Media Release 19 Oct 2004

[This document was updated on 29 Oct 2004]

Incudes photo opportunity - refer to the bottom of the media release for details.

Insolvency laws 'morally bankrupt'

THE complexity of laws governing bankrupt companies in Australia is an issue the new government must address.

The conduct of bankrupt companies is laid down in the Corporations Act 2001 - and it is far too complex for most creditors to understand, claims Nick Bishop, who runs an email group, Unpaid Mushrooms, that discusses the issues that creditors face.

A common scenario is Voluntary Administration - where the Directors of a company appoint an Administrator because the company is insolvent.

One of the main problems, according to other Unpaid Mushrooms members, is that it is often the Company Directors that choose the Administrator - so their decisions are biased in favour of the Directors. They are calling on the Government to simplify insolvency law, and make changes that will remove opportunities for abuse of the law.

They want the law to specify random or round-robin allocation of Administrators and other Insolvency Practitioners to insolvency cases, and also a requirement on companies that trade out to pay their creditors in full. They also want extensive information on the rights and responsibilities of creditors to be made available to those affected by a Voluntary Administration or other types of insolvency.

With the current system, and the high cost of legal advice, opportunities are rife to mislead creditors, or to use various strategies against them, such as omitting important information. Administrators often say "it's not against the law" when challenged by creditors.

Even employees, who normally enjoy better protections under insolvency law, can suffer badly, as Mr Bishop and some of the other Unpaid Mushrooms found out when their employer, a small software development company, ran out of cash two years ago. GEERS [the Government scheme that pays out workers in failed companies] did not cover their case, and what remains of their Superannuation entitlements, paid by the Administrator in bulk to the ATO in January this year, still hasn't been credited to their accounts.

We can never protect creditors against the full range of company collapses, but this is about simplicity, transparancy, and making companies pay whenever they can afford to. There's a lot of Phoenix Company activity going on unchecked, and then there are the companies who trade out - leaving their past creditors in the dust.

Creditors seeking further information can visit the Unpaid Mushrooms web page at http://yahoogroups.com.au/groups/otmushrooms/

Ends

Media contact Information

Photo opportunity

Nick Bishop can arrange to be at most locations in or around the Melbourne CBD during most daylight hours. Call to discuss.

Links, Downloads, and soft copies

Background Information

The email group, originally named OT Mushrooms, was set up by Nick Bishop when his employer, Open Telecommunications, was placed in Voluntary Administraton in July 2002. This enabled employees and ex-employees to share information and thoughts on the process of the Administration, and to organise mass action and publicity.

The company entered into a Deed of Company Arrangement which only paid (approximately) 43 per cent of employee entitlements and 20 percent of trade creditors' claims. This was paid out in December 2003

The group, now called Unpaid Mushrooms is open to all creditors to discuss insolvency issues.

Note - trailing slash

[Update 29 Oct 2004] Media storywriters intending to print the group's web link should pay particular attention to put the trailing slash (as in ...otmushrooms/ ) on the group web address, for the following reasons:

Hosted by www.Geocities.ws

1