Articles Archives - NSW Credit Law

The Rise and Fall of Darren Misquitta’s Genius Childcare Empire – A Cautionary Tale for Creditors

Paul Thorndike — Thu, 16 Oct 2025 05:30:47 +0000

NSW CAPI Agents and NSW Credit Law have a debt recovery rate over 80%, which is not matched by many in the industry. However, the major contributing factor to that debt recovery rate not being higher is insolvency of debtors. Both corporate liquidations and personal bankruptcies.

No insolvency in our history has affected more clients than the insolvency of the Genius Childcare empire and the bankruptcy of its director Darren Misquitta.

Darren Misquatta’s own online business profile describes him as a “dynamic Australian business professional whose career trajectory illustrates versatility and impact on diverse industries”.

It claims he is a renowned executive in the fields of finance, resources, and education, especially as the Director of Genius Childcare, where he built a unique framework guided by Early Years Learning and influenced through universal concepts inspiring children.

Previously serving as the Executive Director of Killara Resources from 2010 to 2013, he claims to have played an integral part in steering the company through growth and development. He is an active stakeholder at Sprint Capital Partners, which provides financial services in Cremorne, Victoria, Australia.

He further claims that his “experience is driven by professionalism and successful performance in different spheres of activity, following organisational visions and strategies”.

However, recently his Genius Childcare and related companies’ empire have faced a dramatic downfall, leaving a trail of financial distress for creditors and stakeholders. Investigations by liquidators into the childcare centre operations have uncovered that various Misquitta companies owe creditors more than $80 million.

Misquitta has been referred to the corporate watchdog over the collapse of the group; and the $80 million owed to creditors; and there are other cases alleging the childcare empire failed to pay workers properly; and criminal charges.

The former boss of Genius Childcare has recently pleaded guilty to criminal charges of dealing with property suspected of being the proceeds of crime. A court heard he received $120,000 in suspected proceeds of crime from a business associate.

At its height, the Genius Childcare empire ran approximately thirty childcare centres in Queensland, New South Wales, the ACT, Victoria and Western Australia and was proposing to open another seventeen. Darren Misquitta owned and lived in a large and historic Toorak mansion.

However, in March 2025 the dominos began to fall and two key companies in the group collapsed owing more than $80 million. Administrators stepped in and the rest is a painful story for any creditors that had the misfortune of dealing with Misquitta and his companies.

His companies are now in liquidation and Misquitta has declared himself bankrupt leaving creditors in a world of financial pain. There is little doubt that other smaller innocent companies and businesses will fail due to the knock-on effects of debts owed by Genius Childcare, its subsidiaries and Misquitta.

Misquitta’s barrister Sam Tovey, has recently confirmed that Misquitta does not have a job, his marriage has broken down, and he has moved to the Gold Coast. He said – “At the present time he’s able to support himself, but he’s got outstanding issues with his businesses that are going to have to be dealt with.”

His creditors are miserable and are dealing with the fallout right now. The liquidation of the companies and the bankruptcy of Misquitta who has provided many creditors with personal guarantees has significantly impacted creditors in several ways:

Liquidation of the Company

When a company goes into liquidation, its assets are sold off to pay creditors. Creditors will typically receive payment in a specific order, often starting with employees, secured creditors, followed by unsecured creditors. Depending on the value of the assets and the amount owed, creditors may receive only a fraction of what they are owed. In this instance with $80 million owing to creditors we do not expect to see any dividend for unsecured creditors.

Director’s Bankruptcy

If the director who provided personal guarantees for the company’s debts goes bankrupt, this can further complicate the situation. Creditors might seek to recover debts from the director’s personal assets. However, the bankruptcy process may limit what creditors can recover, as the director’s assets will be distributed according to bankruptcy laws by a trustee. It remains to be seen what equity exists in properties owned by Misquitta.

Impact on Secured and Unsecured Creditors

Secured creditors usually have a better chance of recovering their debts since they have collateral backing their loans. Unsecured creditors, however, may find it much harder to recover their debts, especially if the company’s assets are insufficient to cover all debts and as mentioned above, we do not expect to see a dividend for unsecured creditors.

Priority of Claims

Creditors will have to navigate the legal framework regarding the priority of claims. For instance, tax authorities and certain employee claims may take precedence over other types of debt. We are aware from liquidators investigations that employees have not been paid, and it is likely that superannuation contributions have not been made. The ATO is owed a substantial amount.

Potential for Legal Action

Creditors may consider pursuing legal actions against the director, especially if there is evidence of wrongdoing, such as fraudulent trading or misrepresentation. However, the success of such actions can vary based on the circumstances and applicable laws and this is in the hands of the liquidators as we write.

We are acting for creditors of Genius Childcare, its subsidiaries and Misquitta and we have no good news for them. We are awaiting further reports from the liquidators but have advised our clients not to expect a positive outcome.

Overall, creditors should assess their positions carefully and consider seeking legal advice to understand their rights and options in this complex situation.

Sources:

Darren Misquitta online business profile

ABC News Australia

Disclaimer: When researching and drafting this article we may use an AI advanced language model amongst other sources. It is intended for general informational purposes and should not be used as a substitute for professional advice. While every effort has been made to ensure the accuracy and reliability of the information provided, we cannot guarantee its completeness, timeliness, or appropriateness for any particular purpose. Usage of this information is at the reader’s own risk. We are not liable for any errors, omissions, or results that may be obtained from the use of this information. Always consult with a qualified professional before making any decisions based on the content of this article. For legal advice please contact Paul Thorndike on 0429 008 247 or at paulthorndike@nswcreditlaw.com.au

The post The Rise and Fall of Darren Misquitta’s Genius Childcare Empire – A Cautionary Tale for Creditors appeared first on NSW Credit Law.

