the various kinds of employment entitlements of a person whose employment by an employer has ended, including:

  1. Annual leave entitlement;
  2. Long service leave entitlement;
  3. Payment in lieu of notice entitlement;
  4. Redundancy pay entitlement; and
  5. Wages entitlement.

Section 7 of the FEG Act defines “wages” to include the following:

  1. Allowances;
  2. Loadings;
  3. Amounts payable for overtime;
  4. Amounts payable at penalty rates; and
  5. Other amounts that the governing instrument for the relevant employment identifies separately and makes payable regularly.

Read the definitions in sections 6 and 7 of the FEG Act to know what the above relates to.

Why does the Fair Entitlements Guarantee Exist?

The FEG exists to protect vulnerable workers from losing their employment due to the insolvency of the employer company.

In the explanatory memorandum to the Fair Entitlements Guarantee Bill 2012 (Cth) it says:

The scheme … is necessary to fulfil a significant community need to protect the entitlements of Australian employees who would otherwise stand to lose their entitlements if they lose their jobs due to insolvency of their employer.

In Jones (Liquidator) v Matrix Partners Pty Ltd Re Killarnee Civil and Concrete Contractors Pty Ltd (In Liq) [2018] FCAFC 40 Justice Allsop CJ said:

The protection of employees in the aftermath of the insolvency of businesses is, and has been for many years, a matter of high public policy. The vulnerability of those who work in an employment relationship to the financial consequences of the decisions of business controllers and the economic environment is well-known. It has been consistently addressed in terms of priority in access to funds and latterly by a qualification to the reach and operation of securities over the assets of the business enterprise. That statutory addressing of the question as a Parliamentary response has been informed by considerations of the protection of the vulnerable and of fairness in the operation of the insolvency regime…

Essentially, the objective of the scheme is to provide for the provision of financial assistance to former eligible employees where the end of their employment is linked to the insolvency or bankruptcy of their employer.

An employee must be an eligible employee for the purposes of FEG.

Who is an Eligible Employee?

Section 10 of the FEG Act defines the general conditions for eligibility, they are:

  1. The person’s employment by a particular employer has ended;
  2. An insolvency event happened to the employer;
  3. The end of the employment:
    1. was due to the insolvency of the employer; or
    2. occurred less than 6 months before the appointment of an insolvency practitioner for the employer; or
    3. occurred on or after the appointment of an insolvency practitioner for the employer;
  4. The person is owed one or more debts wholly or partly attributable to all or part of one or more employment entitlements;
  5. The person has taken reasonable steps, to prove those debts in the winding up or bankruptcy;
  6. If the person was owed any of those debts before the insolvency event happened, the person took reasonable steps before that event to be paid those debts;
  7. When the employment ended, the person was an Australian citizen or, the holder of a permanent visa or a special category visa.

This eligibility criteria is subject to a number of exclusions.

Who is Not an Eligible Employee?

Section 11 of the FEG Act defines the exclusions.

A person is not eligible if they are an excluded employee pursuant to section 556 of the Corporations Act 2001 (Cth) – namely a director or previous director, a spouse of a director or previous director, or a relative of a director or previous director of the company.

  • “Spouse” of a person is defined to include a de facto partner of the person.
  • “Relative” in relation to a person, is defined to mean the spouse, parent or remoter lineal ancestor, child or remoter issue, or brother or sister of the person.

Different eligibility criteria apply to the Corporations Act and the Bankruptcy Act.  You should read Section 11 of the FEG Act.

Also, a person is not eligible if they converted from contractor status to employee status with the same employer within 6 months of the insolvency event.

One of the most crucial elements of the eligibility requirement is the causal link between the insolvency of the employer and the end of the person’s employment.

The Causal Link to the Insolvency Event

In the explanatory memorandum to the Fair Entitlements Guarantee Bill 2012 (Cth) it says:

The causal link between the insolvency of the employer and the end of the person’s employment is a crucial element of the eligibility requirement.

Section 10(1)(c) of the FEG Act defines eligibility if the end of the employment – (i) was due to the insolvency of the employer; or (ii) occurred less than 6 months before the appointment of an insolvency practitioner for the employer; or (iii) occurred on or after the appointment of an insolvency practitioner for the employer.

Subsections (ii) and (iii) are straightforward and can be calculated in accordance with relevant dates.

However, subsection 10(1)(c)(i) is less easy to define because what does “due to the insolvency of the employer” mean?

To unpack this, we need to understand what “insolvency” means and what “due to” means.

In relation to company insolvency, read our article – When is a Company Insolvent?

In relation to the phrase “due to”, the dictionary defines “due to” to mean “attributable to”, “caused by”, “ascribed to”, and/or “ascribable to”.

So, the end of employment must be caused by the insolvency of the employer.

In Milardovic and Secretary, Department of Employment [2019] AATA 213 Member K Parker said:

A key issue in this case is whether Mr Milardovic’s employment ended due to the insolvency of VS. This requires the Tribunal to determine:

(a) when Mr Milardovic’s employment with VS ended;

(b) whether VS was insolvent at the time Mr Milardovic’s employment with VS ended; and

(c) if so, whether Mr Milardovic’s employment ended due to the insolvency of VS.

So, evidence in relation to the above will need to be provided to FEG in order for them to make the assessment.

For more information read the Eligibility for FEG Assistance Factsheet from FEG.

Making a Fair Entitlements Guarantee Claim

A fair entitlements guarantee claim can be made online at the Federal Government Website.

First you will have to register.  Once registered you will need to file your claim.

Read the very good How do I access FEG Online Services factsheet.

It is mandatory that you provide evidence of citizenship status at the time the employment ended so that FEG can assess your eligibility.

This can be passport, visa, birth certificate, Immicard, or Registration by Descent document.

You may also be asked to provide:

  1. The signed employment contract or letter of appointment;
  2. Any payslips;
  3. PAYG payment summaries;
  4. Bank statements for the 13 weeks prior to the relevant date;
  5. Bank statements for the 30 days immediately after your employment ended;
  6. Evidence of weekly or annual wage rate;
  7. Separation certificate; and
  8. Letter of termination.

If you are eligible because of section 10(1)(c)(i) of the FEG Act, you may also be required to make submissions in relation to why your employment ended due to the insolvency of the employer, namely:

  • When the employment ended;
  • Whether the company was insolvent at the time the employment ended; and if so
  • Whether the employment ended due to the insolvency of the company.

How long do you have to make your FEG claim?

Time Limits for Fair Entitlements Claim

Section 14(2) of the FEG Act says:

(2) The claim must be made before the end of 12 months after the later of the following events:

(a) an insolvency event happens to the employer;

(b) the person’s employment by the employer ends.

An “insolvency event” is defined in section 5 of the FEG Act:

An insolvency event happens to an employer of a person:

(a)  when a liquidator of the employer is appointed (provisionally or otherwise) under the Corporations Act 2001 ; or

(b)  when the employer becomes a bankrupt under the Bankruptcy Act 1966 ; or

(c)  if the person is or was employed for a partnership by 2 or more of the partners–at the first time an event described in paragraph (a) or (b) happens, or has happened, to all of the partners by whom the person is or was employed.

So, the Fair Entitlements Guarantee claim must be from 12 months of the later of the employment ending, or the appointment of a liquidator or bankruptcy trustee.

Best Practice – Get your claim filed as soon as possible.

Once filed by an eligible employee, the authority will work out your entitlements.

The employee will be paid the basic amount for each (if applicable):

  1. Wages entitlement;
  2. Annual leave entitlement;
  3. Long service leave entitlement;
  4. Payment in lieu of notice entitlement; and
  5. Redundancy pay entitlement.

If you are deemed ineligible or the amount of the payment is insufficient, then there are a couple of things that a person is able to do.  These include:

  1. Seeking an internal review of the decision; and/or
  2. Seeking a review by the Administrative Appeals Tribunal.

We will explain this process in more detail below.

Seeking an Internal Review of the Decision

Section 38 of the FEG Act says:

(1)  A person may apply to the Secretary for review of:

(a)  a decision whether the person is eligible for an advance; or

(b)  a decision on the amount of an advance the person is eligible for.

