Litigation and Dispute Resolution

The risk of a director/officer of a corporation assuming vast responsibilities – ASIC v Cassimatis (No 8) [2016] FCA 1023

11 October, 2016

The Bankruptcy Act 1966 (Cth) (the Act) provides a regime by which a debtor can compromise with his/her creditors outside formal bankruptcy. The provisions are found in Part X (Personal Insolvency Agreements) and Part IX (Debt Agreements) of the Act.

Debt Agreements

Debt Agreements under Part IX of the Act are designed for debtors who have limited liabilities and income and, accordingly, there are strict thresholds on who can propose a Debt Agreement. Those thresholds are revised twice a year – for the period 20 March – 19 September 2015, debtors who have unsecured liabilities which exceed $107,307.20, or their after tax income exceeds $80,480.40 cannot apply for a Debt Agreement.

A Debt Agreement proposal will be accepted if the majority of creditors vote in its favour. If accepted it will then bind all creditors, whether or not they voted in favour of it.

Debt Agreement proposals can be quite flexible, but most commonly proposals include:

  • A lump-sum payment(s);
  • A moratorium period on claims;
  • A periodic payment schedule;
  • A regime whereby third parties will contribute to repaying creditors to some extent.

Part X Personal Insolvency Agreement (PIA)

A PIA is essentially a deed which binds creditors in dealing with an insolvent debtor’s assets/liabilities.

In short, the PIA process is as follows:

  • The debtor obtains the authority, under s.188 of the Act, of a person willing to be the Controlling Trustee.
  • The debtor provides the Controlling Trustee with a statement of affairs (ss.188(2C), (2D) ), and the proposal must include a draft PIA (s.188(2E)).
  • The Controlling Trustee will then call a meeting of creditors and take control of the debtor’s property (s.188(1)). The Controlling Trustee will also provide a report on the proposal, which is required to include his/her opinion on the best option for creditors (ss.189A, 194).
  • At the meeting the creditors may pass a special resolution to require the debtor to (s.204(1)):
  • enter into a PIA;
  • present a debtor’s petition within 7 days; or
  • to end the controlling trusteeship without any action being taken.

Pursuant to s.188A(2) of the Act, a PIA must set out the specific details and components of the PIA, such as how the debtor’s property and income is to be dealt with during the administration, the extent (if any) to which the debtor is to be released from his or her provable debts, whether or not the antecedent transactions provisions of the Act will apply and so on.

If a PIA is proposed and accepted, it will be administered by a Controlling Trustee (usually a registered trustee, but it can also be a solicitor).

All creditors are bound by the PIA (s.229) and it will operate to release the debtor from all provable debts (s.230).

In terms of the administration of a PIA (such as the powers and responsibilities of the debtor and the Trustee), s.231 of the Act operates to apply many of the provisions relating to bankruptcy to PIAs.

Unlike a Debt Agreement, there are no thresholds for PIAs.


The primary advantage of Debt Agreements and PIAs is that, if accepted, the debtor avoids formal bankruptcy.

Other advantages include:

  • The debtor may avoid some of the restrictions relating to bankruptcy, such as overseas travel, applying for credit, managing a corporation etc;
  • The debtor may be able to retain assets (eg family home) that would in bankruptcy be sold for distribution to the creditors;
  • Reduced personal stigma;
  • Often far less costly that bankruptcy so that the creditor is not out of pocket in seeking a sequestration order;
  • Potentially a larger dividend for creditors;
  • Possibly greater flexibility, for example, in terms of which assets will be made available to creditors.
  • Proceedings relating to creditor’s petitions are stayed pursuant to s.189AAA.


The main disadvantages to Debt Agreements and PIAs are that they generally do not apply to secured creditors and that proposing a Debt Agreement or PIA is an act of bankruptcy. This means that if a proposal is rejected, a creditor can rely on the proposal in commencing bankruptcy proceedings against the debtor. Some of the other practical difficulties with Debt Agreements and PIAs are:

  • often the proposal needs to sufficiently generous (in terms of the creditors) or onerous (in terms of the debtor) such that the implications of those schemes are similar to formal bankruptcy in any case.
  • it is often difficult for creditors to assess the merits of a proposal given that it is unlikely that the Controlling Trustee (in the case of a PIA) has completed any substantive investigations in relation to the debtor’s affairs.
  • If creditors are required to enforce the terms of the PIA or Debt Agreement, any cost benefits of those regimes may be illusory.

Case in point

Each year AFSA publishes statistics on personal bankruptcies and trends in appointments and administrations. It is clear from recent and historical statistics that PIAs are scarcely being utilised by debtors in dealing with insolvency, with only 211 PIAs in 2013-2014 financial year. Debt Agreements under Part IX are more popular (10,706 in 2013-2014), but are still dwarfed by bankruptcies under Part IV and XI of the Act (18,592 of the Act).

Whilst PIAs will not be appropriate in all cases of personal insolvency, however, in the author’s view there are many cases where it would be in the interests of creditors and debtors alike to consider a PIA. Legal and financial advisors have a big part to play in advising their clients in this regard and exploiting the possible benefits

AFSA frequently highlights the (commonly forgotten) fact that one of the key objectives of the Bankruptcy Act is the encouragement of alternatives to bankruptcy. We except, given the statistics, PIAs is a fertile ground for law reform. Watch this space.

McCabes’ Expertise

McCabes has extensive experience in corporate and personal insolvency.

Insolvency, restructuring and turnaround issues are inextricably multi-faceted. At McCabes we work closely with clients, their financial advisors and key staff to identify the key issues and the desired commercial and practical objectives and then develop strategies to implement. Our clients benefit from our multi-disciplinary specialists, in areas such as commercial and transactional law, litigation and dispute resolution and employment.

Our success and reputation reflects our cohesive, pragmatic and outcome-focussed approach.

We are experienced in implementing early-intervention solutions such as strategic advice and planning, risk management, transactional and commercial advice as well as due diligence, crisis and viably assessment. Where restructuring/turnaround solutions are unavailable or unsuitable, we assist our clients through formal insolvency regimes such as bankruptcy, receivership, administration and liquidation.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.

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Canadian Court elevates thumbs-up emoji to signature status

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After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

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Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

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The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. 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