Australian Credit Law Bulletin - Vol 4, No 10, November 2003
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:
- Company's financial records "a shambles"
Can a company set aside a statutory demand while it tries to work out how much it owes? - Girlfriend snoops on boyfriend’s ex
And in doing so breaches the Privacy Act - Protection for wives signing mortgages extended to de facto partners
The same rules applying to a marriage can also cover de facto arrangements - When a DCA falls over who gets the cash?
The Administrator collected $112,00 then the company went in to liquidation -- which creditors get the money?
1. Company's financial records "a shambles"
Stratti Ocean & Earthworks Pty Ltd v Deputy Commissioner of Taxation [2003] NSWSC 509
The Australian Tax Office served a statutory demand on Stratti Ocean & Earthworks to force it to pay overdue taxes of $496,309.97. Some of the company’s managers believed however, that the debt had in fact, already been paid. The company accountant looked at their company accounts to try and work out whether some or all of the overdue taxes had been paid. Meanwhile, Stratti sought an order to set aside the statutory demand on the grounds that they needed time to work out whether it owed the debt.
At the hearing of the application to set aside, Stratti’s accountant described the company’s financial records as "a shambles". It was clear that he had been completely unable to reconcile the company’s accounts despite doing considerable work before the hearing.
The Court felt that the tax debt was not genuinely disputed. The fact that the state of Stratti’s own accounts did not enable it to say one way or another whether it had, or had not, already paid the ATO was not reasonable grounds to set aside or delay the statutory demand. The Court said that a company in Stratti’s position should not be "entitled to any indulgence by reason of its own unexplained failure to comply with its statutory obligations". The statutory obligations in this case were to keep accurate company records to prevent the company and its officers from "flying blind" with respect to the company’s true financial position at any time.
The statutory demand was therefore, not set aside.
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2. Girlfriend snoops on boyfriend’s ex
I v Major Wholesaler [2003] PrivCmrA
Ms I discovered that her ex-partner’s new girlfriend had accessed Ms I’s credit report to snoop on her financial position. The new girlfriend had been able to access Ms I’s credit report because she was an employee of a major wholesaler. A credit provider can usually access a credit report only when a person makes an application for credit and the credit provider is using the information in the credit report to assess that application. However, Ms I had not made an application for credit with the new girlfriend’s company.
Ms I found the unauthorised accesses listed on her credit report after she made an application with her bank for a mortgage. Her bank manager conducted a credit check for the mortgage and noted the two enquiries listed by the company. Ms I complained to the Privacy Commissioner.
When it was advised of the complaint the new girlfriend’s company conducted an internal investigation. The company recognised that there were potential problems regarding access to, and use of, personal information held by credit reporting agencies through its credit application procedures. As a result the company consolidated its credit applications functions into one specialised department in its Sydney office. The new girlfriend was counselled about her actions and later left the company. The company also offered Ms I its apologies and agreed to pay $7,500 compensation for the interference with her privacy.
The investigation was closed under s41(2)(a) of the Privacy Act, on the grounds that the credit provider had adequately dealt with the matter.
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3. Protection for wives signing mortgages extended to de facto partners
Ms Liu from New Guinea entered a de facto relationship with Mr Miller in 1984. Miller was a career IT professional but in late 1997 he became involved in a restaurant and night-club business in Darlinghurst.
Miller engaged Mr Adamson, a solicitor, on various matters to do with the businesses. The costs agreement between Adamson and Miller was that Miller would pay Adamson $5,000 per month for his legal services. At the end of December 1998 there were discussions between Miller and Adamson about the execution of a mortgage over Miller and Liu’s home in Lindfield to secure the money owed by the costs agreement.
Liu was not involved in nay of those discussions and she signed the mortgage document without any explanation. In fact, it was only some days later that she discovered that the document she had signed actually was a mortgage. No independent advice was given to Liu about the effect of the mortgage.
The mortgage was registered in January, 1999. The Darlinghurst business deteriorated rapidly and in February 2000 Miller declared voluntary bankruptcy. The administrators sold Miller's assets including Miller and Liu’s home. After the priority secured creditors has been paid, Adamson claimed his interest in the family home under the costs agreement and the mortgage.
It was admitted that Miller’s half of the proceeds of the sale of the house should go to Adamson, but Liu contended that her share should not. She said that Adamson had acted unconscionably towards her when executing the mortgage document. Liu argued that she was emotionally dependant on Miller and because Adamson was aware of the domestic situation that he knew enough to be put "on notice". This meant that Adamson should have made sure that Liu received independent legal advice about the mortgage before signing it.
The Court outlined that for a contract to be overturned on grounds of unconscionability, the creditor must be shown to have "appreciated that because of the trust and confidence between surety and debtor, the surety may well receive from the debtor no sufficient explanation of the transaction's purport and effect".
This defence has frequently been used in the case of husband and wife. Here the court found that the principle should extend to cover the circumstances of a man and a woman who are living in a de facto relationship. Liu and Miller had been together for some seventeen years and had five children together. Their relationship was to be treated as if it was in fact, a marriage and the Court ordered that Liu receive her share in the proceeds from the family home.
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4. When a DCA falls over who gets the cash?
Dean-Willcocks v ACG Engineering [2003] NSWSC 353
In November 2001 ACG Engineering went into voluntary administration and appointed Mr Dean-Willcocks as voluntary administrator. During the period of administration he invited all creditors of the company for proof of debts. He eventually allowed debts totalling $509,112.78.
Dean-Willcocks made a Deed of Company Arrangement (DCA) with creditors who had proved their debts. The DCA created an Administration Fund out of which money collected by the company would be distributed to the participating creditors. In April 2002 Dean-Willcocks received payments out of which he deposited $112,730 in the Administration Fund. Not long after Dean-Willcocks notified the creditors of his intention to pay a final dividend under the DCA.
Before this could happen however, ACG went into liquidation which terminated the DCA. Dean-Willcocks, who then became the liquidator, worked out that since the time ACG had entered voluntary administration it had incurred another $149,071.05 of debts. He estimated that if the Administration Fund was distributed only to the deed creditors (ie the creditors who had proved their debts and helped in forming the DCA), then those creditors would receive 22 cents in the dollar. In those circumstances the post-deed creditors (ie other creditors whose debts arose after the DCA was agreed) would receive 12 cents in the dollar from the remaining company assets. If, however the Fund was included as an asset of the company then all creditors would receive 16 cents in the dollar. Because he was unsure about the position of the Administration Fund, Dean-Willcocks applied to the court for a declaration as to who the money held in the Administration Fund belonged to.
The judge noted that the case was a novel one. With no precedents or legislation to adhere to, the judge turned to the Deed of Company Arrangement to decide whether a trust had been created. Interpreting the DCA, the court found that its terms made it "plain that the Administration Fund is not an asset of the company". The DCA stated that the Fund was to be "held" for deed creditors and therefore "the natural conclusion, under our law, is that a trust of that property has been created.”
Following this the Court concluded that under the terms of the DCA, Dean-Willcocks as Deed Administrator held the Administration Fund in trust for the deed creditors.