Generally, the application must be made within 28 days after the date of the notice of the decision.

The application for internal review must be in writing and must state the reasons why the application is being made; and set out, or be accompanied by, any information or documents relating to those reasons.

If a person applies for a review of a decision, section 39 of the FEG Act says:

The Secretary must review the decision and:

(a)  affirm the decision; or

(b)  vary the decision; or

(c)  set the decision aside and substitute a new decision.

If the authority affirms the decision or varies the decision and it is still not reasonable, then an employee can apply to the Administrative Appeals Tribunal.

Seeking a Review by the Administrative Appeals Tribunal

The Administrative Appeals Tribunal (“AAT”) provide independent merits review of a wide range of administrative decisions made by the Australian Government, including Fair Entitlement Guarantee decisions.

Section 40 of the FEG Act allows an application to be made to the Administrative Appeals Tribunal by a person for review upon certain conditions in relation to eligibility or the amount of money payable.

Appeals to the AAT can be made online – https://forms.aat.gov.au/landing.htm?formCode=app-for-review

Generally, the application for review by the ATT must be made within 28 days of being given the internal review decision.

We strongly advise seeking legal assistance in relation to reviewing a FEG decision.

Can an Employee Wind Up a Company?

Section 459E of the Corporations Act 2001 (Cth) says:

A person may serve on a company a demand relating to:

(a)  a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or

(b)  2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

The statutory minimum is $2,000.00.

So, if a company owes unpaid wages to the employee, and the unpaid wages amount is more than $2,000.00, then the person can serve a creditor’s statutory demand.

Serving the Employer with a Statutory Demand

If the employer is a company, then section 459E allows the employee to serve a creditors statutory demand for payment of the wages.

A statutory demand is a demand made on an insolvent company (not a person) for the payment of a debt or debts, including unpaid wages.

Once served with the statutory demand, the employer will need to do one of the following within a strict 21-day timeframe:

  1. Pay the amount of the debt or debts; or
  2. Secure or compound for the debt to the employee’s reasonable satisfaction; or
  3. Apply to set the demand aside.

If the employer company fails to do any of these things within 21 days, then it is presumed to be insolvent and the employee (or employees) can apply to wind the company up in insolvency.

As soon as the company goes into liquidation, if the employee is an eligible employee, then the employee with be entitled to the Fair Entitlement Guarantee claim.

Read our Complete Guide to Statutory Demands

However, care must be taken to particularise the debts and the amount of the debts correctly or face a potential application to set the statutory demand aside.

Defect in the Demand Causing Substantial Injustice

One of the grounds that a statutory demand can be set aside is where there is a defect in the demand that may cause the employer substantial injustice.

Section 459J(1)(a) of the Corporations Act says:

(1)  On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a)  because of a defect in the demand, substantial injustice will be caused unless the demand is set aside

There are a number of calculations in relation to unpaid entitlements that may cause a defect in the demand including correctly calculating:

  1. Unpaid wages;
  2. Unpaid annual leave;
  3. Unpaid long service leave;
  4. Unpaid payment in lieu of notice; and
  5. Unpaid redundancy pay.

It is extremely important that these calculations are 100% correct.

Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774 is a case relating to a statutory demand served on a debtor company in relation to unpaid wages.  In this case a number of disputes arose in relation to the amount of the debts, including a dispute as to whether the demand should be gross wages or net wages.  In his decision, Gleeson J said:

I am satisfied that there is a genuine dispute as to the amount of the debt insofar as it claims Mr Jenkins’ gross salary without deducting the tax required to be deducted by clause 3.4 of the employment contract.

Issuing a statutory demand for non-payment of wages and employment entitlements is more complicated than non-payment of invoices for example.

We strongly recommend engaging a qualified solicitor to draft and serve a statutory demand.

Winding Up the Company

Non-compliance with a statutory demand raises the legal presumption that the company is insolvent.

With that legal presumption assisting, the employee to make an application to wind the company up in insolvency.

If the company has a liquidator appointed, then the eligible employee (and all of the eligible employees) will be entitled to the Fair Entitlements Guarantee.

Our lawyers can advise and assist with statutory demands, winding up applications, Fair Entitlements Guarantee claims, and the review of decisions in the Administrative Appeals Tribunal

DEDICATED TEAM – COMMERCIALLY FOCUSED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

To contact the FEG Hotline:

Mon – Fri, 9 am – 5 pm (AEST/ADST)

Wayne Davis Lawyer Sunshine Coast

Wayne Davis, LLB, GDLP – Commercial litigation solicitor and legal practice director at Stonegate Legal Pty Ltd. Stonegate Legal focus on commercial litigation, debt disputes, the enforcement of money orders, and insolvency. Committee member of the Sunshine Coast Law Association. Committee member and volunteer lawyer with the Sunshine Coast Community Legal Service.

stonegatelegal.com.au/

Can you Serve a Bankruptcy Notice by Email?

By //  by 

Can you Serve a Bankruptcy Notice by Email Queensland Insolvency LawyersCan you serve a bankruptcy notice by email?

If a creditor has received a final judgment or final order the execution of which has not been stayed, and that judgment or order is more than the statutory minimum ($5,000.00), then the creditor can apply to the Australian Financial Security Authority for a bankruptcy notice.

Once the judgment creditor has the bankruptcy notice it needs to be served on the judgment debtor.

There are a number of different ways to serve a judgment debtor with the bankruptcy notice in the Bankruptcy Act 1966 (CTH) (“the Act”) and the Bankruptcy Regulations 1996 (CTH) (“the Regs”).

One question we get asked is “can you serve a bankruptcy notice by email?”

This article will explain if a bankruptcy notice can be served by email.

If you need to serve a bankruptcy notice then it is important to get it right and you should contact a lawyer

DEDICATED TEAM – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

What is a Bankruptcy Notice?

A bankruptcy notice is a formal notice issued by the Australian Financial Security Authority (“AFSA”).

It is a formal demand for payment:

  1. From a human debtor (not a company);
  2. Based upon a final judgment or final order of more than the statutory minimum ($5,000.00);
  3. The final judgment or final order must not have been stayed; and
  4. The final judgment or final order must not be more than 6 (six) years old.

A bankruptcy notice states that the judgment debtor must either pay, enter into an arrangement for payment, or apply to set the bankruptcy notice aside – all within 21 days after being served.

If they don’t do any of these things then they have committed an act of bankruptcy, allowing the judgment creditor to file creditor’s petition in the Federal Circuit Court.

Because the act of bankruptcy is calculated upon the date of service, it is important to get this date correct, and to be able to prove service.

How to Serve a Bankruptcy Notice

Regulation 4.02A of the Regs – Service of bankruptcy notices – says:

A bankruptcy notice may be served by any of the methods mentioned in regulation 16.01.

Regulation 16.01(1) of the Regs says:

(1)  Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:

(a)  sent by post, or by a courier service, to the person at his or her last-known address; or

(b)  left, in an envelope or similar packaging marked with the person’s name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility; or

(c)  left, in an envelope or similar packaging marked with the person’s name, at the last-known address of the person; or

(d)  personally delivered to the person; or

(e)  sent by facsimile transmission or another mode of electronic transmission:

(i)  to a facility maintained by the person for receipt of electronically transmitted documents; or

(ii)  in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person.

Regulation 16.01(1)(e)(ii) says that a bankruptcy notice can be served by another mode of electronic transmission in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person.

Obviously, the main thing to consider in this section, is when an email is received by the person and what does that mean?

Regulation 16.01(2)(b) says:

(2)  A document given or sent to, or served on, a person in accordance with subregulation (1) is taken, in the absence of proof to the contrary, to have been received by, or served on, the person …

(b)  in the case of service in accordance with paragraph (1)(c), (d) or (e)–when the document is left, delivered or transmitted, as the case requires.

The cases on this point have discussed what this means.

When is an Email Received by a Judgment Debtor?

Regulation 16.01(1)(e)(ii) expressly states that a bankruptcy notice can be served by electronic mail (email).  However, service is effected when the document is delivered or transmitted.

Obviously, these words have different meanings, so how have the authorities decided what “received” means in the context of service of a bankruptcy notice?