Protecting Your Business: The Importance of Payment, Default, and Indemnity Terms in Debt Recovery

Paul Thorndike — Thu, 16 Oct 2025 05:21:57 +0000

Introduction

In the world of business, timely payments are crucial for maintaining cash flow and ensuring operational stability. Understanding payment terms, default provisions, and indemnity clauses can be vital in safeguarding your interests against debtors.

Importance of Clear Payment Terms

Define Expectations: Clearly outline when payments are due. Specify payment methods and any applicable late fees. This clarity helps set expectations and minimises disputes.

Encourage Timeliness: Consider offering discounts for early payments or penalties for late payments to motivate timely transactions.

Default Terms: Protecting Your Interests

Definition of Default: Establish what constitutes a default (e.g., late payments, non-payment). This allows you to act swiftly when a debtor fails to meet their obligations.

Remedies for Default: Include provisions that detail the actions you can take in the event of a default, such as charging interest, initiating recovery or legal procedures, or terminating the contract. This enhances your leverage in negotiations.

Indemnity Clauses: Providing Additional Security

Understanding Indemnity: An indemnity clause protects your business from financial loss due to the debtor’s actions or inactions. It ensures that if a debtor fails to pay, they are responsible for covering your legal costs and any other related expenses.

Drafting Effective Indemnity Clauses: Ensure that these clauses are clearly written and specific to the obligations of the debtor. This specificity can provide a strong basis for recovering costs if a dispute arises.

NSW Credit Law Recommended Default and Indemnity Clauses

You should regularly consult with legal professionals to ensure your contracts are robust and compliant with current laws. Lawyers can help customise terms to suit your specific business needs.

Enforcement: In the event of a default, having well-drafted terms can facilitate more effective legal action, should enforcement action become necessary.

As well as clear payment terms, to ensure that NSW Credit Law can recover the maximum amount for you when we are instructed in your matters, we suggest including the following default and indemnity terms in your credit applications, terms of trade and/or on your invoices:

You indemnify us for debt recovery costs incurred in the event of an overdue account being referred to an external debt collection agency due to a default in your obligation to pay invoices pursuant to our credit and payment terms.
If the debt collection agency charges commission on a contingency basis you shall be liable to pay, as a liquidated debt, the commission payable by us to the debt collection agency.
The debt recovery costs recoverable will be the commission percentage charged by the debt collection agency including GST, as if the agency has achieved one hundred per cent recovery of the outstanding debt, plus any other debt recovery costs incurred.
The debt recovery costs will be applied to your account with us and will become payable by you as a liquidated debt from the date that the overdue account is referred to the debt collection agency.
If the debt collection agency refers the overdue account to a lawyer for litigation you shall also be liable to pay the charges reasonably made or claimed by the lawyer for legal costs and disbursements on an indemnity basis.

Statutory legal costs and interest are recoverable in legal proceedings without the need for the above clauses, but the above clauses would ensure that we can recover the maximum amount for you when we act on your behalf in debt recovery matters.

Of course, it is imperative to seek some legal advice that the above clauses complement the existing terms and conditions within your agreements.

The Importance of Payment, Default, and Indemnity Terms in Debt Collection

Here’s why these terms are essential:

Clear Payment Terms

Including explicit payment terms in credit applications and terms of trade helps establish clear expectations between the parties involved. These terms should specify:

Due Dates: When payments are expected. As well as specifying payment terms, for instance 14 days from date of invoice, specify on your invoices the exact date that the invoice is due.

Accepted Payment Methods: Make paying as easy as possible for your clients. Include all payment methods such as bank transfers, credit cards, etc.

Late Payment Penalties: Fees and interest that may apply if payments are not made on time.

Having these terms in place not only informs clients of their obligations but also strengthens your position if a payment dispute arises.

Default Clauses

Default clauses outline the consequences if a client fails to meet their payment obligations.

Key elements may include:

Definition of Default: Clearly stating what constitutes a default, such as late payments or failure to adhere to agreed payment terms.

Remedies Available: Options available to you in case of default, such as suspension of services, interest on overdue amounts, debt recovery or legal action.

These clauses provide you with a roadmap for managing defaults, ensuring you can take swift enforcement action when necessary.

Indemnity Provisions

Indemnity clauses protect your business from financial loss arising from a client’s failure to meet their obligations. By including indemnity provisions, you can:

Shift Risk: Require clients to indemnify your business against costs related to non-payment, including legal fees and collection costs.

Encourage Compliance: Knowing they may face financial repercussions can motivate clients to fulfil their payment obligations.

Indemnity terms can significantly mitigate the risks associated with extending credit or providing services or goods on credit terms.

Inclusion in Invoices

In addition to credit applications and terms of trade, it’s crucial to reinforce these terms on invoices. This can serve as a reminder to clients every time they receive an invoice of their payment obligations and the consequences of default.

Including:

Payment Terms: Clearly restating due dates and accepted payment methods.

Default and Indemnity Clauses: A summary or reference to more detailed terms in your terms of trade. Or a link to more detailed terms on your website.

This practice not only enhances clarity but also strengthens your legal position should the need for collection arise.

Conclusion

Incorporating comprehensive payment, default, and indemnity terms into your credit applications, terms of trade, and invoices is essential for effective debt collection and legal cost management.

These provisions provide clarity, set expectations, and protect your business’s financial interests. If you haven’t already, consider reviewing your current documentation to ensure these crucial terms are included and that they fit with all other terms and clauses within your credit applications, terms of trade and agreements.

NSW Credit Law can review credit applications, terms of trade and agreements to ensure that you have the most relevant and adequate protections in the case of breach of contract due to default on payment terms.

The post Protecting Your Business: The Importance of Payment, Default, and Indemnity Terms in Debt Recovery appeared first on NSW Credit Law.

Understanding Debt Recovery Before the Financial Year-End: A Guide for Clients

Paul Thorndike — Tue, 15 Apr 2025 01:34:33 +0000

As a specialised credit, commercial and debt recovery lawyer in Australia, I often encounter clients who overlook the critical timing of debt recovery, especially as the end of the financial year approaches. This period presents a unique opportunity for businesses to either recover outstanding debts or write them off for tax purposes when reporting to the Australian Taxation Office (ATO). In this article, we will explore the significance of this timing, the implications of accrual versus cash basis reporting, and how each method can affect your business.

