Australian Credit Law Bulletin - Vol 3, No 8, October 2002

A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: aus-bulletin-join@mailman.hattaways.com

Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.

In this issue:

Creditor puts debtor in prison and gets to keep gems!.
Makes you wish all your debtors lived in South Australia.
Private process servers better? A letter to the editor from a WA bailiff
Bailiffs are better (but not for the debtor), in his view.
How much do credit staff earn?
If you want to know, fill in our anonymous on-line survey.
Yet another guarantor trying to stop the guarantee being enforced
Judge won't have a bar of it.

1. Creditor puts debtor in prison and gets to keep gems!.

Kanovics v Lean [2002] FCA 803 (24 June 2002)

In December 1999 Kanovics obtained an order that Roder repay a debt of nearly $40,000. In South Australia a debtor can be arrested for failure to pay a debt. Roder didn't pay so Kanovics applied to enforce the payment under s.14 of the Enforcement of Judgments Act 1991 (SA). Roder was arrested in March 2000.

He was released on bail, subject to a further court order. Under that order, enforcement would be stayed if he followed a number of conditions. One of these was that Roder had to deposit a parcel of gems as inspected and marked by Kanovics in a safety deposit box at a bank as security. The gems were valued at $9,360. Kanovics could take the gems in part satisfaction if Roder did not repay the debt by July 2000. Roder's and Kanovic's solicitors held the keys. Roder defaulted on this agreement and his solicitors took custody over the parcel of gemstones.

In August 2000 Roder petitioned for his own bankruptcy. Mr Lean, his trustee in bankruptcy disputed the ownership of the gemstones.

In the lower court the federal magistrate found that the bail agreement created a charging order over the gemstones, and that charge was void under the Bankruptcy Act s118(9). As a result Lean could take the gemstones back. Kanovics appealed this decision, claiming that the security ordered as a condition of release on bail did not necessarily create a charging order.

Under s118 of the Bankruptcy Act 1966 if a debtor goes bankrupt within (in simple terms) six months of a creditor being paid under a writ of execution, the creditor has to give the money back. Under s118(9) the same rule applies to a creditor who takes a charging order over the assets of a debtor.

The real question was, had a charging order been created by the bail agreement? If the answer was yes, the charging order would be void against the trustee, and Kanovics had to give the gemstones back. If no, Kanovics could keep the gemstones.

On appeal the court stated that the order created an equitable charge over the gemstones in Kanovics favour. The substance of the order dealt with bail. Varying the terms of bail didn't necessarily create a charging order required for s118(9). The court took a narrow interpretation of what a charging order was. A charging order had to be created under s.8 of the Enforcement Act.

As a result the decision of the federal magistrate was set aside and Kanovics retained the gemstones as part satisfaction of the debt.

2. Private process servers better? A letter to the editor from a WA bailiff

Thanks for copy of Volume 3, number 3, 2002 [Collection Special - a comparison of enforcement law around the States and in New Zealand]. It is good to see WA rate so well. However I must take exception to your comment, "Our experience is that personal service by private process servers working under an appropriate incentive system, gives the best chance of getting documents served."

Bailiffs cover a bailiwick - in Perth and the metro area there are 6 bailiffs each with 2 field staff who constantly work their

bailiwicks for ATO, banks, local government authorities, state government etc. Bailiffs are constantly asked by process servers to serve where they have failed. Where the misconception of bailiffs service comes from is the time it takes - 7 days in the case of a summons to come through the court to the bailiff whereas a private process server will pick it up and serve

it the same day. Advantage of this efficiency is questioned as in most cases the debt is at least 6 months old - so why the hurry at this point?

Bailiffs serve according to law whereas anecdotal evidence of incorrect service by private process servers is significant. Why? - because they are paid to do a one off service and if the person isnt at home what do they do? Come back 2 or 3 times for no pay? Another point is the set bailiff's fee for service which in 80% of cases is cheaper than private process servers fees.

Bailiffs know their bailiwick and hence their debtors. At the end of the day the bailiff has to execute the warrant that commenced with a summons.

You may be interested in the figures that go through my office. I operate a bailiwick of 72 suburbs in the eastern district of Perth covering 300,000 people and an area 60 kilomtres long and 40 kilometres wide. I operate with 1.5 office staff and one full time field officer plus myself.