The main case on this point is American Express Australia Limited v Michaels [2010] FMCA 103 where Smith FM provides commentary on the authorities and says at [23]:

The specific provisions in Bankruptcy Regulations regs.16.01(1)(e) and (2)(b) appear to be self-supporting, and appear intended to identify a deemed time of receipt of service which is simple to establish, and which is rebuttable by the recipient. In my opinion, these provisions implicitly exclude the application of ss.14(3) and (4) of the Electronic Transactions Act in relation to findings as to receipt and time of receipt.

Smith FM then went on to say at [24]:

This conclusion still leaves the possible ambiguity of the word ‘transmitted’ in reg.16.01(2)(b), which must be solved by a consideration of the context and objects of the provision. Clearly, it is intended to assist the making of findings as to receipt of an emailed document, and to dispense with proof of actual receipt of the email, “in the absence of proof to the contrary”. It takes its flavour from the language of reg.16.01(1)(e), which it is intended to assist. That provision refers to a document “sent by” electronic transmission, referring to a mode of dispatch by a sender. Regulation 16.01(2)(b) appears to make an understandable assumption that electronic transmissions will normally reach the intended destination almost instantaneously. Considering all these points, and the general context of the regulation, I accept the submission of counsel for AMEX that reg.16.01(2)(b) raises a rebuttable presumption of receipt and time of receipt occurring when the email is transmitted by its sender, being when it is irretrievably sent by the electronic mail facility used by the person serving the electronic document.

American Express Australia Limited v Michaels [2010] FMCA 103 therefore says that in relation to regulation 16.01 of the Regs, an email is presumed to be received by the judgment debtor when it is transmitted by the judgment creditor, being when it is irretrievably sent by the email facility used by the person sending the bankruptcy notice.

This was followed in Noonan v BMW Australia Finance Limited [2013] FCCA 2222 when Judge Whelan said:

With respect to the provisions of Reg.16.01(1)(e) of the Regulations, Smith FM (as he then was) considered … that the provision was intended to identify a time of receipt which is simple to establish. It raises a rebuttable presumption that receipt, and time of receipt, occurred when the email is transmitted by its sender, being when it is irretrievably sent by the electronic mail facility used by the person serving the electronic document.

It was also followed in The Council Of The New South Wales Bar Association v Archer [2012] FMCA 81 Lloyd-Jones FM said:

In American Express Australia v Michaels [2010] FMCA 103 … [H]is Honour says that the presumption arises when the notice is transmitted, not when it is received.

The legal presumption that the bankruptcy notice has been served by email when it is transmitted or sent by the person sending is rebuttable.  The judgment debtor will need to provide evidence that the bankruptcy notice was not delivered by email.

Regulation 16.01(2)(b) states that the bankruptcy notice is taken to have been served “absence of proof to the contrary”, meaning that the onus in on the judgment debtor to prove that he/she was not served by email.

The judgment debtor will need to adduce evidence of non-delivery and not non-receipt.

Proof of Non-Delivery or Non-Receipt

The authority case on this point is the Hight Court case of Fancourt v Mercantile Credits Ltd [1983] HCA 25.  In Fancourt the High Court said:

Despite remarks in the judgments about non-receipt, it was non-delivery which was significant because the second limb of s. 26 of the Interpretation Act refers to proof of the contrary of delivery. As the present case shows, delivery may be different from receipt by the intended recipient and, provided that delivery is not disproved, the fact of non-receipt does not displace the result that delivery is deemed to have been effected at the time at which it would have taken place in the ordinary course of the post.

Fancourt was followed in relation to a bankruptcy notice and regulation 16.01(2) in Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321 where Sundberg, Finkelstein & Hely JJ said:

If, on the proper construction of reg 16.01(2), the words “proof to the contrary” permit proof that the document was not delivered, there is no such proof in the present case. It is clear from Fancourt that proof of non-receipt as opposed to non-delivery is not permitted … Thus on either view of reg 16.01(2), the primary judge correctly said there was no point in the appellant filing an affidavit of non-receipt.

Practically this makes a lot of sense.  Debtors always say things like “we didn’t get the email” or “we didn’t get the invoice” or “we didn’t get the letter”.

So, to rebut the presumption that service was made, the judgment debtor will need to adduce evidence of non-delivery and not non-receipt of the bankruptcy notice.

Can we Serve a Bankruptcy Notice by Email?

Yes, we can serve a bankruptcy notice by email.

A bankruptcy notice is deemed served when it is transmitted by the sender, being when it is irretrievably sent by email, and proof of non-delivery is not adduced to rebut that presumption.

Best practice when serving a bankruptcy notice by email is to get a delivery and read receipt.

Delivery and Read Receipts

To get a delivery receipt or a read receipt you need to go to options in your Outlook, then tick the “request a delivery receipt” box and the “request a read receipt box”.

serve a bankruptcy notice by email in Queensland

For a delivery Receipt you will either get a relayed response or a delivered response.

  1. Relayed – Delivery to these recipients or groups is complete, but no delivery notification was sent by the destination server.
  2. Delivered – Your message has been delivered to the following recipients.

Either way, you can annex these receipts to your affidavit as evidence of delivery.

You may not get a read receipt as it requires the judgment debtor to click to send the read receipt, but it does happen sometimes, so it is worth a go.

Serving a Bankruptcy Notice by Email

This article explains how to serve a bankruptcy notice by email.

Don’t just serve by email if there are other avenues open to you.  If you can fax, then fax too.  If you can get the judgment debtor personally served, or you know where the judgment debtor lives, then serve him or her there too.

A judgment creditor will need to prove service of the bankruptcy notice in order to establish that the judgment debtor committed an act of bankruptcy.  Failure to properly serve the bankruptcy notice can be a costly mistake – for this reason we always advise seeking legal advice.

If you need to serve a bankruptcy notice then it is important to get it right and you should contact a lawyer

DEDICATED TEAM – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

Wayne Davis Lawyer Sunshine Coast

Wayne Davis, LLB, GDLP – Commercial litigation solicitor and legal practice director at Stonegate Legal Pty Ltd. Stonegate Legal focus on commercial litigation, debt disputes, the enforcement of money orders, and insolvency. Committee member of the Sunshine Coast Law Association. Committee member and volunteer lawyer with the Sunshine Coast Community Legal Service.

stonegatelegal.com.au/

Enforcement Warrant for Redirection of Debts

By //  by 

Enforcement Warrant for Redirection of DebtsAn enforcement warrant for redirection of debts is an enforcement option pursuant to the Uniform Civil Procedure Rules 1999 (QLD) (“UCPR”).

An enforcement warrant for redirection of debts is a way of enforcing a judgment, enforcing a registered QCAT decision or enforcing a registered adjudication decision.

A warrant for redirection of debts allows the creditor to enforce an enforceable money order over any debts owed to the judgment debtor by a third person.

The redirection warrant confers the obligation on the third person to pay the debt to the creditor rather than the debtor.

Just like other enforcement warrants, a warrant for redirection of debts is obtained by making an application to the Court.  The application consists of:

  1. The application;
  2. A statement in support of the application; and
  3. A draft enforcement warrant.

When the Court issues the UCPR enforcement warrant for redirection of debts, it then needs to be served on the third person who owes the debt to the judgment debtor.

This article will give you all the information needed to apply for an enforcement warrant for redirection of debts, and give you hints and tips to avoid pitfalls.

Contact us for advice and assistance with Building and Construction Disputes

There are a number of difficult steps that need to happen before the third person must comply with an enforcement warrant for redirection of debts. We strongly recommend engaging a qualified legal professional

FIXED FEES – DEDICATED TEAM – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

Enforcement Warrant for Redirection of Debts

Rule 840(1) of the UCPR says:

A court may issue an enforcement warrant authorising redirection to an enforcement creditor of specified debts certainly payable, belonging to an enforcement debtor, from a third person.

For the Court to issue an enforcement warrant for redirection of debts the creditor will need:

  1. An enforceable money order;
  2. An application – Form 9;
  3. A draft warrant – Form 76;
  4. A statement in support of the application – Form 74; and
  5. To serve the debtor and the third person.

We will give you more information on each of these steps below.

What is an Enforceable Money Order?

