Insolvency Laws in Australia: Importance and Analysis

This article explores the background and importance of insolvency laws in Australia, focusing on the concept of stay period. It discusses the types of violations treated by courts and the implications of violating the stay period. The article also highlights the protection provided to debtors and creditors under the insolvency laws.

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Background and importance of research question.
In Australia, insolvency laws are broadly categorized into two groups. The first group includes
laws that prioritize liquidation of a company regarding the process of restructuring. This follows
the presumption that insolvency is a result of intentional malpractice by corporations. Following
this, an emphasis is put on protecting creditors. The second laws relate to the rescue mechanisms
that allow companies struggling financially to re-organize themselves unlike forcing them into
liquidation. Following this, bankruptcy law refers to the liquidation of individuals and
partnerships and the voluntary winding up of insolvent companies. Regarding this, the
appropriate applicable law is the 1966 Bankruptcy Law1.
In addition the issue of stay period is to be looked into. It is important to be able to consider the
two concepts together since stay is in relation to bankruptcy and therefore it is not prudent to
consider it all alone. Further, it is important to consider the issue so as to be able to tell the level
of compliance of the law2. This is so since between the years 2017-2018 the statistics by the
Australian financial security authority (AFSA) indicated that there were approximately 3,000
cases regarding personal insolvency in the country. This is alarming since it has been the highest
number of cases involving individual insolvency as from 2009.
In addition the laws play a vital role in ensuring that the interests of debtors and creditors are
protected. Following this, the two major role of individual insolvency include; the debtor is able
to be discharged form anything relating to bankruptcy after a period of 3 years and one day3.
Similarly, the debtor provisions protect debtors following the debt accrued before proceedings
relating to bankruptcy. It is important to be able to consider the two concepts together since stay
1 Duns, John and Rosalind Mason, "Consumer Insolvency In Australia" (2001) 10(3)
International Insolvency Review.
2 Kumar, Gtyhu, "Bankruptcy. Partnership. When Not Insolvent" (2015) 11(12) The Virginia
Law Register.
3 Morrison, David S. and Rachel S. L. Lee, "Trends In Personal Insolvency In Australia - An
Update" (2012) 5(6) SSRN Electronic Journal.

is in relation to bankruptcy and therefore it is not prudent to consider it all alone. Further, it is
important to consider the issue so as to be able to tell the level of compliance of the law4.
Further, any violation that relates to the stay period attracts some fines and previous loans and
creditors. Of most important is that the insolvency laws afford protection to both parties, which
are the debtor and creditor by providing an affordable and equitable fair system for assets
distribution and claim5. Therefore, the project is of importance since it contributes to elaborating
the time and dynamics that aid in decision making regarding the insolvency laws. On the other
hand, it is important that the law relating to stay period is critically analyzed so as to enhance the
protection of the debtor.
Stay period and relevant law
A stay refers a court order made in either civil or criminal proceedings after a petition has been
presented and considered6. Following this, the order regards; payment of outstanding debt and
non-compliance of court proceedings7. It is of importance as it does not only offer immediate
protection to a debtor filing bankruptcy but saves his assets from his creditors and debt
collectors. The stay avails a debtor a wide range of protection that takes place once a bankruptcy
case is filed. The stay cautions against almost all types of collection attempts by creditors or debt
collectors from the time of its operation. Therefore, once a stay takes effect, any creditor a
debtor owes money before the bankruptcy filing is hindered from making any collection efforts.
In this regard, a debtor is given relief and more time to ensure that he or she repays the debt.
On the other hand, stay allows the bankruptcy trustee to make a decision in regards to the
appropriate properties belonging to the debtor that can be used to settle the debts8. Similarly, it
allows him or her to organize his finances and come up with an effective payment plan that the
4 World-Wide Volkswagen Corp. v. Woodson, 444 A.U. 286, 100 S. Ct. 559, 62 L. Ed. 2d 490
(1980)
5 Ramsay, Ian and Cameron Sim, "Trends In Personal Insolvency in Australia" [2009] SSRN
Electronic Journal.
6 The1966 Bankruptcy Act Section 60 (1a and b)
7 Ibid section 60 (1b)
8 Ibid section 60(3)

