The number of companies entering into external administration for the past five years follows:

An analysis on a state-by-state basis for calendar year 2011 reveals significant problems for Tasmania (up 82% on the average of the previous five years) and Western Australia (up 70%). There is a more moderate increase in insolvencies for Victoria (up 21%), South Australia (up 36%) and Queensland (up 38%). New South Wales is only up 9%.

Interestingly, there has not been a significant increase in Queensland insolvency numbers since the floods in January 2011. For the 11 months to November in 2011 there have been 1,895 Queensland insolvencies compared to 1,826 for the same period in 2010, being an increase of only 4%.

Despite the full year result, total company collapses for December 2011 fell markedly; down 22.4% from 983 in November to 763 attributable to the fact that December is a shorter trading month. Notably, all states and territories recorded a fall in company collapses in December with South Australia and Western Australia falling by 66.7% and 51.1% respectively.
Treasurer Wayne Swan said in the 2011-2012 Mid-Year and Fiscal Outlook: “Global developments have impacted on our share market, on trade outside of the mining sector and on confidence, with consumers becoming more cautious and businesses more reluctant to expand their workforce in the current uncertain global environment”.

Businesses have experienced significant pressure as a result of higher interest rates, increased enforcement actions by the Australian Tax Office, low consumer confidence, higher rates of saving and the historically high Australian dollar.

If your business is experiencing tough times as a result of the global economic market, call Irish Bentley Lawyers to discuss your options. It is important that you seek legal advice on the options available for your company, and also to minimise the chance that your Directors will be personal liable for tax and other debts.

There is a common misconception that “going bankrupt” is an easy way to escape your debts.
Nothing could be further from truth.

A recent Federal Court decision (Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54) highlighted the consequences to a bankrupt of not cooperating.
This is the focus of this article, and this case concerns an application by Mr Mulhern (a bankrupt) to travel to Ireland to attend his father’s funeral, notwithstanding a long history of failing to co-operate with his trustee despite being required to by the Bankruptcy Act.

Before going into the details of this case, it is worth outlining why bankruptcy should be avoided (if possible), and why you should seek legal advice on your options before making any decisions.
Irish Bentley Lawyers offer a $300 fixed fee consultation to discuss all issues associated with bankruptcy.

Firstly, bankrupts have a raft of long term issues to deal.
Obviously anyone who is an ex-bankrupt have bad credit ratings and will therefore have difficulty(throughout their life) securing loans, mobile phone contracts etc.
They will pay significantly higher interest on any loans that they can get.
Ex-bankrupts also experience difficulty:

1. Securing loans and overdrafts.
2. Getting leases.
3. Finding business partners.
4. Zpplying for visas.
5. Applying for real estate licenses and membership to professional bodies.

Secondly, during the bankruptcy, Bankrupts have a number of duties which they must comply with to help the trustee – for example, bankrupts must:

1. Detail all of their assets and interests.
2. Disclose any financial matters that arise during their bankruptcy.
3. Transfer any inheritances received during the bankruptcy, to the trustee.
4. Assist with any examination of their affairs.
5. Seek permission before they travel.
6. Be removed as directors of any companies.

Obviously the above issues are not exhaustive.

The recent Federal Court decision (Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54) highlighted the consequences to a bankrupt of not cooperating.
The case concerns an application by Mr Mulhern (a bankrupt) to travel to Ireland to attend his father’s funeral, notwithstanding a long history of failing to coopoerate with his trustee.

Bankrupts are required to seek the permission to travel in any event.
Prior to seeking permission, there was a long history of Mr Mulhern not cooperating with his trustee.
Indeed, the trustee had successfully applied for separate arrest warrants to be issued to compel Mr Mulhern to cooperate:

1. On 9 August 2011, Justice Logan issued a warrant for Mr Mulhern’s arrest under s 78 of the Bankruptcy Act: see Pearce (Trustee) v Mulhern (Bankrupt)
2. The bankruptcy would be seriously hampered by reason of the travel which is now proposed.
3. Mr Mulhern completed a statement of affairs on 12 March 2010, and, with his cooperation, this proceeding could have been far more advanced than it is today.
4. The Trustees gave genuine and anxious consideration to Mr Mulhern’s request and decided, in all of the circumstances, that it should not be acceded to. I share the Trustees’ view and am not persuaded that it would be just and equitable, for Mr Mulhern to travel.

