Unclaimed moneys in bankruptcies – the law reformed

Those who are owed “unclaimed moneys” arising from a bankruptcy – for example a creditor whose dividend payment went astray – are assisted by recent changes to a section of the Bankruptcy Act that dates back to the 1924 Act and before.

What has been a long-standing injustice is being belatedly remedied by the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018.[1]

Section 254 of the Bankruptcy Act has required anyone making a claim for moneys owing but not received by them in relation to a bankruptcy – unclaimed moneys – to apply to the court.  Evidence in support, and invariably legal representation is required.

The reality of legal costs and court filing fees has probably meant that many if not most such claims have not been made, with the moneys be kept by the Commonwealth. Even where the amount involved has justified a court application, the legal costs and fees will have depleted the amount owing.

This has now been remedied by way of the bankruptcy administrator, AFSA, being given authority to determine such claims.

This aligns personal insolvency with corporate insolvency where under section 1341 of the Corporations Act, ASIC, rather than the Court, has the authority to pay out unclaimed moneys on application being made.

As with ASIC, a right of court review is available if AFSA refuses the application.

AFSA’s IGPD 20 – Guidelines for the payment of monies to the Commonwealth pursuant to section 254 of the Bankruptcy Act – will need to be replaced with guidance on such applications.

Transitional arrangements

The transitional arrangements of these changes are important:

  • a person can apply to the Official Receiver for unclaimed moneys paid to the Commonwealth on or after the commencement of Schedule 5,[2] using the new subsection 254(3);
  • a person can apply to the Official Receiver for unclaimed moneys paid to the Commonwealth before the commencement of Schedule 5 under new subsection 254(3) where an application had not been made to the Court under the current subsection 254(3) prior to commencement;
  • where a person has applied to the Court for an order before commencement of item 5 Schedule 5, subsections 254(3) and (4) as in force immediately before commencement of item 5 continue to apply.

Readers will need to make their own decisions on the law but any pending applications for unpaid moneys, and applications not made in the past because of the small amount involved, might well be able to be made to AFSA, once the law commences.

Delayed law reform[3]

The need to apply for unclaimed moneys by way of a court order dates back to the 1924 Bankruptcy Act, and no doubt before.  ASIC’s authority to determine such claims has existed for some years.  How much money the Commonwealth has retained over the years because of the legal hurdle of a court application is not shown in AFSA’s accounts.

And it should be noted that the 1924 Act – s 208 – at least required that interest earned from unclaimed moneys held by the Commonwealth be applied to create the “Bankruptcy Suitors’ Fund”, one purpose of which was to fund necessary proceedings or prosecutions in assetless bankrupt estates.

 

[1] As at the time of writing, not yet an Act of Parliament.

[2] “…being immediately after the end of the period of 6 months after the Amending Act receives the Royal Assent”.

[3] This was raised as a law reform issue in Keay’s Insolvency, 10th ed, Ch 6, and earlier editions.

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