Rule 793 of the UCPR says:

“enforceable money order” of a court, means – a money order of the court; or a money order of another court or tribunal filed or registered under an Act in the court for enforcement.

Schedule 3 of the UCPR defines an order to mean:

“order” … includes a judgment, direction, decision or determination of a court whether final or otherwise.

An enforceable money order is a money judgment from the Court, or a decision in QCAT or an adjudication decision registered in the Magistrates Court.

A QCAT decision or an adjudication decision that has not been registered in the Court is not an enforceable money order.

Rule 793 of the UCPR says:

“enforcement creditor” means – a person entitled to enforce an order for the payment of money; or a person to whom the benefit of part of the order has passed by way of assignment or in another way.

If an enforcement creditor has an enforceable money order, then to issue the warrant the enforcement creditor will need to ensure that they are eligible.

Eligibility Requirements

The eligibility requirements to be granted an enforcement warrant for redirection of debts include:

  1. There must be a debt owed;
  2. The debt must be an actual debt presently due; and
  3. The debt must be owed by a third person.

We will discuss these eligibility requirements in more detail below.

There must be a Debt Owed

Rule 839 says that the payment of earnings or payment into Court are not debts which can be directed under this warrant. These debts are dealt with in their own enforcement warrants.

As stated above, rule 840(1) of the UCPR says “specified debts certainly payable”.  The UCPR is silent on what constitutes a “specified debt”.

The debt must be owed to the judgment debtor in his/her/its own right.  The debt cannot be owed in its capacity as trustee for example.

The debt also cannot be an unliquidated debt but must be a liquidated amount.

The most common scenario is instalment payments or debts owed under credit agreements for example.

The Debt must be Presently Due

The debt must be presently due and cannot be the mere possibility or probability of a future debt.

Rule 840(3) of the UCPR says:

A debt may be redirected only if the debt, or the part of the debt belonging to the enforcement debtor, is payable to the enforcement debtor from the third person on the date the enforcement warrant is served on the third person.

In Jackson & Chenoweth v Marsh & Webster Ltd [1924] QWN 51 McCawley CJ, Lukin J, Macnaughton J said:

[The] rule … should be read as restricted to debts existing, whether payable in present or in future, and did not include the money which C., on the transactions with B., might ultimately become possessed of on behalf of B. That there was no debt “owing or accruing” by B. to C. at the time the Magistrate made the garnishee order that could be attached.

A conditional debt payable upon a certain event occurring cannot be redirected until the condition has been satisfied.

In Queensland Carriage Waggon and Tramcar Co Ltd v Somerville (1890) 4 QLJ 10 following a long line of precedents Lilley CJ said:

This was not a perfected, absolute debt; it was not due or accruing due, because defendant had not done work, and might never finish it. It depended on a condition—that was, the architect’s certificate …  I cannot deal with the money until Campbell has got what is owing him; and, at present, there is no debt, legal or equitable, nor is there a prospect of any. The rule nisi must be dismissed, with costs of all parties, to be paid by the judgment creditors.

So, the debt must be a present debt and not a debt future or contingent debt.

The Debt must be Owed by a Third Person

The debt must be owed by a third person, which means any person and includes the State.

Rule 793 of the UCPR says:

“third person” means – a person (including the State) from whom a debt is payable to the enforcement debtor; or is likely to become payable to the enforcement debtor

The State Can owe Debts

Section 95 of the Civil Proceedings Act 2011 (QLD) deals with debts owed by the State.

The third person must be within Australia.

The third person must be within Australia.  In Suzlon Energy Ltd v Bangad [2011] FCA 1152 applying obiter dicta from Société Eram Shipping Co Ltd v Cie Internationale de Navigation [ 2004] 1 AC 260 Rares J said:

In principle and on authority it seems to me that the court should not, save in exceptional circumstances, impose such a requirement upon a foreigner …

The debt can be from a Bank

The debt can be from a financial institution to the credit of an enforcement debtor.

Section 97 of the Civil Proceedings Act 2011 (QLD) says:

An amount standing to the credit of an enforcement debtor in an account in a financial institution is, for enforcing a money order, a debt payable to the enforcement debtor

This means that any money held in a bank account can be used to enforce the judgment debt, even if the conditions under 97(1)(a) to (d) have not been met.

This bank account can include a joint bank account.

Joint Fund

The debt can be owed from a joint fund, a joint bank account in the name of husband and wife for example, where only one is the enforcement debtor.

Section 94 of the Civil Proceedings Act 2011 (QLD) says:

(1) This section applies if the debt belonging to the enforcement debtor is a fund of money owned by the enforcement debtor and others (a “joint fund”).

(2) An enforcement warrant may authorise redirection to an enforcement creditor of a joint fund to the extent of the enforcement debtor’s entitlement.

(3) It is presumed a joint fund is owned by the fund owners in equal shares unless, on application of a fund owner or enforcement creditor, the court decides the actual beneficial entitlement of each fund owner.

Partnership Debts

The debts owing to the enforcement debtor can also be partnership debts.

Section 96 of the Civil Proceedings Act 2011 (QLD) says:

A court may issue an enforcement warrant authorising redirection to an enforcement creditor of particular debts, belonging to an enforcement debtor, from a partnership carrying on business in Queensland even if a partner resides outside Queensland.

If the Third Person is a Company

If the third person is a company then the company is subject to section 440D and 471B of the Corporations Act 2001 (CTH).

Section 440D of the Corporations Act 2001 (CTH) says:

During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except with the administrator’s written consent; or with the leave of the Court …

Section 471B of the Corporations Act 2001 (CTH) says:

While a company is being wound up in insolvency … a person cannot begin or proceed with … enforcement process in relation to such property

So, unless leave is granted by the Court, a warrant directed at a corporate third person under administration or in liquidation cannot be made.  Best to check on the ASIC website beforehand.

So, if a judgment creditor is eligible and it can provide an eligible third person, then the judgment creditor can make the application for a warrant for redirection of debts.

Application for a Warrant for Redirection of Debts

The application for an enforcement warrant for redirection of debts – Form 9 – outlines the order (or orders) that the plaintiff is asking the Court to make.

The costs of the warrant are fixed at Schedule 2 of the UCPR depending on the amount of the claim – see item 15.

The application for an enforcement warrant for redirection of debts also needs to state who the third person is namely who the warrant needs to be served on.

The Draft Warrant

The form of the draft enforcement warrant for redirection of debts is Form 76.

The draft enforcement warrant needs to include:

  1. Enforcement Creditor name and address
  2. Enforcement Debtor name and address
  3. Third Person name and address

It also needs to include:

  1. Judgment amount;
  2. Less payments;
  3. Plus interest;
  4. Plus costs; and
  5. Total owing.

The application for an enforcement warrant for redirection of debts and the draft warrant need to be accompanied by a statement in support of the application.

Statement in Support of the Application

The statement in support of the application must be in the approved form – Form 74.

The statement in support of the application should be sworn not earlier than two business days before the date of the application.

Rule 817(1)(b) of the UCPR says:

A person applying for an enforcement warrant must file … a statement in the approved form sworn by the enforcement creditor, or the enforcement creditor’s agent or solicitor, not earlier than 2 business days before the date of the application.

The statement in support of the application for an enforcement warrant for redirection of debts must include the following:

  1. The date the money order was made;
  2. The amount for which the order was made;
  3. The date and amount of any payment made under the order;
  4. The costs incurred in previous enforcement proceedings in relation to the order debt;
  5. Any interest due at the date the statement is sworn;
  6. Any other details necessary to calculate the amount payable under the order at the date the statement is sworn and how the amount is calculated;
  7. Any daily amount of any interest that, subject to any future payment under the order, will accrue after the date the statement is sworn;
  8. Any other information necessary for the warrant being sought.

It is likely that the registrar will require an amended form to specifically identify the debt sought to be redirected by the third person.

The Court will consider a number of factors identified in rule 840(2) of the UCPR .