The Importance of Recovering Debts Before the Financial Year End

The end of the financial year (EOFY) is a crucial time for businesses in Australia. It is the point at which you finalise your financial statements, assess your profits, and prepare for tax obligations. Recovering debts before EOFY can have several advantages:

Improved Cash Flow: Recovering debts promptly enhances your cash flow, allowing you to reinvest in your business or cover operational expenses.

Tax Benefits: If debts are deemed irrecoverable, writing them off before EOFY can reduce your taxable income, potentially lowering your overall tax liability.

Financial Health: A proactive approach to debt recovery reflects positively on your business’s financial health, which can be beneficial for securing loans or attracting investors.

Strategic Planning: Understanding your outstanding debts before EOFY enables better financial planning and decision-making for the upcoming year.

Writing Off Debts for Tax Purposes

When debts are written off as bad debts, businesses can claim a tax deduction, reducing their taxable income. To qualify for this deduction, certain criteria must be met, including demonstrating that the debt is genuinely unrecoverable and that reasonable steps have been taken to recover it. Engaging external debt collections agents or lawyers can be essential to this process.

Reporting to the ATO: Accruals vs. Cash Basis

In Australia, businesses can choose between two primary methods for reporting their income and expenses when filing tax returns: cash basis reporting and accruals basis reporting. Each method has its own implications for how businesses recognise income and expenses, which can significantly affect their financial reporting and tax obligations, particularly concerning the writing off of debts.

Cash Basis Reporting

Cash basis reporting is a method where income and expenses are recorded only when cash is actually received or paid. This approach is straightforward and reflects the actual cash flow of the business.

Key Features:

– Recognition of Income: Income is reported when it is received, regardless of when the sale occurred. For example, if a service is provided in December but the payment is received in January, the income is recorded in January.

– Recognition of Expenses: Expenses are recognised when they are paid. If a business incurs an expense in December but pays for it in January, it will record that expense in January.

– Tax Implications: For tax purposes, cash basis reporting can provide a clearer picture of cash flow, which may be beneficial for small businesses that manage their cash tightly. It can potentially defer tax liabilities since income is not reported until cash is received.

– Debt Write-offs: If a business is using cash basis reporting, it can only write off debts (bad debts) when they are written off in the accounts. If a debt is not collected, the business must wait until it is formally written off to claim a deduction. However, as debt is not recorded as income until it is paid no tax is payable on the income recorded on invoices that are overdue at EOFY.

Accruals Basis Reporting

Accruals basis reporting, on the other hand, requires businesses to recognise income and expenses when they are incurred, regardless of when cash is exchanged. This method aligns revenue with the expenses incurred to generate that revenue, providing a more accurate picture of a business’s financial performance.

Key Features:

– Recognition of Income: Income is recorded when it is earned, which is when the goods or services have been delivered, irrespective of when the payment is received. For instance, if a service is provided in December, that income is recorded in December, even if payment is received in January.

– Recognition of Expenses: Expenses are recognised when they are incurred. If an expense is incurred in December, it is recorded in December, no matter when the payment is made.

– Tax Implications: Accruals basis can provide a more accurate representation of a business’s financial position and performance over time, as it matches income with the related expenses. This can lead to a more consistent tax obligation, reflecting economic activity rather than cash movements.

– Debt Write-offs: Under accruals basis reporting, a business can write off bad debts when it determines that the debt is uncollectible, regardless of whether cash has been received. This recognition can lead to a more immediate tax deduction, allowing businesses to adjust their taxable income to reflect actual recoverable amounts.

Effects on Writing Off Debts for Tax Purposes

The choice between cash basis and accruals basis reporting significantly affects how businesses handle debt write-offs for tax purposes:

Cash Basis Reporting:

– Debts can only be written off when they are written off in the accounts. Thus, businesses may delay recognising a debt as a bad debt until they are sure it will not be collected and have formally written it off.

– This method might delay tax deductions for bad debts, impacting cash flow and tax liabilities.

Accruals Basis Reporting:

– Businesses can write off bad debts when they become aware that a debt is uncollectible. This allows for more timely adjustments to taxable income.

– The ability to recognise these debts as uncollectible more quickly can lead to an immediate tax deduction, which can positively affect cash flow and tax planning.

In summary, the choice between cash basis and accruals basis reporting influences how and when income and expenses are recognised, with significant implications for tax obligations and the timing of debt write-offs. Businesses should carefully consider their reporting method based on their financial situation and consult with tax professionals to ensure compliance and optimise their tax positions.

Debt Recovery

Engaging professional debt collectors and lawyers to attempt to recover debts before EOFY can result in debts being recovered in a timely manner before EOFY or the business being able to realise the debt as a tax deduction.

The post Understanding Debt Recovery Before the Financial Year-End: A Guide for Clients appeared first on NSW Credit Law.

Understanding Skip Tracing: A Guide for Clients

Paul Thorndike — Tue, 15 Apr 2025 01:02:14 +0000

In the litigation, debt recovery and commercial and private inquiry (CAPI) industries the ability to locate individuals quickly and efficiently is paramount. One of the most effective methods employed in this regard is known as skip tracing. This article aims to provide you with a clear understanding of what skip tracing is, the methodologies involved, and the various investigations that may take place during the process.

What is Skip Tracing?

Skip tracing is carried out by licensed CAPI agents. It is the process of locating a person’s whereabouts, typically after they have “skipped” or gone missing. This term is frequently used in the fields of debt collection, legal services, and private investigations. The individuals being traced may include debtors, witnesses, heirs, or individuals involved in civil or criminal legal matters.

Skip tracing utilises a variety of techniques and tools to gather information about a person’s current location, personal details, and employment status. It combines traditional investigative methods with advanced technology and specialised industry data bases, making it an essential service for solicitors, CAPI agents and debt collection agents.