For a full account of the decision, the link is: Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54

If you are having personal cash flow issues, then book a fixed fee consultation with Irish Bentley Lawyers to discuss your options including part X and part IX arrangements, and bankruptcy.

It is important that you seek advice on all of your options, and he pros and cons of each option before making any decisions.

ATTORNEY: What was the first thing your husband said to you that morning?
WITNESS: He said , ‘Where am I, Cathy?’
ATTORNEY: And why did that upset you?
WITNESS: My name is Susan!

ATTORNEY: What gear were you in at the moment of the impact?
WITNESS: Gucci sweats and Reeboks.

ATTORNEY: Are you sexually active?
WITNESS: No, I just lie there.

ATTORNEY: This myasthenia gravis, does it affect your memory at all?
WITNESS: Yes.
ATTORNEY: And in what ways does it affect your memory?
WITNESS: I forget.
ATTORNEY: You forget? Can you give us an example of something you forgot?

ATTORNEY: Do you know if your daughter has ever been involved in voodoo?
WITNESS: We both do.
ATTORNEY: Voodoo?
WITNESS: We do..
ATTORNEY: You do?
WITNESS: Yes, voodoo.

ATTORNEY: Now doctor, isn’t it true that when a person dies in his sleep, he doesn’t know about it until the next morning?
WITNESS: Did you actually pass the bar exam?

ATTORNEY: The youngest son, the 20-year-old, how old is he?
WITNESS: He’s 20, much like your IQ.

ATTORNEY: Were you present when your picture was taken?
WITNESS: Are you s*itting me?

ATTORNEY: So the date of conception (of the baby) was August 8th?
WITNESS: Yes.
ATTORNEY: And what were you doing at that time?
WITNESS: Getting laid

ATTORNEY: She had three children, right?
WITNESS: Yes.
ATTORNEY: How many were boys?
WITNESS: None.
ATTORNEY: Were there any girls?
WITNESS: Your Honor, I think I need a different attorney. Can I get a new attorney?

ATTORNEY: How was your first marriage terminated?
WITNESS: By death..
ATTORNEY: And by whose death was it terminated?
WITNESS: Take a guess.

ATTORNEY: Can you describe the individual?
WITNESS: He was about medium height and had a beard
ATTORNEY: Was this a male or a female?
WITNESS: Unless the Circus was in town I’m going with male.

ATTORNEY: Is your appearance here this morning pursuant to a deposition notice which I sent to your attorney?
WITNESS: No, this is how I dress when I go to work.

ATTORNEY: Doctor, how many of your autopsies have you performed on dead people?
WITNESS: All of them … The live ones put up too much of a fight.

ATTORNEY: ALL your responses MUST be oral, OK? What school did you go to?
WITNESS: Oral …

ATTORNEY: Do you recall the time that you examined the body?
WITNESS: The autopsy started around 8:30 PM
ATTORNEY: And Mr. Denton was dead at the time?
WITNESS: If not, he was by the time I finished.

ATTORNEY: Are you qualified to give a urine sample?
WITNESS: Are you qualified to ask that question?

ATTORNEY: Doctor, before you performed the autopsy, did you check for a pulse?
WITNESS: No.
ATTORNEY: Did you check for blood pressure?
WITNESS: No.
ATTORNEY: Did you check for breathing?
WITNESS: No.
ATTORNEY: So, then it is possible that the patient was alive when you began the autopsy?
WITNESS: No.
ATTORNEY: How can you be so sure, Doctor?
WITNESS: Because his brain was sitting on my desk in a jar.
ATTORNEY: I see, but could the patient have still been alive, nevertheless?
WITNESS: Yes, it is possible that he could have been alive and practicing law.

Secondly the area is specialized, and your choice of lawyer and/or administrator/liquidator is absolutely critical.

Indicators of financial difficulty:

1. Receiving payment demands and Court proceedings.
2. Receiving statutory demands at your registered office.
3. The company owes tax, PAYG or superannuation amounts.
4. Receiving director’s penalty notices from the ATO.
5. Paying creditors in rounded amounts, not attributable to particular invoices.
6. Being placed on “Cash on Delivery” terms.
7. Entering into payment arrangements.
8. Lack of cash in the bank or liquid assets.

We can work with you in times of financial distress.

