Electronic delivery of documents in bankruptcy and liquidation – continued

In my earlier comments trying to work out why we now have unharmonized drafting approaches and rules for electronic service of insolvency documents, depending on whether corporate or personal insolvency is involved, I said I had asked relevant agencies in Canberra and that when any thoughtful reply arrived, I would report it. Electronic delivery of documents in insolvency law | Murrays Legal

Regardless, the following corporate law analysis may be a reason for the lack of harmonisation, and incidentally it may also reveal a problem in personal insolvency, beyond the opaque drafting of new bankruptcy regulation 102 as to electronic service.

Electronic service

To recap, insolvency related sections of the Corporations Act have been amended by the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 to better facilitate electronic service – mainly s 600G – electronic methods off giving or sending certain notices etc – and ss 105A, 105B – when and where is an electronic communication sent and received.

At the same time, the 1996 Bankruptcy Regulations were re-drafted and re-issued as the Bankruptcy Regulations 2021, operative from 1 April 2021. New section 102 replaces old reg 16 which allowed service by email. Section 102 says nothing about service by email save that the Explanatory Statement says it is permitted. AFSA says that the “amendments are minor and aimed at modernising references and ensuring alignment with the Bankruptcy Act”.

So, each of personal and corporate insolvency takes a different drafting approach.

Inconsistency between corporate and personal

The reason for the different legal requirements for, say, delivering documents to creditors in a bankruptcy and to creditors in a liquidation is because of Australia’s constitutional referral of powers arrangements on which the validity of the Corporations Act 2001 relies. Also, separate government departments administer each Act.

The Electronic Transactions Act 1999 was enacted to deal with references to requirements in writing etc in Commonwealth laws and to ensure those references can work in the context of electronic communications. But the Corporations Act, while a Commonwealth law, is based on a referral of state powers, hence the Corporations Act excludes significant parts of the ETA 1999; see item 23 of cl 1 of sch 1 to the Electronic Transactions Regulations 2020.

Instead, the Corporations Act has its own particular provisions relating to electronic communications (eg, ss 105A and 105B, 600G) even if generally based upon the ETA 1999. But there were necessary exclusions made from the ETA 1999 because of the particular requirements of insolvency practice.

Consent to receipt of electronic delivery

So the liquidator does not need to have the recipient, say a creditor, consent to the use of electronic means and comply with any requirements of the Commonwealth agency that is receiving the information: see s 9 ETA 1999. “These conditions were not included as they would have imposed high regulatory costs on industry “: [5.16].

The rule in the ETA 1999 that requires the addressee to have become aware that the electronic communication has been sent …. was not adopted as it would be administratively difficult

As to when an electronic communication is sent and received, there are also new default rules. As [5.18] says, “the time of receipt and dispatch needs to be capable of being reliably determined as many requirements in the Corporations Act need to be undertaken within a prescribed time period”. While

“the rules for determining the time of dispatch and receipt are closely based on those in s 12A of the ETA 1999, the only exception is that the ETA 1999 has a more nuanced rule for determining the time of receipt where the electronic address has not been nominated by the addressee. In these circumstances, the rule in the ETA 1999 requires the addressee to have become aware that the electronic communication has been sent. This more nuanced approach was not adopted as it would be administratively difficult for a company if notices and documents sent to multiple creditors were taken to have been received by different persons at different times and the time of receipt could not be reliably determined in advance”.

In other words, new and separate insolvency rules for determining when an electronic communication is sent and received were drafted because the ETA 1999 requirements were not suitable.

Difficulty of the timing of the receipt of documents required to be sent to multiple creditors

The administrative difficulty of the timing of the receipt of documents required to be sent to multiple creditors was raised in corporate insolvency back in 2003. In Re Vouris [2003] NSWSC 702, concerning Part 5.3A Corporations Act, the Court said that “(w)hen section 439A sets out a strictly limited set of times, any construction which required the time of convening of the meeting to depend upon when some individual creditor received notice, or the last of the creditors had received notice, would make [the law] very difficult to administer”: [46].

Justice Campbell therefore determined that notice of the meeting was given to creditors on the day the notices were posted, in order to provide a sensible outcome.

That issue remains for electronic service.

In carving out the difficult ETA 1999 requirements when re-drafting sections 105A, 105B and 600G, the law now largely provides some insolvency specific sensible outcomes, as did former bankruptcy regulation 16(2)(b).

Personal insolvency now applies all the ETA 1999, including provisions corporate insolvency avoided

But with bankruptcy law now adopting all of the ETA 1999, that lack of a sensible approach may now leave electronic service ‘very difficult to administer’ in several respects. The drafter of the 2021 regulations seems to have blithely accepted the ETA 1999 as fully applying, which would often be the case with much other Commonwealth law. That is the reason why s 102 does not specifically refer to ETA 1999.

As to why the former bankruptcy regulations did not apply the ETA 1999, they were issued in 1996 and predated the ETA 1999; hence they had their own more detailed provisions about sending documents by electronic transmission.

Section 102

Bankruptcy Regulation section 102 in essence requires the reader to trace through two Acts of Parliament to then find what provisions allow email service, as the Explanatory Statement says; and on finding that the ETA 1999 applies, the reader would then try with difficulty to apply it to situations identified by the legislature in corporate insolvency. Others can work out the extent of the damage, if this analysis is correct. [Comments welcome…].

The confidence expressed in the Explanatory Statement to the 2021 Bankruptcy Regulations seems to be misplaced, or was obtuse.

More to the point, it is as if those drafting the new rules in corporate and personal insolvency made no connection with each other?