The Skip Tracing Process

The skip tracing process can vary based on the specific case, but generally includes the following stages:

Data Collection: The first step involves gathering all available information about the individual. This may include:

Full name

Date of birth

Last known address

ID documents or information

Employment history

Known associates and family members

Database Searches: Our CAPI agents subscribe to various specialised industry databases to search for the individual. These databases may include:

Specialised industry data bases

ASIC and ABN data bases

Public records (land and property records, court records, etc.)

Credit reports

Social media platforms

Professional networking sites

Directories

Marketing lists

Field Investigations: If initial searches do not yield results, investigators may conduct field investigations. This can involve:

Visiting last known addresses

Contacting neighbours, references, or associates

Conducting surveillance if necessary

Interviews and Networking: Investigators may reach out to friends, family members, or colleagues to gather additional leads. Building rapport and trust can often yield valuable information.

Analysis and Reporting: Once sufficient information has been gathered, investigators analyse the data to determine the individual’s current whereabouts. A comprehensive report is then compiled, detailing the findings and outlining the next steps or options.

Types of Investigations Involved in Skip Tracing

Skip tracing investigations can encompass various types of inquiries, including:

Debt Recovery: Locating individuals who owe money to businesses or institutions

Legal Investigations: Finding witnesses or defendants in legal cases

Family Tracing: Assisting individuals in locating lost family members or heirs

Wanted Persons: Locating fugitives who have skipped criminal charges or proceedings

Background Checks: Performing thorough checks on individuals for employment or partnership opportunities

Conclusion

Skip tracing is a vital service that can save time, resources, and stress for clients. By leveraging a combination of technology, investigative skills, and data analysis, skip tracers can effectively locate individuals who may be difficult to find. Effective CAPI agents can normally locate individuals within a matter of weeks; however, the length of time required to locate a person can vary on a case by cases basis.

If you require assistance with skip tracing or any related investigations, please feel free to reach out. Our team of experienced CAPI agents is here to help navigate the complexities of locating individuals and ensuring we can gather the information required to expedite matters without delay.

The post Understanding Skip Tracing: A Guide for Clients appeared first on NSW Credit Law.

Understanding Legal Costs and Disbursements in Debt Recovery Litigation

Paul Thorndike — Tue, 03 Dec 2024 03:54:00 +0000

Debt recovery litigation is a critical area of law that helps creditors reclaim owed money. However, one aspect that often surprises clients is the complexity surrounding legal costs and disbursements, particularly regarding their recoverability. This article aims to clarify why not all legal costs and disbursements are recoverable in debt recovery actions, with a detailed focus on the costs associated with engaging process servers.

Legal Costs in Debt Recovery Litigation

When initiating debt recovery proceedings, clients typically incur various legal costs, including solicitor’s professional fees, court fees, and disbursements. Legal costs refer to the fees charged by solicitors for their services, which can include advice, drafting documents, and representation in court. Disbursements, on the other hand, are out-of-pocket expenses incurred while conducting the case, such as court filing fees, searches, investigations, engaging counsel, expert reports, and fees for process servers.

While clients may wish to recover all these costs if they are successful in their claim, the reality is that not all legal costs and disbursements are recoverable. The following factors contribute to this limitation:

Scale of Costs: The Local Court of New South Wales operates under a scale of costs that determines what can be claimed. This scale limits the amount recoverable to what the court considers reasonable and necessary for the conduct of the case. Consequently, any costs that exceed this scale may not be recoverable. The small claims division puts a cap on costs that can be recovered.

Discretion of the Court: The court has discretion in awarding costs. Factors such as the success of the case, behaviour of the parties during proceedings, the complexity of the case, and whether one party acted unreasonably can influence the court’s decision. This means that even if you incur significant legal costs, the court may determine that only a portion is recoverable.

Unrecoverable Costs: Certain costs may be deemed unrecoverable, such as those that are excessive or not directly related to the litigation. For instance, if a client engages in extensive communication that is not directly necessary for the case, those costs may not be recoverable. Costs for dealing with administration or for interlocutory motions or hearings are often not recoverable. An example of this would be if a defendant could not be located for service and a notice of motion for substituted service orders is required, unfortunately, these costs are not recoverable.

Jurisdiction: Each jurisdiction has their own set of rules that apply to the recovery of costs. For example, bankruptcy and insolvency matters heard in the Federal Court or Supreme Court have scale rates for recovery of filing fees and solicitors’ professional costs. All jurisdictions tend to review and update their costs schedules on 1 July each year to coincide with the start of a new financial year.

Costs Assessment: Even if a plaintiff has made a costs claim or has been awarded a costs order against a defendant the defendant may be entitled to have the costs assessed. This is a procedure whereby an external assessor will assess the merits of all the costs claimed and then may reduce the bill of costs accordingly.

Process Servers: One of the largest discrepancies in costs that are statutorily recoverable, and actual costs are the costs for engaging process servers. Engaging a process server is often necessary to ensure that documents are served in accordance with legislation which is relevant to each jurisdiction.

Process servers are licensed professionals tasked with delivering court documents to defendants, and their fees can vary based on the number of attendances required, ability to locate a defendant, investigations to locate defendants, complexity of the service and geographical location.

However, it is important to note that the costs associated with engaging a process server are not fully recoverable for several reasons.

Scale of Costs: Most jurisdictions provide scale rates for process service which are well below the actual cost. During and since COVID and subsequent to cost of living affecting the costs of petrol process server’s costs have increased dramatically in the last few years.
Reasonableness of Charges: Just like other legal costs, the fees charged by process servers must be reasonable and necessary. If the court deems the charges to be excessive or not justifiable, they may decide that these costs are not recoverable.
Court Discretion: The court retains the authority to assess the appropriateness of the costs claimed for process serving. If a process server is engaged for an unnecessary or overly complicated service, the court may refuse to award those costs.
Breakdown of Fees: In some instances, process servers may charge additional fees for investigations, skip tracing, surveillance, travel or other services. If these charges are not directly related to the act of serving the documents, they may not be recoverable.