creditor can adopt in paying the debts. Therefore in general, a stay makes sure that a balanced
strategic payment plan is developed by the creditor so as to ensure settlement of debts9
A stay can put a stop to almost all types of collection methods such as; repossession of assets and
property in general; salary garnishments; collection communications like calls and any legal
proceedings relating to the bankruptcy. Following this, the stay can restrain activities such as:
any attempts towards taking possession or control over the estate of the debtor, attempts to come
up or enforce lien against the estate of the debtor, actions towards collecting, assessing or
recovering claims that arise, issues relating to enforcement of judgment against a debtor and
initiating or continuing judicial application against the debtor10.
In addition the laws play a vital role in ensuring that the interests of debtors and creditors are
protected. Following this, the two major role of individual insolvency include; the debtor is able
to be discharged form anything relating to bankruptcy after a period of 3 years and one day.
Similarly, the debtor provisions protect debtors following the debt accrued before proceedings
relating to bankruptcy. It is important to be able to consider the two concepts together since stay
is in relation to bankruptcy and therefore it is not prudent to consider it all alone. Therefore in
general, a stay makes sure that a balanced strategic payment plan is developed by the creditor so
as to ensure settlement of debts. On the other hand, the stay period on the face of it, it is not a
good idea11.
This is so since; most debtors look at it as a fast way that can relieve them from a difficult
situation. Similarly, the concept raises the question as to the dilemma of the public practitioners;
this is so because what the stay means is that; the practitioners have to aid persons into
bankruptcy when there are other alternative methods to it. Following this, the other options
include the personal insolvency agreements where the two parties in relation to the debt come
together and agree on the best way to settle the debt12 In addition, the debt agreement
9 The 1966 Bankruptcy Act Section 73
10 Ramsay, Ian and Cameron Sim, "Personal Insolvency in Australia: An Increasingly Middle
Class Phenomenon" [2009] SSRN Electronic Journal.
11 Ramsay, Ian and Cameron Sim, "Personal Insolvency in Australia: An Increasingly Middle
Class Phenomenon" (2010) 38(2) Federal Law Review.
12 The 1966 Bankruptcy Act Section 73

mechanisms can be used so as to ensure that an agreement is reached. Further, it is important to
consider the issue so as to be able to tell the level of compliance of the law
Further, any violation that relates to the stay period attracts some fines and previous loans and
creditors. Of most important is that the insolvency laws afford protection to both parties, which
are the debtor and creditor by providing an affordable and equitable fair system for assets
distribution and claim13. Therefore, the project is of importance since it contributes to elaborating
the time and dynamics that aid in decision making regarding the insolvency laws. On the other
hand, it is important that the law relating to stay period is critically analyzed so as to enhance the
protection of the debtor
Further, a stay constitutes what is termed as violations. The violations occur in instances where
collection agencies or creditors make an attempt to collect dues or impose judgments before the
protection order is lifted by the court. Therefore, any attempt to extract pre-bankruptcy debts by
trying to repossess property or through lawsuits is construed to be a violation of the automatic
stay. Following this, in the Matter of Crum, the court cited a willful violation of a stay being in
contempt and imposed a sanction to indemnify the debtor for injury that had been suffered. This
therefore illustrates how serious the issue of violation is.
Types of violation treated by courts
As per the common law, there are two types of stay violations. The two are: deliberate/willful
violation and accidental/unwilfull violation. Willful violation is where a stay has been issued but
the creditor attempts to take action to ensure that the debt is settled. The action include; an
attempt to take control over the assets of the debtor as contrary to the requirements of the stay.
On the other hand, unwilful violation takes place when the creditor attempts to make any step so
as to recover the debt owed to him or her without the knowledge that a stay has been issues
against the debt. Following this, in the Matter of Crum, the court cited a willful violation of a
stay being in contempt and imposed a sanction to indemnify the debtor for injury that had been
suffered. This therefore illustrates how serious the issue of violation is14.
13 Ramsay, Ian and Cameron Sim, "Personal Insolvency In Australia: An Increasingly Middle
Class Phenomenon" (2010) 38(2) Federal Law Review
14 Associated Ins. Service, Inc. v. Garcia, 307 S.W.3d 58 (Ky. 2010).