Factors the Court will Consider

Rule 840(2) of the UCPR says:

In deciding whether to issue an enforcement warrant authorising redirection, including regular redirection under division 2, the court must have regard to the following—

(a) whether the enforcement debtor has adequate means of satisfying the order after deducting—

(i) the necessary living expenses of the enforcement debtor and the enforcement debtor’s dependants; and

(ii) any other known liabilities of the enforcement debtor;

(b) whether the amount of regular debt to be redirected would impose unreasonable hardship on the enforcement debtor;

(c) if the applicant is the enforcement debtor—whether, having regard to the availability of other enforcement means, the issue of the warrant would be consistent with the public interest in enforcing orders efficiently and expeditiously;

(d) whether, having regard to the nature of the debt (belonging to the enforcement debtor from the financial institution) and the type of redirection, a regular redirection or otherwise, is appropriate.

If the Court and/or the Registrar is satisfied of the above, then it will issue the enforcement warrant.

The next step in the process is to serve the enforcement warrant for redirection of debts on the third person.

Service of Enforcement Warrant for Redirection of Debts

Once the Court has granted the warrant and provided the judgment creditor with a sealed copy, the judgment creditor must serve the warrant on the third person.

Rule 842(1) of the UCPR says:

An enforcement warrant authorising redirection of a debt belonging to an enforcement debtor from a third person must be served on the third person to have effect.

There is no mention in the UCPR that a judgment creditor must serve the warrant on the judgment debtor.  However, there is a notice to the enforcement debtor on the draft warrant which says:

You may apply to the court to set this warrant aside or to stay its enforcement at any time.

It seems that it is implied in the Form 76 that the enforcement debtor be served a copy of the warrant.

Best practice – serve a copy on the enforcement debtor as soon as practicable after serving the third person.

Ordinary Service of Enforcement Warrant for Redirection of Debts

An enforcement warrant is not an originating application and so ordinary service is the mode of service.

Ordinary service is prescribed at rule 112 of the UCPR and can be performed by:

  1. Posting the warrant to the address of the third person;
  2. Leaving it with a person who looks over sixteen (16) years old;
  3. Leaving it at the address in a position where it is reasonably likely to come to the third person’s attention;
  4. Facsimile of email if permissible.

Best case, unless you can deliver it to the third person personally, express post to the address contained in the enforcement warrant.

Once served the third person has to comply with the warrant using reasonable diligence to give effect to the redirection.

If complied with, the warrant is valid for one (1) year after it was issued.

Section 91 of the Civil Proceedings Act 2011 (QLD) says:

An enforcement warrant ends 1 year after it issues unless the warrant states that it ends at an earlier time.

Failure to Comply with the Warrant

If the third person fails to act using reasonable diligence to comply with the enforcement warrant for redirection of debts, then there are a number of serious consequences.

Section 98 of the Civil Proceedings Act 2011 (QLD) says:

If a third person – does not comply with an enforcement warrant authorising redirection of a debt from the third person; and does not file a notice of objection; and fails to dispute the third person’s liability to pay the debt; the enforcement creditor has the same entitlement to enforce the debt as the enforcement debtor had.

There is also a notice to the third person on the Form 76 which says:

Failure to comply with this warrant may be contempt of court and may entitle the enforcement creditor to obtain an order against you.

So, it is very important that the third party comply with the enforcement warrant.

If the third person objects to the warrant, then it can make an application to set it aside.

Set Aside Enforcement Warrant for redirection of debts

Rule 819(1) of the UCPR says:

An enforcement debtor or another person affected by an enforcement warrant may apply to the court to set it aside or to stay enforcement at any time.

The application should be made by adapting the Form 9 application and providing supporting evidence by way of affidavit Form 46.

Once sealed, a copy of the documents will need to be served on the enforcement creditor and the enforcement debtor.

Rule 31(5) of the UCPR says:

An application must be filed and then served on each respondent at least 2 business days before the day set for hearing the application.

Claim by Other Person

The court may consider that another person claiming the benefit of the debt should be given the opportunity to be heard.

Rule 845 of the UCPR says:

This rule applies if a court considers that another interested person, including, for example, a person other than an enforcement debtor who may be entitled to all or a part of a redirected debt or to a charge or lien on it, should be given the opportunity to be heard.

The court may – order that notice of the hearing of the notice of objection be given to the other person; and at the hearing, decide the other person’s entitlement or give directions as to how the entitlement is to be decided.

Discharge of the Third Person

A payment to an enforcement creditor made by a third person in compliance with an enforcement warrant is a valid discharge of the third person’s liability to the enforcement debtor to the extent of the amount paid.

There is another similar warrant available under this Part, being a warrant for regular redirection from financial institutions, being Division 2 of Part 5.

Regular Redirection from Financial Institutions

A warrant for regular redirection from financial institutions is a warrant directed toward a third person (the financial institution) for a redirection of a regular deposit paid by a fourth person.

The Form for this warrant is Form 77.

Rule 847 of the UCPR says:

This division applies if – an enforcement debtor has an account with a financial institution (the “third person“); and a fourth person (the “fourth person“) regularly deposits earnings into the account (a “regular deposit“).

Rule 848 of the UCPR says:

“regular debt” means a debt, belonging to the enforcement debtor, from the third person because of a regular deposit by the fourth person.

The application is made in the same way as an application for a warrant for redirection of debts, except for the amendments required to ensure that it is an application made under this division.

Content of Enforcement Warrant for Regular Redirection

As well as the provisions outlined above the enforcement warrant for regular redirection must also include:

  1. The name of the financial institution;
  2. Details of the enforcement debtor’s account;
  3. The amount of the deduction to be made; and
  4. The name and address of the enforcement creditor.

See Rule 849 of the UCPR for more.

Once drafted correctly, filed and sealed with the Court’s seal, the enforcement creditor must serve the enforcement debtor and the financial institution.

Service of the Warrant for Regular Redirection

For the warrant to take effect, the enforcement creditor must serve the enforcement debtor and the financial institution.

Rule 850 of the UCPR says:

An enforcement warrant for regular redirection must be served personally or by post on the enforcement debtor and the financial institution.

Sending the warrant by express post with a delivery receipt should suffice, but to be 100% sure, then an enforcement creditor can engage a process server to personally serve the warrant.

Once served, the warrant comes into force after the seventh (7th) day after service is effected.

Complying with the Warrant for Regular Redirection

After that date, the financial institution must deduct from the account the amount specified in the warrant and pay it to the enforcement creditor within two (2) business days.

The enforcement debtor must keep enough funds in its account to pay the amount specified in the warrant.

The obligation under the warrant is discharged upon the total amount specified in the warrant being paid or the enforcement warrant is set aside, varied or expires.

Enforcement Warrant for Redirection of Debts

We strongly suggest that you engage a suitable qualified legal practitioner who specialises in the enforcement of money orders.

If you have a QCAT decision or adjudication decision which need to be registered in the Magistrates Court and enforced, or a judgment, direction, decision or determination of the Court to be enforced then contact our dedicated enforcement lawyers today.

There are a number of complicated steps that need to happen before a Court will issue an enforcement warrant for redirection of debts or an enforcement warrant for regular redirection from financial institutions. We strongly recommend engaging a legal professional.

There are a number of difficult steps that need to happen before the third person must comply with an enforcement warrant for redirection of debts. We strongly recommend engaging a qualified legal professional

FIXED FEES – DEDICATED TEAM – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

Wayne Davis Lawyer Sunshine Coast

Wayne Davis, LLB, GDLP – Commercial litigation solicitor and legal practice director at Stonegate Legal Pty Ltd. Stonegate Legal focus on commercial litigation, debt disputes, the enforcement of money orders, and insolvency. Committee member of the Sunshine Coast Law Association. Committee member and volunteer lawyer with the Sunshine Coast Community Legal Service.

stonegatelegal.com.au/

Recovering Debts or Money Owed

By //  by 

Debts or Money Owed

Do you need to collect debts or money owed to you?

You can recover debts or money owed in the following ways:

  1. Negotiating with the debtor;
  2. Mediation or alternative dispute resolution;
  3. Filing a claim in the Court with jurisdiction;
  4. Filing a claim in QCAT or another tribunal;
  5. Issuing a statutory demand on an insolvent company;
  6. Enforcing the judgment with an enforcement warrant;
  7. Enforcing the judgment with bankruptcy or liquidation.

