As part of the Federal Government’s COVID-19 relief package, the time for compliance with a bankruptcy notice (and creditor’s statutory demands for companies) has been extended from 21 days to six months.

This extension of time to comply is relevant to any future claims by trustees in bankruptcy as the further time for compliance with a bankruptcy notice will change the date of the act of bankruptcy which has implications on future proceedings that the trustee may bring.

However, pursuant to the provisions of the Bankruptcy Act 1966 (N:B there are similar provisions relating to corporate insolvency in the Corporations Act 2001 pursuant to section 459C(2) of the Corporations Act 2001), there are alternative ways of establishing an act of bankruptcy which may found the basis of a creditor’s petition to bankrupt an individual.

Relevantly, for present purposes, it is an act of bankruptcy if the debtor transfers his property to another person and such a transfer would be void against a trustee in bankruptcy if the debtor were later made bankrupt.

One example of this act of bankruptcy is the Queensland decision of Bundaberg Brewed Drinks Pty Ltd v Parr & Anor, where a creditor’s petition succeeded on the basis that the respondent debtors:

1. granted a mortgage over real property owned by them in favour of their family company; and
2. the granting of the mortgage would have been a voidable transaction (i.e. the trustee in bankruptcy could set it aside) if the debtors later became bankrupt.

Notable in that decision is the fact the petitioning creditor had not in fact obtained a final judgment against the debtors (however, court proceedings were on foot).

In any event, the court found that:

1. the mortgage was entered into for the purposes of preferring payment to the debtor’s family company;
2. the entering into of the mortgage would be void against the trustee in bankruptcy as no consideration was provided for the mortgage as it secured historical debt owing by the debtors to the company; and
3. there was a debt owing by the debtors to the petitioning creditor even though the petitioning creditor had not yet obtained a judgment.

In summary, while the time for compliance with a bankruptcy notice has been extended to 6 months, there may be other options available to creditors seeking to appoint a trustee in bankruptcy or liquidator.

Should you have any queries about alternative acts of bankruptcy or alternative ways of winding up a company, please do not hesitate to contact Rose Litigation Lawyers to discuss your options.

In these difficult and uncertain times, you need lawyers who are across every detail to ensure you are in the best possible position to advance your position.