The receive notice
It refers to a notice served to the creditors indicating that a bankruptcy notice has been registered
with the court by the creditor15. Following this, the creditor is to be notified within 21 days after
the bankruptcy case has been filed. However, in some instances where the creditor has an
address with the court or makes use of services such as Banko, he or she is notified immediately
the case is filed while where the is no address or use of such services, it takes either a week or
more for the creditor to be notified.
In relation to this, that period between filing the case and sending a receive notice to the creditor,
in normal circumstance; the debtor will keep receiving letters regarding collection and demands
for him or her to pay the debt. Although such measures constitute violation of automatic stay,
action cannot be taken against the creditor as he or she may plead for ignorance of the case.
Further, the method is only employed by small companies unlike big companies that really
understand all the laws and processes in relation to a stay.
On the other hand, the 21 days period can come to an end upon: the creditor petitioning the case
to declare you bankrupt; the debtor voluntarily applying to be declared bankrupt during the
period and the debtor signing a controlling trustee authority within the 21 days.
What includes courts violation of stay and what does not?
Regarding what amounts to violation of a stay, the court considers both common law and the
legislation. In this regard, it takes into account what amounts to willful and willful violation as
per the common law while as per the legislations the court takes into consideration what is
termed as violation of the stay period.
A stay can put a stop to almost all types of collection methods such as; repossession of assets and
property in general; salary garnishments; collection communications like calls and any legal
proceedings relating to the bankruptcy. Following this, the stay can restrain activities such as:
any attempts towards taking possession or control over the estate of the debtor, attempts to come
up or enforce lien against the estate of the debtor, actions towards collecting, assessing or
15 1966 Bankruptcy Act Section 41

recovering claims that arise, issues relating to enforcement of judgment against a debtor and
initiating or continuing judicial application against the debtor16.
Further, a stay constitutes what is termed as violations. The violations occur in instances where
collection agencies or creditors make an attempt to collect dues or impose judgments before the
protection order is lifted by the court. Therefore, any attempt to extract pre-bankruptcy debts by
trying to repossess property or through lawsuits is construed to be a violation of the automatic
stay. Following this, in the Dennis v. JPMorgan Chase & Co 17, the court cited a willful violation
of a stay being in contempt and imposed a sanction to indemnify the debtor for injury that had
been suffered. In addition, if the violation relates to property, the court orders the same to be
returned to the debtor. Similarly, it can order the debtor attorney fee to be paid for, any other cost
incurred in relation to the suit and even for pain suffered.
Opinion on violation of stay period
Regarding the period, it portrays Australia as a creditor-friendly jurisdiction. This is because the
stay period on a large extent emphasizes on the rights of creditors over those of debtors.
Although, it is able to afford the individuals some limited options, its main focus is on creditors
interests against those of debtors. This can be illustrated by various laws, for instance the
Personal Properties and Securities Act provides unsecured creditors with a regime towards any
transactions.
Further, following the stay period law, different authors have different views following it. This is
so some consider it as a harmonized way through which the law has enabled the debts owed to be
settled without undergoing the many procedures of bankruptcy and claims of compensation. On
the other hand, others view it as a way through which the debtors use to relieve themselves from
a heavy financially burden and therefore making it a bad mechanism on its face.
On the other hand, the stay period on the face of it, it is not a good idea. This is so since; most
debtors look at it as a fast way that can relieve them from a difficult situation. Similarly, the
16 Sane, Renuka, "The Way Forward For Personal Insolvency in the Australian Insolvency and
Bankruptcy Code" (2019) 6(5) SSRN Electronic Journal.
17 Dennis v. JPMorgan Chase & Co., No. 16-cv-6496 (LAK) (S.D.N.Y. Nov. 26, 2018).