This article will explain each of the above and give you information on the best way to recover debts or money owed by a person or debts or money owed by a company.

DEDICATED FOCUS – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

Negotiating with the Debtor

In the first instance, when trying to recover debts or money owed, we recommend trying to resolve the debt matter by negotiating with the debtor.

Non-payment of debts or money owed to you is very likely a breach of contract, and as such you will be entitled to legal (or equitable) remedies.  You can certainly highlight those remedies and foreshadow any relief that you will be entitled to as leverage on your side of the negotiation process.

Be mindful not to foreshadow relief that you are not entitled to!

You can’t tell the debtor that you will issue a statutory demand if the amount of the debt is below the statutory minimum.

Likewise, you cannot foreshadow bankruptcy if any future judgment would be less than the statutory minimum for a bankruptcy notice … and so on.

This is essentially what we do in a letter of demand.

Compromise or Settlement

As in any negotiation, there is an element of compromise.  To reach a resolution, you may be prepared to compromise for the debt and accept a lesser amount.

The rationale for this is because if you are forced to go to Court or engage a solicitor, then an award of costs (if any) will likely not cover the actual costs that you have spent, leaving a gap which you will be out-of-pocket.

If this gap is $2,000.00 for example, then you may be prepared to accept something up to $2,000.00 less than the debts or money owed in an attempt to resolve the matter early.

If the debtor accepts a $1,000.00 reduction in the debts or money owed, then this should not be seen as a $1,000.00 loss, but a $1,000.00 win because you are not put to the cost, stress, and time of commencing legal proceedings.

Part of the job of a debt recovery lawyer is to advise our clients on the commercial realities of their debt recovery matter. 

These compromise negotiations are conducted on a without prejudice basis.  See our article here on settling matters early.

Mediation or Alternative Dispute Resolution

If negotiations fail, or do not yield a satisfactory result, then you can attempt to mediate or attempt another form of alternative dispute resolution.

Mediation is a good way of attempting to resolve disputes without resorting to litigation through the Court system and incurring those costs.

A mediation is a structured process where an objective third-party mediator assists to resolve the disputes over debts or money owed.

The objective of the mediation is to reach an agreement and get the parties to sign a legally binding mediated agreement.

Of course, the debtor still needs to pay the debts or money owed after the mediated agreement is made.  If the debtor has breached one agreement by not paying the debts or money owed, then you should be mindful that the debtor could quite easily breach the mediated agreement too.

Filing a Claim in the Court with Jurisdiction

If all else fails, then you are able to commence legal action in the Court with jurisdiction.

The Courts have a monetary jurisdiction for debts or money owed:

  1. Magistrates Court – up to $150,000.00
  2. District Court – from $150,000.00 to $750,000.00
  3. Supreme Court – over $750,000.00

Proceedings to recover debts or money owed are commenced by filing and serving a claim and statement of claim.

If the debtor does not respond to your claim by filing and serving a defence within 28 days, then you can get judgment in default and commence enforcement proceedings.

If the debtor attempts to defend your claim or counterclaim, then you will likely be involved in protracted litigation unless you can obtain a summary judgment, or the parties agree to settle the matter and discontinue the proceedings.

The objective is to get a judgment or enforceable money order which you can enforce on the judgment debtor to force the debtor to pay their debts or money owed to you.

Another way to get an enforceable money order is to register a QCAT decision in the Magistrates Court.

Filing a Claim in QCAT or Another Tribunal

If you have a minor debt of under $25,000.00 then you can file a proceeding in the Queensland Civil and Administrative Tribunal (“QCAT”).

Similar to proceeding in the Courts, you must file and serve an application on the debtor.  If they respond, then it goes to a mediation and/or a hearing and the QCAT Member will decide on the amount of debts or money owed to you.

If the debtor does not respond, then you are able to obtain a decision in default.

The main advantages of commencing proceedings in QCAT are:

  1. It is a lot less expensive than commencing in the Court;
  2. The process can be a lot faster than the Court; and
  3. QCAT is designed for self-represented people.

The main disadvantages of commencing proceedings in QCAT are:

  1. The minor debt jurisdiction is mostly a no costs jurisdiction. This means that you will not be able to recover your costs save for a few designated items;
  2. Legal representatives do not have an automatic right of appearance. This means that if you want us to appear at a QCAT hearing, you will need the leave of the tribunal, which is not always given.

Once you obtain a decision in QCAT, you can register that decision in the Magistrates Court and it becomes an enforceable money order which can be enforced on the judgment debtor.

Enforcing the Judgment with an Enforcement Warrant

If you get an enforceable money order, then you can attempt to enforce that order with one of a number of different enforcement warrants.  The most common types of enforcement warrants are:

  1. Enforcement Warrants for Seizure and Sale of Property;
  2. Enforcement Warrants for Redirection of Debts; and
  3. Enforcement Warrants for Redirection of Earnings.

I will explain these in a little more detail below

Enforcement Warrants for Seizure and Sale of Property

A warrant for seizure and sale of property allows the Court bailiff to seize and sell personal and real property of the enforcement debtor.

The warrant relates to vehicles and real property predominately.  There are some strict requirements when applying for this type of enforcement warrant, and the bailiff is unable to seize exempt property.

Enforcement Warrants for Redirection of Debts

A warrant for redirection of debts directs a third party to make payment that are due to be paid to the enforcement debtor to the enforcement creditor.

Again, there are strict requirements for this type of warrant and it is best to obtain legal advice.

Enforcement Warrants for Redirection of Earnings

A warrant for redirection of earnings is a warrant directed at the enforcement debtor’s employer.  It orders that the employer direct the ordered amount of the enforcement debtor’s salary to be paid to the enforcement creditor as payment of the debts or money owed under the judgment or money order.

Again, there are strict requirements for this type of warrant and it is best to obtain legal advice from a suitably qualified debt recovery lawyer.

Enforcing the Judgment with Bankruptcy

If your debtor is a person (not a company) and you have a judgment of over $5,000.00 which is less than six (6) years old, then you can apply to the Official Receiver – the Australian Financial Security Authority (“AFSA”) for a bankruptcy notice.

The debtor has 21 days to comply with the bankruptcy notice or he/she would have committed an “Act of Bankruptcy”.

It is this act of bankruptcy which allows you to present a creditor’s petition to the Federal Circuit Court for a sequestration order making the debtor bankrupt.

The bankruptcy process involves the appointment of a bankruptcy trustee to administer the bankrupt estate of the debtor in an attempt to recover the debts or money owed to creditors.

The bankruptcy usually lasts for three (3) years.  In this time the bankruptcy trustee can void transactions and attempt to realise assets to pay a divided to creditors.

Issuing a Statutory Demand on an Insolvent Company

The it is a company that has the obligation to pay the debts or money owed, and the debts or money owed is over $2,000.00 then you can issue a creditor’s statutory demand on the debtor company.

A creditor’s statutory demand is a demand for payment pursuant to section 459E of the Corporations Act 2001 (CTH).

You do not need a judgment to be able to issue a statutory demand, however if there is a genuine dispute about the debt, or the debtor company has an offsetting claim, then a statutory demand without a judgment could be set aside.

The debtor company has 21 days after being served with the statutory demand to do any of the following:

  1. Pay the debt or debts in the statutory demand; or
  2. Secure or compound for the debt in the statutory demand; or
  3. Request that the demand is withdrawn; and/or
  4. Apply to set the demand aside.

If the debtor company does not do any of these things, then they are presumed to be insolvent and you can apply to wind the debtor company up in insolvency to recover the debts or money owed to you.

We offer professional advice and assistance in all things related to statutory demands

Issuing Statutory DemandsSetting Aside Statutory Demands

Enforcing the Judgment with Winding Up & Liquidation

As mentioned above, non-compliance with a statutory demand raises the legal presumption of insolvency.  This presumption assists a creditor with an application to wind up the company in insolvency.

The winding up application process is very complicated with strict timelines and needs to be provided by a debt recovery and insolvency lawyer.

The process includes making the application with a supporting affidavit, other affidavits, notices to ASIC, and a consent of the liquidator.

If the application goes unopposed then it is likely that you will get the order winding up the debtor company in liquidation.