Conclusion

In summary, while debt recovery litigation is a vital process for reclaiming owed money, clients should have realistic expectations regarding the recoverability of legal costs and disbursements. The scale of costs, the discretion of the court, and the nature of specific expenses such as process server fees all play crucial roles in determining what can be recovered. Understanding these factors can help clients navigate the financial aspects of their claim more effectively. If you have any questions or need further clarification on this topic, please do not hesitate to contact Paul Thorndike on 0429 008 247 or at paulthorndike@nswcreditlaw.com.au

The post Understanding Legal Costs and Disbursements in Debt Recovery Litigation appeared first on NSW Credit Law.

Why is it Harder to Obtain Credit in Australia?

Paul Thorndike — Mon, 30 Sep 2024 06:43:58 +0000

Why is it Harder to Obtain Credit in Australia?

Have you struggled to obtain credit in Australia recently and are unsure why?
What have been the recent developments in Australian Credit Law?
What should small to medium (SM) business owners and credit providers consider when providing credit in the current climate?

Obtaining credit in Australia can be more challenging due to economic conditions, regulatory frameworks, and individual creditworthiness. Still, in recent years, there have been developments in Australian Credit Law (ACL) which require lenders to be more responsible when providing credit:

Regulatory Environment: Australia has strict lending regulations to promote responsible lending. Lenders must ensure that borrowers can afford the loans they are applying for, which can lead to more stringent approval processes.

Credit Reporting: The credit reporting system in Australia is comprehensive. Lenders have access to detailed credit histories, meaning that a lower credit score or negative entries can significantly impact an individual’s ability to secure credit.

Interest Rates: Interest rates play a role in credit availability. Higher interest rates can lead to increased costs for borrowers, deterring individuals from applying for loans. Additionally, lenders may tighten their lending criteria when interest rates rise to mitigate risk.

Economic Conditions: Lenders may become more cautious during economic uncertainty or downturns, leading to stricter credit assessments. This can include more rigorous assessments of employment stability and income levels.

Debt-to-Income Ratios: Lenders often consider a borrower’s debt-to-income ratio when assessing credit applications. If individuals already have debts, they may find it harder to qualify for additional credit.

Recent Developments in ACL

The recent developments in ACL have focused on regulatory reforms to enhance consumer protection and improve the lending process. The Australian government and regulatory bodies, such as the Australian Competition and Consumer Commission (ACCC), Australian Securities and Investments Commission (ASIC) and Australian Financial Complaints Authority (AFCA), have been working on measures to address issues like responsible lending, transparency in fees, and the impact of buy-now-pay-later schemes.

One significant change has been the introduction of stricter regulations around responsible lending obligations, especially in the context of consumer credit. Additionally, there has been ongoing discussion about regulating fintech companies and how they fit into the existing credit framework.

In recent years, ACL has undergone significant scrutiny and reform, particularly following the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry, which concluded in early 2019.

The critical areas of focus and development:

Responsible Lending: The National Consumer Credit Protection Act (NCCP) establishes responsible lending obligations, meaning lenders must assess whether a loan suits a borrower’s financial situation. Recent discussions have revolved around the balance between facilitating access to credit and ensuring consumer protection.

Buy-Now-Pay-Later (BNPL): The popularity of BNPL services has led to calls for stronger regulations. Regulatory bodies have proposed that BNPL providers be subject to the same licensing and responsible lending obligations as traditional credit providers to protect consumers from potential default.

Financial Hardship Provisions: There have been moves to enhance protections for consumers experiencing financial hardship, ensuring that lenders provide appropriate support and options for those struggling to meet repayments. There has been a particular focus on domestic violence and elder abuse.
Increased Transparency: New requirements aim to improve the transparency of fees, charges, and the terms of credit contracts. This ensures that consumers fully understand the costs associated with borrowing.

Regulatory Oversight: the regulatory bodies have been granted enhanced powers to regulate and enforce compliance within the credit industry. This includes the ability to impose penalties for non-compliance and to act against misleading conduct.

Consumer Data Rights: The introduction of consumer data rights has allowed consumers more control over their financial data, enabling them to make informed decisions and switch providers more easily.

Emerging Technologies: The rise of fintech companies has prompted discussions on integrating these new players into the existing regulatory framework without stifling innovation.

These developments reflect a broader trend toward ensuring credit markets operate fairly and transparently while providing adequate consumer protection. However, this has resulted in many Australians being refused credit in situations where previously they may have been approved.

SM Business Owners and Credit Providers Should be Engaging in More Responsible Lending

The main differences between the current responsible lending practices and traditional historical lending practices can be summarised as follows:

Assessment of Borrower’s Ability to Repay:

– Responsible Lending: Credit providers should thoroughly assess a borrower’s financial situation, including income, expenses, and debts. They must ensure that the loan is suitable for the borrower.

Traditional Lending: While traditional lenders may historically have assessed a borrower’s creditworthiness, their priority was the business’s profitability and cash flow, with less emphasis on the borrower’s current financial capacity.

Consumer Protection:

– Responsible Lending: Emphasises consumer protection by requiring credit providers to prioritise the borrower’s needs and circumstances, preventing them from being offered loans that could lead to financial hardship.

– Traditional Lending: Did not have such stringent protection measures in place, potentially allowing borrowers to take on loans beyond their means without adequate safeguards.

Regulatory Framework:

– Responsible Lending: Governed by specific regulations, such as the National Consumer Credit Protection Act in Australia, which mandates compliance with responsible lending obligations.

– Traditional Lending: Operated under less stringent regulations, focusing on profitability and risk assessment rather than responsibility considering consumer outcomes.

Transparency:

– Responsible Lending: Requires clear communication of loan terms, fees, and charges. Credit providers must provide comprehensive information to help borrowers make informed decisions.