concept raises the question as to the dilemma of the public practitioners; this is so because what
the stay means is that; the practitioners have to aid persons into bankruptcy when there are other
alternative methods to it. Following this, the other options include the personal insolvency
agreements where the two parties in relation to the debt come together and agree on the best way
to settle the debt. In addition, the debt agreement mechanisms can be used so as to ensure that an
agreement is reached18.
Further, the laws play a vital role in ensuring that the interests of debtors and creditors are
protected. Following this, the two major role of individual insolvency include; the debtor is able
to be discharged form anything relating to bankruptcy after a period of 3 years and one day.
Similarly, the debtor provisions protect debtors following the debt accrued before proceedings
relating to bankruptcy
Further, any violation that relates to the stay period attracts some fines and previous loans and
creditors. Of most important is that the insolvency laws afford protection to both parties, which
are the debtor and creditor by providing an affordable and equitable fair system for assets
distribution and claim. Therefore, the project is of importance since it contributes to elaborating
the time and dynamics that aid in decision making regarding the insolvency laws. On the other
hand, it is important that the law relating to stay period is critically analyzed so as to enhance the
protection of the debtor.
The Hammer Report
Regarding personal insolvency, the report looked into the bankruptcy proceedings based on need
for a creditor to prove that the debtor has committed an offence in relation to bankruptcy,
although this procedure has received various critics, terming it to be time consuming and costly.
In particular, it has been criticized to be an ancient concept and that is rarely used by the debtors.
As per the report, a statutory demand refers to an existing form of bankruptcy notice that is made
regarding debts. The features of the demand include: it requires person to whom the application
is made to respond on the relevant plan that should be adopted in relation to settling the debt.
18 Tribe, John Paul, "Personal Insolvency Law In England And Wales: Debtor Advice, Debtor
Education And The Credit Environment (Personal Insolvency Project - PIP) - Volume One"
[2016] SSRN Electronic Journal.

The demand allows the person a specified time of twenty one days19. Similarly, the plan must
warn the person to either comply with the demand or a creditor to seek a bankruptcy order
against him or her. Further, the demand should be in relation to a sum not more than $2000 and it
should be sealed and served to the other party in the same manner as it is done in the court
process.
Following this, the report suggests that the proceedings relating to bankruptcy should be done
away with. It therefore comes up with some things that should be proved for insolvency to be
considered that it exists. They include: prove that an individual has not complied with a statutory
demand, being a demand that has not been set aside; prove that an execution issue against a
debtor in respect of a judgment debt has been returned unsatisfied in a whole or in part; prove
that a debtor has departed from or remained outside Australia with the intention of defeating,
delaying or obstructing a creditor and that in relation to a debtor who has signed an authority
under the act, either the debtor has failed to comply with a statutory obligation under that part or
control under that part over the debtors property it terminated.
Following this, the insolvency evidence should be provided in all applications with an exception
where it has been made by a prescribed person that, it is a person who has been appointed for
purposes of admitting a business or fund relating to a trust due to mismanagement caused by the
debtor. Regarding the application, the individual to whom the demand is made, the demand
should indicate to the person in a language he or she clearly understands about the nature and
effect of the demand and inform him or her about the relevant procedures available20.
On the other hand, the court sets aside a demand if it is satisfied that; the judgment upon which
the demand is based is set aside, reversed or reduced below the prescribed amount; the debtor
appears to have a counterclaim, set-off or cross demand which could not have been set up in the
proceedings in which the judgment was obtained and the amount claimed in the demand less the
amount of the counterclaim, set-off or cross demand is less than the prescribed amount; that the
execution of the judgment has been stayed and that the demand ought to be set aside on other
grounds21. However, if the court satisfied that the demand should not be set aside, the court may
19 Dennis v. JPMorgan Chase & Co., 343 F. Supp. 3d 122 (S.D.N.Y. 2018).
20 Nat. Fedn. of Indep. Business v. Sebelius, 132 S. Ct. 2566, 567 A.U. 519, 183 L. Ed. 2d 450
(2012).
21 In re Lehman Bros. Inc., 519 B.R. 434 (S.D.N.Y. 2014).

