What it means if someone who owes you money has lodged a temporary debt protection (TDP) form
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Temporary debt protection provides a six-month protection period for debtors. During this time, unsecured creditors, the bailiff or sheriff can’t take action to recover unsecured debts against the debtor themselves or their property. This gives the debtor time to consider all their options and discuss alternative arrangements with their creditors.
Lodging a TDP (formally known as a declaration of intention to present a debtor's petition) is an act of bankruptcy under s54A of the Bankruptcy Act 1966. The debtor is indicating they may be insolvent. The debtor is not automatically made bankrupt at the end of the six months. You can, however, use a TDP as the basis for a creditor’s petition to the court to make the debtor bankrupt. See Make someone bankrupt
Manpreet owns and operates a coffee bean supply company. He roasts his own beans and sells them to local cafés.
Most of his customers have been impacted by the coronavirus. Cafés have only been able to sell takeaway coffees, which has hurt their revenue. Manpreet’s larger customers went through 10kg of coffee beans in a day, but now many are lucky if they get through 1 kg. Others have simply closed their doors.
Many of Manpreet’s ongoing customers have fallen behind on payments, and now he’s struggling to pay his own bills. Needing to keep up his own business’ cash flow, he contacted a solicitor to act on his behalf in collecting overdue payments from his customers.
The solicitor suggested Manpreet obtain a court judgement against one of his customers – Julia – to give him some enforcement options. Julia is a sole trader who runs a local café, she regularly buys roasted coffee beans from Manpreet.
A judgement usually means that Manpreet could charge interest on the debt owed at the post judgement rate and also consider further steps against the customer, like a wage garnishee order.
Manpreet’s solicitor was able to have the judgment registered, but Julia filed for Temporary Debt Protection (TDP) with AFSA. The TDP stopped Manpreet from being able to use enforcement options such as a wage garnishee, or applying for the sheriff to seize and sell Julia’s assets. Julia is protected for a period of six months.
As part of the TDP process Julia completed a brief statement of her financial affairs, which included information about income, assets and debts. As a creditor this information was provided to Manpreet giving him a better understanding of the situation that she was in. Manpreet realised that her debts were widespread and her financial position was made worse by COVID-19.
Armed with new knowledge of Julia’s situation, Manpreet reached out to her directly and was able to come to an arrangement that kept both businesses functioning as best as possible. Even during the six month TDP period, Manpreet is allowed to contact Julia to discuss their options - they do not have to communicate through solicitors or AFSA.
If you are supplying goods on credit terms to your customers, you may wish to consider making a registration on the Personal Property Securities Register (PPSR). An agreement with your customer, along with an effective registration on the PPSR, is one way to help you get your invoices paid, or your goods back, if your customer doesn’t pay or goes out of business.
Find out more information about the Personal Property Securities Register, or PPSR for short, at ppsr.gov.au.
*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.
If you have been notified of an accepted TDP but think the information about the debtor’s assets and income might be wrong, you should advise the Official Receiver in writing.
If the debtor files for bankruptcy, the information you provide will be given to their trustee for investigation.
If the debtor does not file for bankruptcy, you can pursue them to recover the money they owe you.