– Traditional Lending: Transparency varied according to lending practices, and borrowers may not have received complete information about the costs and implications of the loan.

Flexibility in Loan Terms:

– Responsible Lending: Encourages credit providers to offer flexible repayment options and terms that suit the borrower’s financial situation, promoting long-term financial health.

– Traditional Lending: May have offered fixed loan terms and conditions that did not account for changes in the borrower’s circumstances, potentially leading to difficulties in repayment.

Focus on Financial Education:

– Responsible Lending: Often includes educating borrowers about their financial options and the implications of taking on debt, aiming to empower consumers.

– Traditional Lending: May not have prioritised borrower education, focusing instead on the transaction and approval process.

Responsible lending practices aim to create a more consumer-centric approach to lending, ensuring that borrowers are treated fairly and not placed in situations that could lead to financial distress. Traditional lending practices are now outdated and put a greater emphasis on credit risk management and profitability, sometimes at the expense of borrower well-being.

When you are next considering applying for credit, consider the recent changes to ACL as outlined above and conduct your own credit audit before entering any applications. Unsuccessful applications can further damage a consumer’s ability to obtain credit in this difficult financial climate.

If you are an SM business or a credit provider, it is essential that you review your credit worthiness assessment procedures to ensure that you have the most up-to-date protections in place to protect your business and the rights of consumers or small businesses.

The post Why is it Harder to Obtain Credit in Australia? appeared first on NSW Credit Law.

Understanding Credit Provision for Businesses in Australia

Paul Thorndike — Mon, 30 Sep 2024 06:27:03 +0000

Understanding Credit Provision for Businesses in Australia

In the competitive landscape of small to medium (SM) businesses in Australia, offering credit to clients can be an effective strategy to boost sales and foster customer loyalty. However, it comes with its own set of challenges and considerations. Here are some key factors that SM businesses should keep in mind when providing credit to clients.

Assessing Customer Creditworthiness

Before extending credit, businesses need to evaluate potential clients’ creditworthiness. This can be done through credit checks. SM businesses should analyse financial statements and consider the client’s payment history. Tools and services are available to help SM businesses perform thorough assessments, which can mitigate the risk of defaults. CreditorWatch is a valuable option for checking the ASIC details of commercial entities and performing commercial credit ratings.

Setting Clear Credit Terms

Establishing clear credit terms is crucial. This includes defining the credit limit, payment terms (e.g., net 30 days, net 60 days), and interest rates. Communicating these terms effectively to clients to avoid confusion and ensure mutual understanding is essential. A written agreement outlining the terms can provide legal protection and clarity. It is also a good idea to have payment terms and non-payment consequences detailed on invoices.

Late payment and interest terms

Including late payment and interest terms in credit agreements and on invoices will ensure the client knows the consequences of late payment and they will also assist you in recovering your costs and interest should you need to employ debt collection agents or solicitors to recover debts.

Understanding Legal Obligations

SM businesses must be aware of the legal obligations surrounding credit provision in Australia. This includes complying with the National Consumer Credit Protection Act (NCCP) and understanding the Australian Consumer Law (ACL) implications. Seeking legal advice can help businesses navigate these regulations effectively.

Managing Cash Flow

Offering credit can significantly impact cash flow. SM businesses must ensure that they can manage their cash flow while waiting for client payments. It’s vital to have a robust cash flow management strategy, including maintaining reserves or using lines of credit to cover operational costs during periods of delayed payments.

Implementing a Credit Management System

A structured credit management system can help businesses monitor outstanding debts, send reminders for payments and track client credit limits. Investing in accounting software that includes credit management features can streamline these processes and improve efficiency.

Building Relationships with Clients

Providing credit can strengthen relationships with clients, but it also requires careful management. Businesses should maintain open lines of communication and address any concerns or issues promptly. Building trust can lead to long-term partnerships and repeat business.

Dealing with Late Payments

Late payments can be a significant issue for SM businesses. It is essential to have a clear policy for handling late payments, including reminders, late fees, and the possibility of terminating credit for persistent offenders. Early intervention can often resolve issues before they escalate. It is advisable to employ the services of reputable debt collection agents and solicitors should the need arise.

Reviewing Credit Policies Regularly

SM businesses should regularly review their credit policies to ensure they remain relevant and effective. Changes in the economic environment, industry trends, or business circumstances may necessitate credit terms or practice adjustments.

Training Staff

Employees involved in the credit provision process should be adequately trained to understand the policies and procedures. This includes recognising signs of potential credit risk and knowing how to handle client inquiries about credit terms.

Seeking Professional Advice

Finally, SM businesses should not hesitate to seek professional advice from financial advisors, accountants or credit specialist lawyers. They can provide valuable insights into managing credit effectively and ensuring compliance with regulations.

Conclusion

Providing credit to clients can be beneficial for SM businesses in Australia, but it requires careful consideration and management. By assessing creditworthiness, setting clear terms, understanding legal obligations, and implementing effective credit management practices, SM businesses can minimise risks and cultivate strong relationships with their clients. Balancing the potential benefits with the inherent risks will be the key to success.

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When a Defence is Filed

Paul Thorndike — Tue, 09 Jul 2024 16:01:23 +0000

In the civil registry within the New South Wales (NSW) Local Court, a statement of claim for a liquidated debt is a common legal tool used to recover a specific sum of money that is owed. The defendant in any proceedings has the opportunity to respond by filing a defence.

In our experience, in most cases a defence is not filed. It may happen once in every 20 or 25 cases. Even less cases proceed to a final hearing, with most settled during case management. However, the process can become intricate when the defendant decides to defend the claim.

This article outlines the procedures that follow, after a defence has been filed in the NSW Local Court. It provides an overview of the key steps involved in the legal process, which is designed to ensure a just, quick, fair, and transparent resolution to the dispute. However, this is not always the case, and the proceedings can become complex.