dismiss the action, make an order authorizing the creditor to make an application for a
bankruptcy order against the debtor immediately or after the indicated period and if it is about
the likelihood of the debtor being able to make the payment or secure a compound for the debt
with a reasonable time, it will order that debtor makes the payment and that if he or she defaults,
the creditor should make a bankruptcy order against a debtor22.
In addition, the report looks into the issue of amount where considers the amount upon which a
statutory demand and bankruptcy obligation should be made. This is of importance as it puts a
limit on number of stay periods that might be sought by the debtors.
Therefore, following the illustration, the hammer report comes up with the proper way a creditor
should respond to any violation of the stay. In this regard, the report indicates that a proper
procedural law should be taken into consideration. The procedure is that; the creditor should
allow the debtor to settle the debt within the prescribed stay period. Following this, if the debtor
fails to make the payment, the report indicates that the court allows the creditor to make an
application against the debtor but where there is a possibility that the debtor will fulfill the
agreement, it makes the order for him or her to do as required and if he does not adhere to then
order, then bankruptcy application will be made against him23.
In conclusion therefore, the hammer report is an important source in the field of insolvency law
and it elaborates on the available laws regarding a stay and the procedure that should be followed
where the debtor does not adhere to the stay. The procedure provides that; the creditor should
allow the debtor to settle the debt within the prescribed stay period. Following this, if the debtor
fails to make the payment, the report indicates that the court allows the creditor to make an
application against the debtor but where there is a possibility that the debtor will fulfill the
agreement, it makes the order for him or her to do as required and if he does not adhere to then
order, then bankruptcy application will be made against him24. Further, any violation that relates
to the stay period attracts some fines and previous loans and creditors. Of most important is that
the insolvency laws afford protection to both parties, which are the debtor and creditor by
providing an affordable and equitable fair system for assets distribution and claim. Therefore, the
22 Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010).
23 Morrison v. National Australia Bank Ltd., 561 A.U. 247, 130 S. Ct. 2869, 177 L. Ed. 2d 535
(2010).
24 In re CIL Ltd., 582 B.R. 46 (Bankr. S.D.N.Y. 2018).

project is of importance since it contributes to elaborating the time and dynamics that aid in
decision making regarding the insolvency laws. On the other hand, it is important that the law
relating to stay period is critically analyzed so as to enhance the protection of the debtor.
Conclusion
Following the illustrated information, the stay period is of importance since it ensures that a
debtor settles the debt he owes to the creditor. Regarding this, the debtor is able to do so within a
certain period while the meantime the creditor is accorded time to come up with a plan as to the
best way to settle the debt. The law is of importance since, although it seems to kind of lean on
the side of the debtor, it helps in avoiding the cost of court proceedings that will have to be
incurred when the case is taken to court. This therefore saves cost on both the debtor and
creditor.
On the other hand, stay allows the bankruptcy trustee to make a decision in regards to the
appropriate properties belonging to the debtor that can be used to settle the debts. Similarly, it
allows him or her to organize his finances and come up with an effective payment plan that the
creditor can adopt in paying the debts. Therefore in general, a stay makes sure that a balanced
strategic payment plan is developed by the creditor so as to ensure settlement of debts25.
On the other hand, the stay period on the face of it, it is not a good idea. This is so since; most
debtors look at it as a fast way that can relieve them from a difficult situation. Similarly, the
concept raises the question as to the dilemma of the public practitioners; this is so because what
the stay means is that; the practitioners have to aid persons into bankruptcy when there are other
alternative methods to it. Following this, the other options include the personal insolvency
agreements where the two parties in relation to the debt come together and agree on the best way
25 Wyburn, Mary, "Debt Agreements For Consumers Under Bankruptcy Law In Australia And
Developing International Principles And Standards For Personal Insolvency" (2014) 23(2)
International Insolvency Review.

