A 139ZQ notice issued by the Official Receiver is a powerful tool for trustees in bankruptcy seeking to recover a benefit received by a third party from an alleged void transaction. These include transactions such as an unfair preference, an undervalued transaction, or a transaction to defeat creditors.
Given the adverse consequences for noncompliance, a recipient of a 139ZQ notice should take it seriously and obtain legal advice without delay.
Section 139ZQ notices
If the Official Receiver believes that you have received property (which can include the payment of money) as a result of a void transaction under the Bankruptcy Act 1966, it can issue a notice under section 139ZQ. The notice will require you to repay the value of that property to the trustee in bankruptcy.
Consequences of noncompliance
Where property, such as land, has been transferred, the notice acts as a charge over the transferred property and will remain in place until the notice is complied with.
If you fail to comply with a notice within the prescribed time, the trustee in bankruptcy can take court proceedings against you and, for example, obtain judgment for payment of the amount claimed.
A failure to comply with a notice is also an offence and may attract a maximum criminal penalty of six months’ imprisonment. An order that you pay the trustee the amount required in the notice may also be imposed.
When can a notice be issued?
A notice can be issued to a person who has received money or property as a result of an alleged void transaction under:
- section 120 (undervalued transactions)
- section 121 (transfers to defeat creditors)
- section 121A (transfers where consideration given to third party)
- section 122 (avoidance of preferences)
- section 128B-C (superannuation contributions made to defeat creditors).
Requirements of the notice
A notice can be served, for example, by being:
- personally delivered
- posted to or left at a person’s last known address
- sent by fax or another mode of electronic transmission.
The notice must describe the facts and circumstances by which the Official Receiver believes the property transfer was a void transaction.
The notice will require that this money or property be repaid to the trustee in bankruptcy. The value that must be paid is the market value of the property at the time of the notice and not at the time of the transfer.
The notice may require the amount to be paid:
- at a certain time or within a certain period
- at certain times and in certain instalments.
How can you challenge a notice?
If you have received a 139ZQ notice, you, or any other interested person (like a bankrupt), can apply to have the notice set aside. This application will need to be made in either the Federal Circuit Court or the Federal Court. The trustee in bankruptcy will be the proper respondent on the application.
An application to set aside must be made within 60 days after the notice was received. Where an application to set aside is made by an interested person, this must be made within 60 days of them becoming aware that the notice was given.
If you fail to comply with this time limit, it may be extended if the court is of the opinion that the application would have some reasonable prospects of success and the delay can be adequately explained.
When will a notice be set aside?
To successfully set aside the notice, you must present sufficient evidence indicating, on the balance of probabilities, that the notice is invalid – that is, that the ‘facts and circumstances alleged’ in the notice do not apply.
If sufficient evidence is put forward, the onus will shift to the trustee in bankruptcy to prove the notice is valid. What amounts to sufficient evidence is a question of fact in all the circumstances.
Ultimately, a notice is set aside at the discretion of the court. Some examples of where a 139ZQ notice has been set aside include:
- the transfer of property was not a void transaction
- a defence based on sections 120, 121, 122, 128B or 128C applies
- there is a technical defect in the notice
- the notice amounts to an abuse of process.
It is possible to get costs awarded against the trustee who unsuccessfully resists the application. Where the Official Receiver has taken an active role in the proceedings, it is also possible to recoup some costs against the Official Receiver.
A 139ZQ notice can be a powerful tool for trustees in bankruptcy. They need to be taken seriously and acted on quickly.