The liquidator will bring the company to an end and attempt to realise an many of the assets as possible, including voiding any voidable transactions, to make a payment of the debts or money owed to company creditors.

DEDICATED FOCUS – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

Wayne Davis Lawyer Sunshine Coast

Wayne Davis, LLB, GDLP – Commercial litigation solicitor and legal practice director at Stonegate Legal Pty Ltd. Stonegate Legal focus on commercial litigation, debt disputes, the enforcement of money orders, and insolvency. Committee member of the Sunshine Coast Law Association. Committee member and volunteer lawyer with the Sunshine Coast Community Legal Service.

stonegatelegal.com.au/

How to Set Aside a Bankruptcy Notice

By //  by 

Set aside a bankruptcy notice in QueenslandDo you need to set aside a bankruptcy notice?

Non-compliance with a bankruptcy notice results in the debtor committing an “act of bankruptcy”.

An act of bankruptcy is one of the prerequisites to presenting a creditor’s petition in the Federal Circuit Court.

You have three (3) options if you are served with a bankruptcy notice, they are:

  1. Pay to the creditor the amount of the debt; or
  2. Make an arrangement to the creditor’s satisfaction for settlement of the debt; or
  3. Apply to set aside the bankruptcy notice.

This article explains how to set aside a bankruptcy notice, and gives you a complete guide on the procedure for setting the bankruptcy notice aside.

DEDICATED FOCUS – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

What is Required for a Bankruptcy Notice?

To understand whether or not you can set aside a bankruptcy notice, you will first need to understand the requirements for a bankruptcy notice.

Section 41 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) says:

(1)  An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:

(a)  a final judgment or final order that:

(i)  is of the kind described in paragraph 40(1)(g); and

(ii)  is for an amount of at least $5,000; or

(b)  2 or more final judgments or final orders that:

(i)  are of the kind described in paragraph 40(1)(g); and

(ii)  taken together are for an amount of at least $5,000.

Section 40(1)(g) of the Bankruptcy Act describes the judgment debt as:

final judgment or final order, being a judgment or order the execution of which has not been stayed

A final decision of the QCAT, which is also a monetary decision, that has also been filed in the registry of a court of competent jurisdiction (in accordance with section 131 of the Queensland Civil and Administrative Tribunal Act 2009) is a “final judgment or final order” for the purposes of section 41(1) of the Bankruptcy Act.

In Ferris v Queensland Building and Construction Commission [2015] FCCA 176 the applicant in an application attempting to set aside a bankruptcy notice on three (3) grounds, one of which was that the respondent did not have a final judgment or a final order against the applicant for the purposes of ss.40(1)(g) and 41 of the Bankruptcy Act.

Ferris argued that the UCPR Form 1 and the QCAT decision it was attached to, were not final judgments or final orders, and applied to set aside a bankruptcy notice.

The Judge Jarrett said:

The focus in this case on s.131 of the Act has been apt to distract from the more important question, namely whether a final decision of QCAT is, of itself, a final judgment or final order for the purposes of ss.40(1)(g) and 41 of the Bankruptcy Act. In my view they are either a final judgment or final order for the purposes of ss.40(1)(g) and 41 of the Bankruptcy Act. I do not need to decide which.

The application to set aside the bankruptcy notice was dismissed with costs.

So, a bankruptcy notice is founded on a final judgment or final order (which includes a registered QCAT decision) for $5,000.00 or more, the execution of which has not been stayed.

Section 41(3) of the Bankruptcy Act then says:

A bankruptcy notice shall not be issued in relation to a debtor … in respect of a judgment or order for the payment of money if … a period of more than 6 years has elapsed since the judgment was given or the order was made

So, the final judgment or final order cannot be older than six (6) years old.

Finally, section 41 of the Bankruptcy Act says:

The notice must be in accordance with the form prescribed by the regulations.

Regulation 4.02 of the Bankruptcy Regulations 1996 (Cth) (“Bankruptcy Regulations”) says:

4.02 Form of bankruptcy notices

(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.

(2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).

The Form 1 is contained in schedule 1 of the Bankruptcy Regulations.  See the bottom of this article for the Form 1 Bankruptcy Notice.

We will now discuss how to set aside a bankruptcy notice.

Application to Set Aside a Bankruptcy Notice

Rule 3.02 of the Federal Court (Bankruptcy) Rules 2016 (Cth) (“Bankruptcy Rules”) says:

(1)  An application to set aside a bankruptcy notice under the Bankruptcy Act must be accompanied by an affidavit stating:

(a)  the grounds in support of the application; and

(b)  the date when the bankruptcy notice was served on the applicant.

(2)  A copy of the bankruptcy notice must be attached to the affidavit.

The Application form to set aside a bankruptcy notice is the Form B2

The Affidavit to set aside a bankruptcy notice is the Federal Circuit Court Affidavit

Filing Fees for Federal Circuit Court Application

The application in the Federal Circuit Court for an application to set aside a bankruptcy notice are found on the Federal Circuit Court website.  The current fee (at the time of writing this article is $1,565.00. 

We strongly advise engaging a bankruptcy solicitor if you want to make an application to set aside the bankruptcy notice, to increase your chances of success, and avoid adverse costs orders if you are unsuccessful.

How to Set Aside a Bankruptcy Notice

There are four (4) main grounds to set aside a bankruptcy notice, they are:

  1. There is a defect in the notice; and/or
  2. The judgment debt allowing the notice is disputed; and/or
  3. The debtor has a cross-demand, set-off, or counterclaim which is equal to, or more than the judgment debt; and/or
  4. The notice is an abuse of process.

I will explain these grounds in more detail below.

Defect in the Bankruptcy Notice

Bankruptcy notices are issued directly from the Australian Financial Security Authority (“AFSA”).  When applying to AFSA for a bankruptcy notice, you will have to ensure that everything is correct, because a bankruptcy notice can be set aside if it contains a defect.

However, section 306 of the Bankruptcy Act says:

Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

So, as in a defect in a statutory demand, a defect in a bankruptcy notice will only allow the notice to be set aside, if substantial injustice has been caused.

In Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34 the High Court of Australia said:

The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice

They reversed the previous decision in Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915 and said that a bankruptcy notice may not be set aside if the defect was “formal” rather than “substantive“. To be substantive, the High Court said that the defect be:

objectively capable of misleading the debtor as to what is necessary for compliance with the notice

In Adams v Lambert (2006) 228 CLR 409 the High Court of Australia said:

The composite expression “a formal defect or an irregularity”, in its application to a bankruptcy notice, conveys a meaning with elements of both inclusion and exclusion.

So a defect can be something which is in the notice but should not be, or something which is not in the notice that should be.  Also, it must include essential requirements and must not mislead or confuse a judgment debtor.

Types of Defects in a Bankruptcy Notice

Failure to attach the judgment

In Curtis v Singtel Optus Pty Ltd & Anor [2014] FCCA 1286 the judgment debtor applied to have the notice set aside as the judgment did not “attach” judgment/order founding the notice.  Judge Lloyd-Jones of the Federal Circuit Court followed a long line of precedents and said:

Reg. 4.02(2) provides that the bankruptcy notice must follow Form 1 in respect of its format but that regulation is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act. Thus, despite the use of the word “must” in regulation 4.02(2) strict compliance with Form 1 is not required.

… The application should be dismissed with costs awarded to the respondents.

Incorrect legislative provision for interest calculation

In Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915 the applicant alleged that because the prescribed form requires statement of provision under which interest claimed, incorrectly naming that provision allows for the bankruptcy notice to be set aside.  In their joint decision Black CJ, Heerey and Sundberg JJ said:

Could it be said that incorrect citation of the statute that prescribed that interest was payable by the debtor on a judgment debt could mislead the debtor as to the steps to be taken by the debtor to comply with the notice? The answer, obviously, is no … The bankruptcy notices are not invalid and the petitions must be set down for further hearing.

Incorrect calculation for Interest

Section 41(5) of the Bankruptcy Act says:

A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.