to settle the debt. In addition, the debt agreement mechanisms can be used so as to ensure that an
agreement is reached26.
In addition, the stay ensures that the debt of the creditor is settled within a specific time. This is
so since there stay period is specified and therefore the debtor is to ensure that the repayment is
done within the set period of time. Further, following the stay period law, different authors have
different views following it. This is so some consider it as a harmonized way through which the
law has enabled the debts owed to be settled without undergoing the many procedures of
bankruptcy and claims of compensation. On the other hand, others view it as a way through
which the debtors use to relieve themselves from a heavy financially burden and therefore
making it a bad mechanism on its face.
26 In re Oi Brasil Holdings Coöperatief UA, 578 B.R. 169 (Bankr. S.D.N.Y. 2017).

References
Journals
Duns, John and Rosalind Mason, "Consumer Insolvency In Australia" (2001) 10(3) International
Insolvency Review
Kumar, Gtyhu, "Bankruptcy. Partnership. When Not Insolvent" (2015) 11(12) The Virginia Law
Register
Morrison, David S. and Rachel S. L. Lee, "Trends In Personal Insolvency In Australia - An
Update" (2012) 5(6) SSRN Electronic Journal
Ramsay, Ian and Cameron Sim, "Trends In Personal Insolvency In Australia" [2009] SSRN
Electronic Journal
Ramsay, Ian and Cameron Sim, "Personal Insolvency In Australia: An Increasingly Middle Class
Phenomenon" [2009] SSRN Electronic Journal
Ramsay, Ian and Cameron Sim, "Personal Insolvency In Australia: An Increasingly Middle Class
Phenomenon" (2010) 38(2) Federal Law Review
Ramsay, Ian and Cameron Sim, "Personal Insolvency In Australia: An Increasingly Middle Class
Phenomenon" (2010) 38(2) Federal Law Review
Sane, Renuka, "The Way Forward For Personal Insolvency In The Australian Insolvency And
Bankruptcy Code" (2019) 6(5) SSRN Electronic Journal
Tribe, John Paul, "Personal Insolvency Law In England And Wales: Debtor Advice, Debtor
Education And The Credit Environment (Personal Insolvency Project - PIP) - Volume One"
[2016] SSRN Electronic Journal

Wyburn, Mary, "Debt Agreements For Consumers Under Bankruptcy Law In Australia And
Developing International Principles And Standards For Personal Insolvency" (2014) 23(2)
International Insolvency Review

Case Laws
World-Wide Volkswagen Corp. v. Woodson, 444 A.U. 286, 100 S. Ct. 559, 62 L. Ed. 2d 490
(1980).
Dennis v. JPMorgan Chase & Co., No. 16-cv-6496 (LAK) (S.D.N.Y. Nov. 26, 2018).
Dennis v. JPMorgan Chase & Co., 343 F. Supp. 3d 122 (S.D.N.Y. 2018).
In re CIL Ltd., 582 B.R. 46 (Bankr. S.D.N.Y. 2018).
In re Oi Brasil Holdings Coöperatief UA, 578 B.R. 169 (Bankr. S.D.N.Y. 2017).
Morrison v. National Australia Bank Ltd., 561 A.U. 247, 130 S. Ct. 2869, 177 L. Ed. 2d 535
(2010).
Nat. Fedn. of Indep. Business v. Sebelius, 132 S. Ct. 2566, 567 A.U. 519, 183 L. Ed. 2d 450
(2012).
Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010).
Associated Ins. Service, Inc. v. Garcia, 307 S.W.3d 58 (Ky. 2010).
In re Lehman Bros. Inc., 519 B.R. 434 (S.D.N.Y. 2014).