Filing a Defence

When a defendant receives a statement of liquidated claim, they have 28 days to file a defence. The defence document must outline the reasons why the defendant disputes the claim. The defence will usually address each paragraph in the pleadings of the statement of claim. The defendant will either admit, not admit, or deny each of the plaintiff’s allegations. It is critical that the defence is comprehensive and addresses each point raised in the plaintiff’s claim. Sometimes a request for further and better particulars about the claim will be made so that the defence can provide a more detailed response.

Counter Claim

Sometimes but not always, a defendant may file a counter claim. A counter claim is a legal action taken by a defendant in response to a claim made against them by the plaintiff. It is a separate claim made by the defendant against the plaintiff, asserting their own rights or seeking damages. The purpose of a counterclaim is to allow the defendant to present their side of the story and potentially seek their own legal remedy in the same proceedings.

Plaintiff’s Response

Upon receiving the defence and/or counter claim, the plaintiff has the opportunity to respond. The plaintiff may choose to reply to the defence, particularly if there are new issues raised that require clarification. This response can help narrow down the points of contention before proceeding further. If a counterclaim is filed a plaintiff must file a defence to the counter claim within 28 days.

Case Management

Once the defence is filed, the case enters a phase known as case management. The court will typically schedule a pre-trial review (small claims) or directions hearing (general division). During this hearing, both parties may be required to attend and discuss the case’s progress. The primary purpose of the directions hearing is to establish a timetable for the subsequent steps in the process, such as settlement negotiations, exchange of evidence, mediation, or potential trial dates. The aim is to facilitate a smooth and efficient resolution of the dispute and to try and encourage the parties to come to some form of settlement.

Interlocutory Orders

The term “interlocutory” refers to a legal decision or order that is made during the case management process, before a final judgment is reached. Interlocutory orders are typically temporary or provisional in nature and are issued to address specific issues or matters that arise during the litigation process. These orders may deal with procedural matters, evidence, costs, or other aspects of the case. Unlike a final judgment, interlocutory orders are subject to modification or reversal as the case progresses. They help to manage the proceedings and facilitate a fair and efficient resolution of the case.

Mediation

Before proceeding to a full trial, the court often encourages the parties to enter into mediation. Mediation involves a neutral third party (mediator) who helps facilitate negotiations and encourages the parties to reach a mutually acceptable settlement. Mediation can be a cost-effective and quicker alternative to a trial, and it allows for more flexible solutions that might not be available through court orders. The mediator does not make decisions but assists the parties in exploring potential solutions and finding common ground. However, both parties must show a willingness to compromise for the mediation to take place and to be effective.

Pre-trial Conference

If mediation fails to resolve the dispute, a pre-trial conference may be scheduled. During this conference, the magistrate or registrar discusses the case’s merits, identifies the key issues in dispute, and attempts to encourage the parties to settle or narrow down the issues in contention. The pre-trial conference aims to streamline the trial process and explore the possibility of settlement before proceeding to a trial.

Preparation for Trial

If mediation fails and the case remains unresolved, the matter will proceed to trial. Both parties must prepare their evidence and witnesses for the final hearing. This preparation includes researching case law, precedents and legislation, drafting affidavits or witness statements, organising documentary evidence, and formulating legal arguments.

Exchange of Evidence

Exchange of Evidence is a pre-trial procedure where both parties exchange relevant documents and information to support the pleadings and particulars of their claim or defence. Each party has an obligation to disclose all documents that are in their possession, custody, or control and may be relevant to the case. This process ensures that both sides have access to the evidence that will be presented in court, promoting transparency and fairness. Properly conducted the exchange of evidence can sometimes lead to a settlement, as parties gain a clearer understanding of the strengths and weaknesses of their cases.

The Final Hearing

During the final hearing both the plaintiff and the defendant present their cases before an assessor or magistrate. Each side has the opportunity to present evidence, call and cross-examine witnesses (general division), and make legal arguments. The court will then consider all the evidence and make a determination based on the merits of the cases that each party has presented.

Judgment

After considering the evidence and arguments, the assessor or magistrate will deliver a judgment. The judgment will either uphold the plaintiff’s claim, dismiss it, or provide some form of partial relief. The judgment may also include orders for costs, which means the losing party might be required to pay the legal costs of the winning party.

Post-Judgment Procedures

If the plaintiff wins and the defendant is ordered to pay a sum of money, the plaintiff may need to take further steps to enforce the judgment if the defendant does not voluntarily comply. This can include garnishment of wages, writ for seizure of assets, financial examination, or other enforcement actions.

Appeals

Both parties have the right to appeal the decision if they believe there has been a legal error. Appeals must be lodged within a specific timeframe and are typically heard in a higher court. The appeals process can be complex and requires a thorough understanding of legal principles and procedural rules. The commerciality of filing an appeal must be considered as the costs of continuing to run the matter will often outweigh the benefits.

Conclusion

The procedures following the defence of a statement of liquidated claim in the NSW Local Court are designed to ensure a fair, just and quick resolution of disputes. It involves multiple stages, each with its own set of rules and requirements. Understanding these steps is crucial for both plaintiffs and defendants to navigate the legal landscape effectively and achieve a favourable outcome. You should always seek legal advice before filing a statement of claim, defence, or counter claim. This article is drafted as general information only. Should you require a specific advice please contact Paul Thorndike on 0429 008 247 or at paulthorndike@nswcreditlaw.com.au

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Using Insolvency Proceedings to Enforce Judgment

Paul Thorndike — Tue, 09 Jul 2024 15:47:47 +0000

Introduction

In Australia, creditors have various enforcement procedures at their disposal to recover debts from judgment debtors who fail to pay judgment debts. A judgment occurs when a court rules in favour of the creditor because the debtor has failed to respond to legal proceedings, or a matter has been heard by the court and the court has found in favour of the creditor.

Judgment is a court order that the debtor owes the judgment debt amount, plus interest and legal costs, and is legally obligated to pay the creditor. However, obtaining a judgment does not automatically result in payment; creditors often need to take further steps to enforce the judgment.

