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  • Privacy issues may arise when an individual or organisation is issued with a notice to produce specified books under section 77A of the Bankruptcy Act 1966 (Cth).
  • Failure to properly comply with section 77A notice can attract a prison sentence of up to twelve months.
  • Care should be taken to ensure that personal information which is outside the scope of the notice to produce is not disclosed when complying with a section 77A notice.

If your business employs or has employed, or had particular dealings with a person who has been declared bankrupt, you may receive a notice from the trustee in bankruptcy directing you to produce “specified books”, or a “specified class of books”, under section 77A of the Bankruptcy Act 1966 (Cth). Failure to comply with a section 77A notice can attract significant penalties. However, care must be taken when providing access to books in accordance with a section 77A notice that the business does not breach the Privacy Act 1988 (Cth) by inadvertently disclosing “personal information” as defined under the Act that is not strictly within the scope of the notice to produce.

Outline of the legislation

Section 19AA of the Bankruptcy Act permits a trustee in bankruptcy to investigate the dealings, transactions and property of a bankrupt, as well as any relevant financial affairs of an associated entity of the bankrupt. As part of this wide-ranging investigatory power, the trustee may issue an “associated entity” with a notice to produce books under section 77A, which provides:

“(2) For the purposes of the investigation, the trustee may by writing require a person to   produce … specified books, or specified classes of books, that:

                        (c) are the books of an associated entity of the bankrupt…”     

Section 5 of the Bankruptcy Act defines books broadly, and includes “any account, deed, paper, writing or document and any record of information however compiled, recorded or stored, whether in writing, on microfilm, by electronic process or otherwise.”

 Is your business an “associated entity”?

A company or organisation is an “associated entity” for the purposes of the Bankruptcy Act if the bankrupt is, or has been:

  • a company officer, or involved in the company’s management;
  • able to control or materially influence the activities and internal affairs of the company;
  • a member of the company;
  • in a position to control or cast a vote at a general meeting;
  • capable of disposing of, or controlling a share in the company;
  • financially interested in the success or failure of the company;
  • a creditor of the company;
  • employed by, engaged in a contract for services by, or an agent for the company; or
  • a person who gives professional advice to the company.

A company may also be an ”associated entity” where the bankrupt has had property dealings with the company, or where the company is a trustee of a trust under which the bankrupt is capable of benefiting.

Obligations under the Privacy Act

Most businesses have a statutory obligation to protect personal information under the Privacy Act and the Australian Privacy Principles (the APPs). If you are unsure whether the APPs apply to your business, please refer to our previous article, Plugging the leak – dealing with data breaches.

APP 6.1 prohibits an APP Entity from using or disclosing certain personal information for a purpose other than the primary purpose for which it is collected. APP 6.2(b) permits an APP Entity to use or disclose personal information where required under an Australian law, such as a notice issued under section 77A of the Bankruptcy Act.

Despite the exception created under APP 6.2, the decision of the Federal Magistrates Court of Australia (now the Federal Circuit Court of Australia) in Fletcher v Eebme Pty Ltd (2007) 213 FLR 1 (Fletcher) illustrates how conflicting obligations might still arise under the Privacy Act and the Bankruptcy Act.

Fletcher v Eebme Pty Ltd (2007) 213 FLR 1

In Fletcher, the respondent employed the bankrupt as a medical specialist. The trustee in bankruptcy issued a section 77A notice to Eebme Pty Ltd in order to assist in the trustee’s assessment of the bankrupt’s income under section 139W of the Bankruptcy Act. Eebme objected to the notice on two grounds, namely that:

  1. the documents were subject to a relationship of confidence or privilege between the bankrupt and his patients; and
  2. Eebme’s obligations under the Privacy Act prevented it from producing documents that contained personal information about its clients.

In relation to the first issue, Wilson FM stated:

“There is nothing in the Bankruptcy Act which, in terms, abrogates a right to claim privilege against production of documents to a trustee, nor a right to object to production on the grounds that to do so would breach a duty of confidentiality.”

Turning to the issue of Eebme’s obligations under the Privacy Act, the Court stated that production of the documents was permissible under section 77A, however only to the extent that the specified books could be produced without disclosing any personal information relating to the respondent’s patients, noting that the relevant documents could be produced in a “sanitised” form.

Lessons from Fletcher

The decision in Fletcher highlights the difficulties that a recipient of a section 77A notice might face in light of limitations on use and disclosure of personal information under Privacy Act. Although a recipient of a notice to produce is still required to produce the records required by the trustee (provided they are related to the bankrupt’s financial affairs), care must be taken to ensure that the personal information of other individuals is not disclosed in complying with the notice. Accordingly, information may have to be redacted from whatever records are produced.

Further Information and contact details

Pigott Stinson regularly advises clients on issues relating to bankruptcy, insolvency and obligations under the Privacy Act. If you have been issued with a notice to produce, summons, or subpoena to produce or if you require assistance in relation to your obligations under the Privacy Act and the Australian Privacy Principles, please contact one of our litigation or privacy law specialists:

 

 

This Newsletter is produced by Pigott Stinson. It is intended to provide general information only. The contents of this Newsletter do not constitute legal advice and should not be relied upon as legal advice. Formal legal advice should be sought from us in respect of the matters set out in this Newsletter. Liability limited by a scheme approved under Professional Standards Legislation.