In Miao v Owners Corporation SP 31235U [2015] FCA 352 Beach J said:

Even if there was an error made in the interest calculations as claimed in the bankruptcy notice, in my view, such a defect would not invalidate the bankruptcy notice. Section 41(5) makes this clear (there was no notice at the relevant time), as does s 306 of the Act.

Misspelling of a Debtor in the Bankruptcy Notice

In Matheson v Scottish Pacific Business Finance Pty Ltd [2005] FCA 670 Kiefel J said:

Mr Matheson has referred me to the definition of ‘legal name’ in Black’s Law Dictionary … as ‘a person’s full name as recognised in law’. That does not however mean that a court document such as a bankruptcy notice or petition is void if the full legal name of the person is not provided. There is no doubt that Mr Matheson is the person named in the District Court proceedings and in these proceedings and that he has understood that to be the case. He has represented himself and appeared. There was no ambiguity created by the bankruptcy notice or petition. In any event if there was an irregularity in the mode of description, it is of a formal nature and one that can be validated by s 306(1) of the Bankruptcy Act … In my opinion, the petition notice does not cause any injustice as it was not likely to mislead the debtor.

Creditor’s Solicitor as the Address for Payments

In E A Pugliese v The Chase Manhattan Bank Australia Limited [1993] FCA 454 Heerey J said:

The requirement of providing the address of the creditor was satisfied in this case by giving the address of the creditor’s solicitors, since that was a place where payment of the debt would be accepted, even though it was not a place where the creditor carried on business.

PO Box is not an address for service

In David Sarikaya v Victorian Workcover Authority [1997] FCA 1372 Black CJ said:

A post office box is not, in my view, the “address of a place” at which a document may be “left” for a person … Whether or not such a box is, in this context, the “address of a place”, it is not the address of a place at which a document may be “left” by way of service.

Others examples include:

James v Federal Commissioner of Taxation [1955] HCA 75 where a notice wrongly sought to restrict the debtor to paying debt to creditors at one particular place.

Re Gyngell; Ex parte Speedo Group Limited (1990) 27 FCR 531 where the notice contained the incorrect requirement that judgment debt be paid to Registrar of Local Court.

Re Beauchamp; Ex parte Beauchamp [1904] 1 KB 572 where the bankruptcy notice included the wrong address of creditor.

Re Celestine; Ex parte Monte Paschi Australia Ltd (1997) 71 FCR 399 where the bankruptcy notice contained the incorrect address of court.

As well as the bankruptcy notice being set aside for being defective, a notice can also be set aside if the judgment debt is disputed.

The Judgment Debt is Disputed

A judgment debt is disputed by either:

  1. Paying the debt; or
  2. Applying to set aside the judgment or order which the bankruptcy notice is based on.

Section 41(6A) of the Bankruptcy Act says:

(6A)  Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:

(a)  proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

(b)  an application has been made to the Court to set aside the bankruptcy notice;

the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.

Section 41(6C) of the Bankruptcy Act says:

(6C)  Where:

(a)  a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and

(b)  the Court is of the opinion that the proceedings to set aside the judgment or order:

(i)  have not been instituted bona fide ; or

(ii)  are not being prosecuted with due diligence;

the Court shall not extend the time for compliance with the bankruptcy notice.

So, in an application to set aside, or extend time for compliance, the application to set aside the judgment must have been filed in the correct Court, and the affidavit material must raise genuine and arguable grounds for a defence which must have sufficient prospects of being successful.

Applications under this section cannot be made simply for the purpose of stalling the bankruptcy proceedings.

A judgment debtor may also have a cross-demand, set-off, or counterclaim.

Cross-demand, Set-off, or Counterclaim

Section 40(1)(g) of the Bankruptcy Act says in relation to a judgment, a debtor who can:

… satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained …

Rule 3.02(3) of the Federal Court (Bankruptcy) Rules 2016 says:

If the application is based on the ground that the debtor has a counter-claim, set-off or cross demand referred to in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:

(a)  the full details of the counter-claim, set-off or cross demand; and

(b)  the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and

(c)  why the counter-claim, set-off or cross demand was not raised in the proceedings that resulted in the judgments or orders to which the bankruptcy notice relates.

To satisfy this section of the Bankruptcy Act, the counter-claim, set-off or cross demand must:

  1. Be equal to or exceed the amount of the judgment debt or sum payable under the final order; and
  2. Why it could not have set up in the action or proceeding in which the judgment or order was obtained; and
  3. Annex all of this evidence in an application to set the bankruptcy notice aside.

The relevant legal principles are contained in the case law.

In Guss v Johnstone [2000] HCA 26 the High Court of Australia said:

The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.

In Vogwell v Vogwell (1939) 11 ABC 83 the Court decided that:

The offsetting claim must sound in money and it must be a claim that it is proper and reasonable for the debtor to litigate

In Ebert v Union Trustee Company of Australia Ltd [1960] HCA 50 the High Court considered the necessity for cross demand to be in same right (as trustee for example). The High Court of Australia said:

These considerations are enough to show in detail why it is that the appellant debtor does not possess a cross demand against the respondent trustee company.

In Glew v Harrowell, in the matter of Glew [2003] FCA 373 Lindgren J summarized it perfectly by saying that the Court must be satisfied of the following interrelated and sometimes overlapping matters:

  1. They have a “prima facie case”; and
  2. They have “a fair chance of success” or are “fairly entitled to litigate” the claim; and
  3. They are advancing a “genuine” or “bona fide” claim.

Even if a judgment debtor cannot safisfy the requirements of the three (3) ways to set aside a bankruptcy notice mentioned above, the issuance of the bankruptcy notice may still be an abuse of process.

The Bankruptcy Notice is an Abuse of Process

In Lindholdt v Merritt Madden Printing Pty Ltd [2002] FCA 260 Weinberg J said:

It has been held that this Court can set aside a Bankruptcy Notice as an abuse of process in the exercise of its inherent jurisdiction … For example, if it is apparent that the purpose of a Bankruptcy Notice is to put pressure on a debtor to pay a debt rather than to invoke the Court’s insolvency jurisdiction, then the filing of the Bankruptcy Notice is itself an abuse of process.

It has been determined that an abuse of process usually falls into one of three categories succinctly outlined in Rogers v R [1994] HCA 42 following HWY Rent Pty Ltd v HWY Rentals (in liq) (No.2) [2014] FCA 449 when Judge Antoni Lucev said the three categories are:

  1. The Court’s procedures are invoked for an illegitimate purpose; and/or
  2. The use of the Court’s procedures is unjustifiably oppressive to one of the parties; and/or
  3. The use of the Court’s procedures would bring the administration of justice into disrepute.

In Williams v Spautz [1992] HCA 34 the High Court of Australia said that an abuse of process is:

when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed

In Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616 Gordon J summerised the applicable principles:

There is a heavy onus on the person alleging the abuse of process. In any particular case, whether there is a use of the process or an abuse of it depends upon the purpose rather than the result … To establish abuse of process, more than mere assertion is required … It is an abuse of process for a judgment creditor to pursue bankruptcy proceedings “for the purpose of stifling litigation” … So, for example, if the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court’s jurisdiction in relation to insolvency, then the filing of a bankruptcy notice is an abuse of process.

Set aside a Bankruptcy Notice Summary

If you want to set aside a bankruptcy notice, you will need to prove:

  1. There is a defect in the notice; and/or
  2. The judgment debt allowing the notice is disputed; and/or
  3. The debtor has a cross-demand, set-off, or counterclaim which is equal to, or more than the judgment debt; and/or
  4. The notice is an abuse of process.

If you cannot, then it is unlikely that the bankruptcy notice will be set aside.

DEDICATED FOCUS – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

Bankruptcy Notice Form 1

Bankruptcy Notice 1

Bankruptcy Notice 2

Bankruptcy Notice 3

DEDICATED FOCUS – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

Wayne Davis Lawyer Sunshine Coast

Wayne Davis, LLB, GDLP – Commercial litigation solicitor and legal practice director at Stonegate Legal Pty Ltd. Stonegate Legal focus on commercial litigation, debt disputes, the enforcement of money orders, and insolvency. Committee member of the Sunshine Coast Law Association. Committee member and volunteer lawyer with the Sunshine Coast Community Legal Service.

stonegatelegal.com.au/