The Quirky World of Provable Debts in Bankruptcy

We were recently approached by a solicitor to consent to act as Bankruptcy Trustees (to replace the current Bankruptcy Trustees) in a matter where the solicitor’s client had initiated proceedings against his former employers for compensation pursuant to section 545 of the Fair Work Act 2009.


The solicitor’s client had worked in the hospitality industry for two related companies from 2016 to 2020. During this time, his corporate employers had failed to pay minimum award rates for ordinary time, overtime, and penalty rates for weekends and public holidays.

The client’s solicitor sought compensation under section 545 of the Fair Work Act for the underpayment of wages in addition to interest and pecuniary penalties. The original proceedings commenced in July 2020. The corporate employer entities were voluntarily placed in Liquidation in September 2021. The director and former director subsequently submitted debtors’ petitions for their voluntary bankruptcies in October 2021.

In February 2022, by Order of the Federal Circuit and Family Court of Australia, the director and former director were ordered to pay compensation to the client for his loss suffered totaling $200,000 and pecuniary penalties in the sum of $75,000.

Relevant Legislation

    • Section 82 of the Bankruptcy Act 1966 details the debts provable in a bankruptcy.
    • Section 82 (2) of the Act states that demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.
    • Section 82 (3) of the Act states penalties and fines imposed by a court in respect of an offence against a law are not provable in bankruptcy.

Relevance to Our Matter

After much discussion with the current Bankruptcy Trustees and our referring solicitor, it was determined that although the solicitor’s client had a claim against the bankrupts (the director and former director of the corporate employers) pursuant to the Order of the Federal Circuit and Family Court of Australia, the timing of the Order meant the claim was not provable in the current bankruptcies.

The Order dated February 2022, was obtained post the date the director / former director submitted their debtors’ petitions for bankruptcy and ultimately became bankrupt in October 2021. Accordingly, his claim is seen to have crystalised post-bankruptcy – at the time of the bankruptcy, the debt was unliquidated and therefore not provable.

As a side note, even if the Order had been made prior to the bankruptcies occurring, the pecuniary penalties pursuant to section 82 (3) of the Act would not have been considered provable debts.

Despite the client’s continued efforts to obtain the judgement order and quantify his claim against the parties, his current dilemma is whether to now proceed with issuing a bankruptcy notice and incur further costs to press on to a second bankruptcy.

The complication here is the initial bankruptcy continues, the Trustees will continue to fulfil their duties and to realise any assets of the initial bankrupt estate and only when they have completed their role and the creditors of their estate are paid 100 cents in the dollar, will any surplus funds be paid into the second bankrupt estate.


Article by Anne Meagher (Director) – SV Partners Brisbane

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