In this newsletter, we consider recent releases by the Attorney General's Department in relation to the Personal Property Securities Act 2009 (Cth) and the Bankruptcy Act 1966 in addition to some relevant new case law on bankruptcy and the small business restructuring process.
Dreyfus Calls for public consultation on the forms
Personal Property Securities Act 2009 (Cth) (PPSA)
The Albanese government has accepted the vast majority of the Whittaker Review of PPSA.
The Whittaker Review which has been on the table since February 2015, but ignored by the previous coalition government for several years, has made 394 recommendations to improve the operation of the PPSA.
The Attorney General's Department (AGD) has accepted 345 of the 394 recommendations which are designed to streamline the process of granting, validating, and enforcing security interest in personal property.
Some important review points include: -
- Removing the requirement that a registration to perfect a security interest over trust assets be made against the relevant trust's ABN.
- Removing bailments from the definition of a PPS Lease.
- Extending the definition of an ADI account to accounts with foreign banks and RBA accounts.
- Removing the requirement for a financing statement in respect of PMSI to tick the PMSI box.
- Exempting a PPS Lease from the vesting provision in s 267 unless the PPS Lease is also an "in substance" security interest.
The AGD has called for public submissions which closed on 17 November 2023.
Click here to review the full Whittaker Review report.
Following round table discussions with various key stakeholder groups within the personal insolvency law and administration earlier this year, the Honourable Mark Dreyfus called for submissions from the public with the view to determine if certain parts of the Bankruptcy Act 1966 require amendment to improve its operation. Click here for a summary of the round table meeting and participants.
Five key issues were discussed at the round table meeting: -
- Increasing the bankruptcy threshold value from the $10,000 limit currently set.
- Increasing the period for a debtor to respond to a bankruptcy notice from 21 days.
- Options for shorter discharge period from bankruptcy for some bankrupts.
- Option for easier annulment for inappropriate bankruptcies.
- Options to identify and scope measures to mitigate harms caused by unlicenced or untrustworthy advisors.
Other matters considered at the round table included lifetime listings on the National Personal Insolvency Index (NPII), a small business specific insolvency regime, harmonisation of the corporate and insolvency laws and family violence in a bankruptcy context, to mention a few.
The purpose of the consultation and hopefully any subsequent reforms to the Bankruptcy Act 1966 will be to improve the operation and relevance of the bankruptcy laws in Australia.
Case law updates
Official Trustee in Bankruptcy v Kent  FCA 1211
This case considers the meaning of property of the bankrupt and property that is divisible amongst the creditors of a bankrupt. The case specifically dealt with the right of a bankrupt to lodge a claim with the Australian Financial Complaints Authority (AFCA) for compensation from a financial institution and whether such right vested in a trustee in bankruptcy, allowing the trustee to enter a settlement deed with a financial institution to resolve the bankrupt’s claim.
In summary after discharge from bankruptcy, the bankrupt lodged a complaint against the Commonwealth Bank of Australia (CBA) with AFCA. The Trustee took the view that this was a right that had vested in the Trustee. The Trustee then reached a settlement with CBA regarding the debtor’s complaint. The bankrupt challenged the settlement in the Federal Court of Australia (FCA).
The FCA determined that such a right is not capable of assignment to, or vesting in, the Trustee in Bankruptcy. The FCA also held: -
- Only the debtor in this circumstance had suffered the loss dealing with the financial services licensee and therefore only the debtor met the criteria to seek relief having suffered the loss or damage.
- The right to apply for orders under the National Consumer Credit Protection Act 2009 is not property and therefore incapable of vesting in a Trustee.
- Even if it was determined as property the right to compensation was for personal loss and therefore did not vest pursuant to section 116(2)(g)(i).
Deputy Commissioner of Taxation V Pope Joan Hospitality Pty Limited (Restructuring Plan Practitioner Appointed)  FCA 872
This case involved an application by a Small Business Restructuring Practitioner seeking to vary the restructuring plan post the practitioner’s appointment as the existing legislation has no mechanism available to do so.
On 31 May 2023, the company appointed a Small Business Restructuring Practitioner (SBRP). On 2 June 2023 and 30 June 2023, the Court made orders adjourning a winding-up application hearing initiated by the Commissioner of Taxation to 21 July 2023.
The restructuring plan funding initially involved the sale of the business and assets to a third party along with a contribution from the company directors, to enable a return to creditors of approximately 13 cents in the dollar.
The facts are in summary, shortly after the appointment of the SBRP, the company entered into a business sale agreement, but it became apparent in the period immediately following exchange that the landlord would not approve the incoming business owner as a tenant, therefore the Company could not complete the sale.
The plan involving the business sale had already been submitted to and voted upon successfully by creditors.
To ensure a dividend of 13 cents in the dollar, the directors agreed to contribute further personal monies. The SBRP concluded that the varied restructuring plan still represented the best interests of the company and its creditors. The SBRP advised creditors of the variation to the plan and an intention to make an application to the court to vary the plan that had already been executed.
The application was made by the SBRP noting that all creditors continue to support the varied restructuring plan. The Court made an order to vary the plan relying upon Section 458B and Regulation 5.3B.61 of the Corporations Act 2001 (Cth) varying the plan.
The Court noted that despite the restructuring of the company having been completed on 20 July 2023 when creditors voted successfully on the original plan, not to vary the plan under the circumstances would be inconsistent with the objectives of part 5.3B of the act.
Seeking guidance from professionals or consultants experienced in business restructuring provides valuable insights and support throughout the process.
Call Shaw Gidley today on (02) 4908 4444 or (02) 6580 0400 to ensure your restructuring experience is as seamless and maximised as possible.