By Sally Nash
Sally is acknowledged as a leading insolvency lawyer in New South
Wales. She was admitted to practice in 1977 and has practiced in
insolvency, dispute resolution and litigation and debt recovery litigation
since that time.
Sally practices in all New South Wales State and Australian Federal
Courts involving debt recovery, commercial and insolvency litigation
and acts for creditors, Trustees, Liquidators, bankrupts and directors.
She also has extensive experience acting for secured creditors in the
enforcement of their securities. Sally has been involved in many
leading cases and is highly regarded by the profession, her clients and
fellow practitioners.
Sally is a member of the Law Society of NSW, Law Council of Australia
and the Commercial Insolvency and Reconstruction Committee. Sally
also lectures to clients and the profession and is a regular conference
speaker.
Areas of expertise:
 Debt Recovery
 Insolvency and reconstruction
 Dispute resolution and litigation
 Corporate and commercial
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Factory equipment which is probably charged to the provider or financier under PPSR.
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It is necessary to check the PPSR, particularly as the PPSA was amended 25 June 2015 to
change hiring equipment as leases being effective from 25 December 2015 (if not before).
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Deemed leases or bailments (for value) of serial numbered goods for a term of 90 days or
more do not require registration unless the bailment is for a term of more than 12 months.
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Leases or bailments for less than 12 months will only give rise to a security interest if they “in
substance” secure payment or performance of obligations.
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If there is no PPSR registration then the plant, equipment and chattels will be owned by the
company unencumbered.
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If on the other hand there is a PPSR registration the secured creditor has the benefit of the
security.
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Beware of the transitional provisions.
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Motor vehicles are the most obvious equipment but usually over encumbered under lease
arrangements.
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Computers and technology are often of no value due to change in technology. Backups and
hard drives containing client lists and financial information will be of value if the business is to
be sold or if the liquidator is to complete his full investigations.
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Blueprints
Pots and pot plants – assets that can walk out
the door with employees or directors.
Determining land with vacant possession or
with goods belonging to third parties
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These third party loans may be secured or unsecured.
If secured the company may hold the Certificate of Title
pursuant to a registered mortgage. Enforcement and sale
is a remedy if there is a default.
If the loan is unsecured or secured by an equitable charge
e.g. as a condition of a trading account enforcement can
be by Court order for the appointment of Trustees for Sale
or debt recovery.
Security clause “the customer hereby charges all property
both real and personal in favour of the creditor for security
for goods sold and/or services rendered”.
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Upon liquidation the financial books and records
of the company are examined.
Directors often do not draw a salary but pay all of
their personal expenses through the company.
The accountant attributes these to a loan by the
company to the director whereas it might more
accurately be a wage which has been set out as a
loan to avoid PAYG tax and reporting
implications.
However on a liquidation it is probable that the
director does not have the funds to repay.
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A lease of 3 or more years must be registered
in NSW. A valuable site or a valuable lease
may be an asset.
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Giles Geoffrey Woodgate
Fawcett [2008] NSWSC 868
v
Helen
Margaret
The company is either insolvent at the time of the
transaction or became insolvent because of the
transaction.
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No financial benefit to the company or actual
detriment to the company.
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The parties should have known or suspected the
company was insolvent.
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Section 58 of the Bankruptcy Act
Bankrupt owned at the date of bankruptcy
Property acquired during the bankruptcy
After acquired property
Bankruptcy 3 years but current senate enquiry may reduce to 12 months
Bankruptcy may be extended up to 5 or 8 years
Section 116(2) non-divisible property
Bankrupt’s household properties e.g. TV, lounge
Sentimental property
Tools of trade – does not include expensive wine cellar!
Vehicle used by bankrupt as a means of transport (limitation $6,800)
Life insurance or endowment policy
Regulated superannuation fund or payments made on or after date of bankruptcy
Superannuation income splitting orders under Family Law Act
Retirement savings account
Damages, compensation, personal injuries or wrong done including defamation, workers
compensation and accident cases
State grants – Will
Nicholls v Sheaffe & Anor [2003] FMCA 387
Sections 116(2)(m), 116(3), 116(4)
Property acquired wholly or partly with protected monies
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The family home is NOT protected in a bankruptcy, nor in a liquidation
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Jointly owned property is not protected
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The joint tenancy is severed on bankruptcy
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The Trustee in Bankruptcy is transmitted interest under Section 132(3) of
the Bankruptcy Act. Until transmission the bankrupt holds the interest
on trust for the Trustee.
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Section 66G of the Conveyancing Act (NSW) - Coshott v Prentice [2014]
FCAFC 88
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The bankrupt’s home can be sold even if the bankrupt only has a part
interest and even if the co-owner claims more than 50%.
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Bankruptcy Regulation 16.03 – inventory of property
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Section 129AA of the Bankruptcy Act
Property re-vests unless notice is given, 6
years after discharge i.e. if the property is not
realised it re-vests in the bankrupt
Section 127 – 20 year limit, a claim not be
made by the Trustee to any property of the
bankrupt
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Shares vest whether in public or private
companies.
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In a public company the shares can be sold
on the ASX.
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As a private company there may be no value
in the shares but if the corporation owns
assets or a business there may be value in a
just and equitable winding up under Section
461(1)(k) of the Corporations Act.
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The right to have a deceased estate
administered occurs on death not on probate
or administration.
Official Receiver In Bankruptcy v Schultz
[1990] HCA 45
It is often overlooked either in the Statement
of Affairs or as an after acquired asset in the
bankruptcy
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Commonly claims against solicitors or
accountants who have professional indemnity
and policy
Tapp v LawCover Insurance Pty Ltd [2013]
FCA 35
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Sections 120, 121, 122 and 123 of the
Bankruptcy Act
Undervalued transactions – often to a spouse
within 2 – 4 years of bankruptcy – 5 years
Transfers with the
creditors, Section 121
intention
to
defeat
Transfers where no consideration was paid
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If a spouse is bankrupt then property rights
are determined under the Family Law Act
notwithstanding other vesting under Sections
58 and 116 of the Bankruptcy Act.
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Income tax refunds due prior to bankruptcy vest in the Trustee
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Income is not property
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Income is assessed for income contributions over a threshold
plus percentage increases for dependents.
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Income may change its character to property e.g. where acquired
for shares or in a bank account
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Rodway v White [2009] WASC 201
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Di Cioccio v Official Trustee in Bankruptcy [2014] FCA 782
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Current base income threshold amount no dependents net of tax
$53,653.60, over 4 dependents $72,968.90
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Transfers void – Sections 128A, 128B and 128C of the
Bankruptcy Act
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Freezing notice
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Payments into superannuation fund by bankrupt
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Section 139ZQ Notice
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Official Trustee in Bankruptcy v Trevor Newton Small
Superannuation Fund Pty Ltd [2001] FCA 1267
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Coshott v Coshott [2013] FCA 907
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Section 60 of the Bankruptcy Act
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Proceedings stayed
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Trustee to make an election in writing to prosecute or
discontinue
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Trustee has 28 days if served with a notice under Section 60(3)
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Bankrupt has no standing to take a number of actions
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Sarkis v Moussa [2012] NSWCA 136
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Cummings v Claremont Petroleum [1996] HCA 19
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Liprini v Liprini [2012] FMCA 666
State Court schedule of vexatious litigants –
many bankrupts e.g. Peter Gargan, Con
Tsekouras, Russell Jarvie, Lucy Klewer, Alan
Liprini, Ron Wilson
Vexatious litigants often do not recognise the
intervention of bankruptcy by Sequestration
Order and their bankruptcy is not ever
determined because they never file a Statement
of Affairs