3. How much do credit staff earn?

How much does a collections officer in a call centre in Sydney earn? What about a credit controller in an accounting firm in Perth or an accounts receivable clerk in Auckland? I had a coffee this week with a collections manager from a government department in Wellington. "What I'd really like to see," he said, "is a survey of credit management staff salaries. Our policy is to pay above average rates, but we don't really know what the average is! Of course, we have an idea of what the market rates are for some positions, but we'd really like to know more."

Well, it just so happened that we were working on that very thing. Our conversation gave the project fresh impetus and hey presto, the Hattaways/MG Business Credit Management Remuneration Survey was born.

Here's how the survey works. You go to our website - http://www.hattaways.com/surveys/pay2002.php - and enter your answers in the appropriate fields. The survey does not ask for your name or employer. You can view the results as they stand at that point. The final results will be published in a later Australian Credit Law Bulletin. The more people who participate, the greater the validity of the results. We expect to find a wide range of different pay rates for jobs with the same general titles, depending on the level of responsibility, location, and other factors.

4. Yet another guarantor trying to stop the guarantee being enforced

Khatri & Anor v Wilson [2002] QSC 239 (21 August 2002)

The applicants were trustees and liquidators of the business run by Lex Nominees Ltd and Mr Triscott. They were mortgagees in possession of a hotel at Surfers Paradise. Triscott negotiated with Mr Wilson, the owner and controller of Leegrove Pty Ltd, to buy the hotel. Wilson had past experience in the refurbishment and operation of hotels.

Mr Triscott offered to provide Wilson with 100% finance. Leegrove then entered into five loan agreements with Lex Nominees for a sum of $2.52 million. Wilson also reluctantly gave a personal guarantee over the loans.

Leegrove experienced significant delays in obtaining licences for its planned gaming machines. It soon defaulted on the interest payments. Liquidators took possession of the hotel and sold it for $330,000. That left a shortfall of $2.19 million owing to Lex Nominees. The liquidators tried to recover the outstanding amount from Wilson with a summary judgment application under rule 292 of the Queensland Uniform Civil Procedure Rules 1999. This allows a court to award judgment if it is satisfied that a defendant has no real defence.

Wilson had a number of defences. They included the claim that Triscott had falsely represented that Lex would fund the hotel purchase and re-development for as long as it took to have it operating profitably again. Wilson also claimed that Triscott had said that he would not call up the guarantee. Wilson argued that such statements should prevent Lex from enforcing the guarantees.

The Court found Triscott's alleged statements had no bearing on Wilson's liability under the guarantees. The statements had been made in the early stages of negotiating the sale and so formed no part of the loan contracts. The guarantees were serious commercial documents, Wilson had obtained his own legal advice; and he had considerable commercial experience and so should have fully understood their implications.

The judge said, "I am satisfied that there is no real prospect of Mr Wilson successfully defending the claim and it would be wasteful of the resources of the parties and of the court to proceed to trial." Judgment was entered for $2.19 million.

David Francis LL.M. B.A. has been presenting legal seminars to credit staff since the 1970s and is a Fellow of the Australian Institute of Credit Management. David holds masters degrees in law from both the University of Sydney and the University of Technology, Sydney. He presents legal seminars for Hattaway & Associates throughout Australia.
David Francis

Elke Meyer has vast experience in credit management and debt collection, the security industry, and the police and Corrective Services. She currently holds a position as Credit Manager at John Paul College in Brisbane.

Alan Liddell LL.B. B.A. presents our Law of Credit Management seminars in New Zealand. He is the principal of law firm Capamagian Liddell and a leading expert on the Personal Property Securities Act. He is the co-author of Credit Revolution: A Practical Guide to Surviving the Personal Property Securities Act and all attendees will receive a copy of this book. Alan has worked with the credit staff of Australian-based businesses for a number of years and says: "It is enormously difficult for Australian creditors to understand the New Zealand Personal Property Securities Act. It's so different to retention of title."
Alan Liddell

There are other important differences between New Zealand and Australian credit law - no voluntary administrations yet, some different views on privacy, a regime for enforcing judgments which is generally more effective than in Australia, and a variety of other issues. However there are lots of similarities. The Personal Property Securities Act is dramatically different and this is the main focus of this seminar. Any creditor selling into New Zealand and attempting to take security under what in Australia would be a romalpa clause should move heaven and earth to attend. Failing to understand the PPSA could cost your company an awful lot of money.