Voluntary Administration

The directors can appoint an administrator to run the company to see if the company can be rescued.

A Deed of Company Arrangement can be proposed.

Typically this involves someone offering to pay money into the company, so that the company can trade on, with creditors receiving a higher percentage of the debt than they would through a liquidation.

Once proposed, the creditors will vote, and if they accept the Deed, then the company will continue to operate pursuant to the terms of the Deed.

If the Deed is not accepted, then the company is likely to be placed into liquidation.

Creditors’ Voluntary Liquidation

A creditors’ voluntary liquidation is the most efficient and cost-effective form of liquidation.

It requires the consent of both the directors and 95% of the shareholders.

Shortly after, the company will cease trading and the liquidator will seek to recover the company’s assets for the benefit of the company’s creditors and shareholders.

Part of this process will involve reversing preferential payments and uncommercial transactions.

Debtor’s Petitions

(declaring bankruptcy voluntarily)

When an individual cannot pay their debts as they fall due, the individual can present a debtor’s petition to have a trustee appointed to their estate.

Declaring bankruptcy provides the individual with relief from the stress of ongoing demands from creditors.

Most debts captured in the bankruptcy will not need to be repaid by the individual (subject to some exclusions, including HECS debts).

The individual will usually be discharged from bankruptcy three years later.

If the bankrupt receives an inheritance during the bankruptcy, then those monies will be paid to the trustee, who will share same with everyone owed money.

If the bankrupt receives money from a personal injury action, or defamation action, then those monies go direct to the bankrupt.

The trustee can reverse certain transactions and payments.

It is important to get advice before appointing a trustee to understand the various issues with same.

Where possible, bankruptcy should be avoided as it will severely damage your credit rating, business reputation and freedom.

Part IX and Part X Debt Agreements

An insolvent individual can propose a Part IX or Part X debt legally binding agreement to their creditors, as an alternative to bankruptcy.

Such agreements can provide the individual with additional flexibility and protection which is not normally afforded to the individual.

Where such an agreement is accepted by creditors, the agreement provides the individual with relief from the stress of ongoing demands from creditors.

Irish Bentley Lawyers can assist you by advising upon these agreements.

These agreements are superior to bankruptcy in many ways.

Bankruptcies (41,845) registered the steepest drop, plummeting by some 30% while Individual Voluntary Arrangements (IVAS) (49,056) also followed suit by falling 3%. By contrast, Debt Relief Orders (DROs) (28,949) jumped up 15% on the previous year.

“UK consumer debt declined by £9 billion to £207 billion in 2011 with UK personal debt declining by £1 billion.

Simon Waller, head of Customer Management and Collections for Experian UK and Ireland, added:

“Redundancy and relationship breakdown are typically the main reasons for why people to experience serious financial difficulties.”

The global financial crisis has created cash flow difficulties for most businesses, as everyone seems to be delaying payment.

This has placed pressure on cash flow, at a time when it is harder than ever to obtain traditional loans from banks and other financial institutions.

These businesses become desperate. Many fall victim to predatory lending practices when they try to cover the shortfall.

Predatory lending is unfair, unconscionable, misleading, deceptive, or fraudulent practices in the provision of credit to a consumer.

It is often characterized by excessively high interest rates, high repayments, unreasonable loan terms, and excessive personal guarantees and security.

New Consumer Credit Laws

The Commonwealth government has enacted new Consumer Credit laws to protect vulnerable persons in the marketplace, which contain the following key elements:

1. All persons involved in the provision of consumer credit must now be licensed by ASIC.
2. All persons involved in the credit industry must conduct themselves efficiently, honestly and fairly in their dealings with consumers.
3. All persons who offer or assist another person to obtain credit must comply with responsible lending obligations by:
    
   1. making reasonable enquiries about their customer’s financial situation and their requirements and objectives.
   2. taking reasonable steps to verify the borrower’s financial situation and carry out a suitability assessment on each application.
4. Where a person has limited capacity to understand a credit contract there is also an increased onus to ensure the borrower understands the terms of the credit contract.
5. Consumers have increased rights and remedies when the credit laws have been breached.
6. Unfair contract terms have been abolished.

What can you do?

