The Law of Bankruptcy Notices and Creditors’ Petitions

Q & A with Nicholas Simpson

Gaining an understanding of the law of bankruptcy has become a necessity during 2020. COVID 19 has dealt many sectors and individuals unexpected risk and concerns related to bankruptcy, insolvency and creditors petitions. Decoding and anticipating the consequences of COVID related legislation and policy is a critical skill. We took the opportunity to ask Nicholas Simpson of 13th Floor St James Hall, author of the new text The Law of Bankruptcy and Creditors’ Petitions some key questions.

Q: What are the key short-term impacts of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPOA) in relation to bankruptcy?

For the Bankruptcy Act 1966 (Cth), one of the key short-term impacts of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) was the increase in the statutory minimum and statutory period for compliance with respect to bankruptcy notices. For a valid bankruptcy to be issued the outstanding debt must now be $20,000 (having previously been $5,000) and the period of compliance is 6 months rather than 21 days. Those measures were set to expire on 15 October 2020, however the time has been extended to 31 December 2020.

Q: Do you anticipate an increase in bankruptcy filings post 2020?

It is more than likely than not that creditors will issue bankruptcy notices once the temporary measures have come to an end or even towards the end of the temporary relief period. That will create huge increases in proceedings being filed before the Federal Court and Federal Circuit Court seeking sequestration orders. No doubt it will also result in substantial lodgements of debtor’s petitions with the Australian Financial Security Authority. Obviously, the Government’s approach to extending the temporary measures have been drawn from these very issues, however the noted outcomes seem inevitable.

Q: How is remote access affecting Bankruptcy practice – are there any special challenges for this area with remote technology?

The move to remote technology has been a steep learning curve for practitioners, particularly in relation to court appearances. The preference by the courts, save for exceptional circumstances, is to conduct hearings remotely. Such a preference can be problematic when issues of credit loom large. In my experience, the more challenging aspects have related to audio problems and inconsistent internet connection, which are unique to this process. All that being said, the courts should be applauded for the almost overnight changes that they have had to accommodate to ensure that proceedings are able to continue.

Q: There are 29 very helpful precedents in your book relating to Bankruptcy and Creditor’s petitions – do you have a top drafting tip?

Always use your precedents as a baseline or guide. They must always thereafter be used according to the facts of your case. Tailor them and ensure that their relevance stands out. That, I hope, is how the precedents in my book are used.

Q: What cases do you think have been most critical/pivotal to the development of bankruptcy law in Australia?

There are two cases that spring to mind that have critically developed the law of bankruptcy in Australia. The first is Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71. In Kleinwort, the High Court settled the law in relation to whether a general failure to comply with the essential requirements of the Bankruptcy Act for the purpose of a bankruptcy notice rendered it a nullity. The second case is Adams v Lambert (2006) 228 CLR 409, which considered whether misstatements in the bankruptcy notice could be regarded as formal defects and be saved by section 306(1) of the Act. In short, the Court held that what was relevant to section 306(1) was whether the debtor had been misled as to what was required to comply with the notice. Both decisions together clarify that a bankruptcy notice will be invalid if it doesn’t comply with the Act or misleads the debtor in terms of how they are required to comply. The significance of those decisions cannot be overstated.

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Nicholas Simpson was called to the Bar in 2015 after practising as a commercial litigation solicitor in corporate insolvency, bankruptcy and real property. Before commencing practice as a solicitor, Nicholas worked as the Common Law Researcher to the Supreme Court of New South Wales, principally working for the then Chief Judge at Common Law, the Honourable Justice Peter McClellan AM. Nicholas is the author of The Law of Bankruptcy Notices and Creditors’ Petitions (2020) and is a contributing author to the LexisNexis, Bankruptcy Law and Insolvency Practice looseleaf. He regularly delivers lectures and papers on developments in commercial law and has also taught at the University of Sydney and Australian Catholic University.

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