Lodging a claim in a liquidation or bankrupt estate and the overuse of “without prejudice” - february 2018
Feb 14 2018
Lodging A Claim In A Liquidation Or Bankrupt Estate
A creditor must prove their debt to establish their right to receive a dividend in a bankrupt estate or liquidation. A bankruptcy Trustee or Liquidator may also require creditors to prove their debts for the purposes of voting at a meeting of creditors.
Bankruptcy
Lodging a claim
Where a creditor desires to prove a debt in a bankruptcy, they must lodge a proof of debt (“POD”) with the Trustee. Such a POD must:-
- Set out the particulars of the debt;
- Be in the approved form which may be downloaded from the Australian Financial Security Authority website;
- Specify any documentation to substantiate the debt i.e. invoices, statements etc.,
- State whether or not the creditor is a secured creditor.
If no documentation is available, it may be that a statutory declaration may assist in proving the claim which may be requested by the Trustee.
Adjudication of POD
Section 83 of the Act provides that a creditor is not taken to have proved a debt until a POD lodged by him or her in respect of their debt has been admitted by the Trustee.
No time limit is placed on the Trustee to examine proofs of debt unless the Trustee has given notice of an intention to declare a dividend. Where such notice has been given, a Trustee must, within 14 days after the expiration of the period specified in the notice, either:-
- admit the POD in whole;
- admit it in part and reject it in part;
- reject it in whole; or
- require further evidence in support of it.
A notice that a dividend has been declared is sufficient notification of admission. The creditor must be specifically advised if there is rejection in part or whole of a proof of debt submitted.
Where a creditor is not satisfied with the Trustee’s decision, they may make an application to the Court within 21 days from the date on which the decision was made. The Court may, confirm, reverse or vary the decision of the Trustee.
Liquidation
Lodging a claim
A creditor may prove their debt by lodging a formal POD with the Liquidator. The formal POD must:-
- Be in the approved form, which is ordinarily provided by the respective liquidator;
- Include detailed particulars of the debt or claim sought to be proved;
- Specify any documentation to substantiate the debt i.e. invoices, statements etc.;
- State whether the creditor is or is not a secured creditor, the value and nature of the security (if any) and whether the debt is secured wholly or in part.
Adjudication of POD
There is no time limit placed on the Liquidator to adjudicate formal PODs once received. However, a Liquidator must either admit or reject all or part of a POD, or require further evidence as follows:-
- Within 28 days after receiving a request in writing from a creditor to do so or, if the ASIC allows, any further period; or
- Within 14 days after a Liquidator’s notice of intention to declare a dividend.
Notice of the declaration of a dividend is sufficient notification of the admission of a debt or claim. The creditor must be specifically advised if there is a rejection in part or whole of a POD submitted. However, unlike in bankruptcies, cents are included in admitting the POD.
A creditor may appeal to the Court against the rejection of his or her POD within the time specified in the notice from the Liquidator, being not less than 14 days after service of the notice, or such further period as the Court allows.
Don’t Judge A Letter By Its Title - The Overuse Of “Without Prejudice”
Have your clients received letters from lawyers, accountants, or debt collectors that are titled “Without Prejudice”? This is a commonly misused phrase that could be meaningless if it is not used in the correct context.
When used correctly, “Without Prejudice” is a phrase used during verbal or in written correspondence to acknowledge the privilege that attaches to statements used, in an attempt to settle a dispute. The admissions or arguments raised in the correspondence will not be able to be relied upon as evidence in Court if the matter proceeds to any trial.
Ultimately, the Evidence Act 1995 explains the impact and use of “Without Prejudice” The phrase is used correctly when:-
- Opposing parties wish to settle a dispute by compromising a debt or their positon; and
- Legal proceedings have been issued, or the parties have an intent to commence legal proceedings; and
- The phrase relates to the entire correspondence to which it applies.
A typically correct use of the phrase, is to title a letter of offer or compromise, with the phrase “Without Prejudice” in an attempt to reduce the amount of a debt payable. For instance, a person may wish to settle a final progress claim by a builder where there is a dispute over defects to a building and nobody admits fault.
Documents which are correctly titled “Without Prejudice” may only then be admitted into evidence in a trial if both disputing parties consent to waive the privilege that is attached to that document.
“Without Prejudice” is often misused when any part or all of the correspondence relates to the following:-
- Any correspondence demanding the full amount of a debt or claim, without compromising any sum or any rights; or
- Where no dispute between parties; or
- Where no genuine attempt to settle the debt / claim is made; or
- Where no legal proceedings have been issued or intended; or
- The correspondence is simply detailing facts or protecting an entity’s rights; or
- The correspondence is prepared to elicit fraudulent actions.
Whether the use of “Without Prejudice” will apply depends on the content of each paragraph in any letter as to whether statements made may be admitted as evidence in any subsequent trial.
Save as to costs
A variation of the “Without Prejudice” title is “Without Prejudice, save as to Costs”, which may be used in the same way as a document titled “Without Prejudice”, however, the document may be considered by the Court when determining any liability for a party which may be liable to pay legal costs i.e the unsuccessful applicant or defendant.
Adding the phrase “Save as to Costs” assists a Court towards justice in making any order as to costs.
To find out more about the information covered in this newsletter or to discuss any issues pertaining to personal or corporate insolvency matters, telephone on 03 8636 3333 or email any of the following contacts:
Stephen Michell - Director smichell@pcipartners.com.au
Philip Newman - Director pnewman@pcipartners.com.au
David Quin - Director dquin@pcipartners.com.au
Clyde White - Director cwhite@pcipartners.com.au
Sean Pulverman - Principal spulverman@pcipartners.com.au
Warren White - Principal wwhite@pcipartners.com.au
Kylie Wright - Principal kwright@pcipartners.com.au
Sophie Zapantis - Senior Manager szapantis@pcipartners.com.au
Peter Fraczek - Manager pfraczek@pcipartners.com.au
Frank Ntim - Manager fntim@pcipartners.com.au
Anna Odrzywolska - Manager aodrzywolska@pcipartners.com.au
All material contained in this newsletter is written by way of general comment. No material should be accepted as authoritative advice and any reader wishing to act upon the material should first contact our office for properly considered professional advice which will take into account your own specific conditions. No responsibility is accepted for any action taken without advice by readers of the material contained herein. Liability limited by a Scheme approved under Professional Standards Legislation.