1. Be vigilant in your management of debtors by:
    
   1. chasing payment on the due date, and if an extension of time is requested, demand that the client acknowledge that the debt is not disputed before agreeing to the extension.
   2. if they seek a further extension, then only grant it after discussing the issue with your lawyer, noting:
       
      1. Irish Bentley Lawyers have specialised Deeds designed to help you recover the debt quickly and cheaply if there is any further default: call us on 07 3891 3333.
      2. We only charge $300 to draft same for you, and we guarantee that our Deeds have proven extremely effective in setting up security for the debt, short circuiting the normal court process, and helping you to recover all legal costs.
   3. follow through with any threats of legal proceedings without delay – we specialise in debt recovery, and act for a number of liquidators, multinational corporations, law Firms and petrol companies. We know what works and aim to produce quick effective results.
2. If you need short term finance, then you should also arrange longer term (and cheaper) finance to replace it.
3. when arranging your short term finance, ask for a credit provider’s Australian Credit License number, which can be verified on the ASIC website.
4. report any credit related concerns to ASIC on its website or by phoning 1300 300 630.
5. Report any approaches by non-licensed credit providers to ASIC.
6. use ASIC’s MoneySmart website.

There has already been a significant increase in the number of Queensland Building Boost Grant (QBBG) applications in recent weeks.

The QBBG is a State initiative designed to protect the property market, and therefore Australia’s economy.
The Federal government is assisting same also by continually dropping the interest rate – with experts predicting that the recent interest rate drops are likely to be followed up with further interest rate cuts in the very near future.

Purchasers now have until 30 April 2012 to secure themselves a property and receive the $10,000 QBBG.
To be eligible, the property must be:
a. brand new or being built; and
b. less than $600,000 (house and land); and
c. located in Queensland.

The $10,000 Grant can be combined with the NRAS incentive giving an investor $19,524 for their first NRAS year.

The Supreme Court of Queensland ruled on 15 December 2011 that a statutory demand be set aside where the creditor told the debtor that they would not proceed to enforce the debt until an appeal was determined and more instructions given.
This means that if there is some agreement or representation by the creditor that the debt will not be enforced until a pre-condition is satisfied then any attempt to enforce that debt by statutory demand can be set aside pursuant to s459J(1)(b) of the Corporation Act which states: “On an application… the Court may by order set aside the demand if it is satisfied that… there is some other reason why the demand should be set aside.”
Legislation often has ‘catch-all’ provisions of this type; and this decision confirms that the Court will set aside a demand served where it is served after a debtor has been told that the creditor will not enforce the debt.
Irish Bentley have years of experience in enforcing statutory demands, and in having them set aside, being responsible for numerous reported decisions being handed down in this area of law alone.

The most important advice we can offer on statutory demands is this:

1. Contact an insolvency lawyer act as soon as you receive a demand because:
    
   1. The time frames are tight (21 days after they post the demand which means you either need to pay it, or engage a lawyer to apply to Court to have it set aside, and your lawyer will need at least one day to prepare everything).
   2. Service is by post (which is becoming increasingly unreliable – approximately 5% of mail delivered by Australia Post arrives late, or not at all).
   3. All the sender needs to prove is that they posted it (it does not matter whether you deny receiving it).
   4. If it is ignored for 21 days, then the company will be presumed to be insolvent, and any creditor can rely upon this to seek an Order that the company be wound up.
2. Appoint an insolvency based law Firm to be your registered office:
    
   1. to ensure that all demands are dealt within the required 21 days.
   2. to ensure that there is an accurate record of when all mail is received at your registered office, in case you need to refute service claims.
   3. To protect the Directors of your company against any Director’s Penalty Notices that may be served by the ATO if he company falls behind in its reporting or tax payment obligations.

The full text of the Corporations Act 2001 (Cth) is available here.

BTFB Plumbing Pty Ltd v Workers Compensation Nominal Defendant Insurer & Anor [2011] QSC 394

The solicitors at Irish Bentley Lawyers have insolvency law experience and qualifications.
We act as the registered office for many companies.

The new Act contains many crucial changes – and notably has specific sections requiring parties in dispute to make a bona fide attempt to settle disputes before commencing proceedings.
These changes are designed to encourage resolution before proceedings commence, and also to attempt settlement through various alternate dispute resolution methods such as mediation and case appraisal.

The act is available on the Queensland Legislation website.

This new legislation comes at a time when Queensland Court procedure is being overhauled in a variety of ways – including substantial increases in Court filing fees.