By Bonnie McMahon, an Associate in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.
Many external administrators and trustees will have been receiving requests from creditors under section 70-45 of the new insolvency practice schedules, which were first introduced into the Corporations Act and Bankruptcy Act in September 2017.
This new provision allows creditors to request information, reports or documents from an external administrator or trustee.
At this stage, there is not a lot of guidance as to when external administrators and trustees can refuse to comply with these requests, especially as the scope of section 70-45 has only been considered by the Court in one reported case to date.
However, there is some guidance in the Insolvency Practice Rules which insolvency practitioners should be aware of, especially if they are concerned that complying with a creditor’s request may open them up to criticism by another creditor or a third party.
Section 70-15 of the rules, sets out when a creditor’s request will be unreasonable.
Whilst Justice Black’s decision in 1st Fleet has shed some guidance on a few of the circumstances in which a request will be unreasonable, many of the circumstances set out in section 70-15 are still ambiguous and it is yet to be seen how they will be interpreted by the court.
However, there are some common reasons which a creditor’s request may be unreasonable, including:
- If an external administration or a bankrupt estate is without funds, the request may not be reasonable unless the creditor is prepared to bear the insolvency practitioner’s costs of complying with the request;
- If the request is seeking production of information or documents which are privileged or confidential; or
- If the request has already been made by the creditor in the past 20 business days.
Under the Schedule, Creditors can seek orders from the court for insolvency practitioners to comply with a request, if they have refused to do so.
If an insolvency practitioner has not complied with a request on the basis that it was unreasonable and the Court later determines that the request was reasonable, this may lead to a personal costs order being made against the external administrator or trustee, which is what Justice Black indicated should occur in 1st Fleet.
As creditors become more aware of their rights under the new provisions, it is likely that these requests will increase in frequency and scope. Until the nature of these requests are considered further by the Court, insolvency practitioners should ensure that they obtain legal advice if they have any concerns about whether it is reasonable to comply with a request, especially due to the potential costs consequences.
If you would like legal advice regarding these creditor requests or any other insolvency issues, contact a Principal of the Matthews Folbigg Lawyers’ Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