One effective method is to initiate insolvency proceedings against the judgment debtor. If the judgment debtor is an individual this means the initiation of bankruptcy proceedings by issuing a bankruptcy notice. If the judgment debtor is a company this means the initiation of wind-up proceedings by issuing a statutory demand.

Bankruptcy Notice

A bankruptcy notice is a formal demand issued by a creditor, requiring an individual judgment debtor to pay the full amount specified in the judgment, plus post judgment interest, within 21 days of being served with the bankruptcy notice. The Bankruptcy Act 1966 (Cth) requires that the judgment debt amount exceeds $10,000.00.

If the judgment debtor fails to comply, they commit an act of bankruptcy. The act of bankruptcy serves as evidence of the debtor’s insolvency due to their inability to pay their debts as and when they become due and payable. The creditor can rely on the act of bankruptcy when issuing a creditors petition to bankrupt the judgment debtor.

Steps to Enforce a Default Judgment Using a Bankruptcy Notice

Apply for a Bankruptcy Notice: Once a default judgment is obtained, the creditor can apply to the Australian Financial Security Authority (AFSA) for a bankruptcy notice. The application must include all the details of the default judgment and the amount the judgment debtor must pay.

Serve the Bankruptcy Notice: After AFSA issues the bankruptcy notice, the creditor must serve it on the debtor. This can be done personally or by other approved methods pursuant to Bankruptcy Regulations. The bankruptcy notice will specify the amount due and the deadline for payment, typically 21 days from the date of service.

Debtor’s Response: Upon being served with the bankruptcy notice, the debtor has the following options:

– Pay the debt in full.

– Negotiate a settlement or payment plan with the creditor.

– Apply to the court to set aside the bankruptcy notice if there are valid grounds, such as a dispute over the debt or procedural errors.

File a Creditor’s Petition: If the judgment debtor fails to respond to the bankruptcy notice within the specified period, the creditor can file a creditor’s petition with the Federal Circuit Court or the Federal Court of Australia. This petition seeks to have the debtor declared bankrupt. The costs of issuing and filing a creditors petition are recoverable from the judgment debtor or the bankrupt estate as a preference ahead of other creditors.

Bankruptcy Proceedings: Once a creditor’s petition is filed, the court will schedule a hearing. If the court is satisfied that the judgment debtor has been served with the bankruptcy notice, and the creditors petition, and is unable to pay their debts, it may issue a sequestration order declaring the judgment debtor bankrupt. A trustee will then be appointed to manage the bankrupt estate, financial affairs, and assets of the bankrupt to obtain a return for creditors.

Implications for Debtors and Creditors

For Debtors: Being declared bankrupt has significant consequences, including restrictions on obtaining credit, loss of control over finances, having to contribute to the bankrupt estate from future earnings, restrictions on travel and potential sale of assets. It remains on the debtor’s credit report for several years and on the AFSA bankruptcy register for life, therefore impacting their financial reputation.

For Creditors: Utilising a bankruptcy notice can be an effective way to recover debts, especially when other methods have failed. A creditor generally does not want to bankrupt the judgment debtor. Bankruptcy is a last resort. The creditor would prefer to be paid. However, the initiation of bankruptcy proceedings demonstrates the seriousness of the creditor’s intent, potentially prompting the debtor to settle the debt.

Conclusion

Using a bankruptcy notice to enforce a judgment in Australia is a powerful tool for creditors seeking to recover unpaid debts. By following the legal procedures and understanding the implications, creditors can increase their chances of successful debt recovery. However, it is essential to consider the financial position of the judgment debtor, the potential consequences and seek legal advice to navigate this complex legal process effectively.

Using a Statutory Demand to Enforce Judgment

If the judgment debtor is a corporate entity, such as a proprietary limited company, one effective method of enforcement is to start wind-up proceedings by issuing a Statutory Demand.

A Statutory Demand is a formal demand for payment, issued pursuant to section 459E of the Corporations Act 2001 (Cth) that can lead to the winding up of the debtor company if it fails to comply with the demand.

Statutory Demand

A Statutory Demand is a formal written notice served upon the directors or at the registered office of a company demanding that the company pays the judgment debt in full. The Corporations Act 2001 (Cth) requires that the debt amount exceeds $4,000.00.

The Statutory Demand provides the debtor with 21 days to pay the debt or make satisfactory arrangements to pay the debt to the creditor. Failure to comply with the demand can lead to the presumption of insolvency and the initiation of winding up proceedings.

To issue a valid Statutory Demand, the document must meet the following requirements:

The debt must be due and payable, and the amount must exceed $4,000.00.
The demand must be in writing and clearly specify the debt amount, details, and payment instructions.
The demand must be served on the directors or at the debtor company’s registered office.
The demand must be in the prescribed form and comply with the statutory requirements.

Consequences of Non-compliance

If the debtor company fails to comply with the Statutory Demand within 21 days, it is presumed to be insolvent. The creditor can then proceed to initiate winding up proceedings against the debtor company by issuing a wind-up summons. This can result in the appointment of a liquidator to wind up the company’s affairs and distribute the assets to pay the creditors.

Setting Aside a Statutory Demand

A debtor company may apply to the court to set aside a Statutory Demand within 21 days of receiving it. The court may set aside the demand if there is a genuine dispute about the debt, a defect in the demand, or a reasonable belief that the debtor company can pay its debts as they fall due.

Benefits of Using a Statutory Demand

Using a Statutory Demand to enforce a judgment offers several advantages, including:

It provides a powerful incentive for the debtor company to pay the debt promptly.
It can be a cost-effective and efficient method of debt recovery.
It allows the creditor to initiate winding up proceedings, which can result in the realisation of the debtor company’s assets to satisfy the debt.

Conclusion

A creditor generally does not want to wind-up the company. Liquidation is a last resort. The creditor would prefer to be paid. However, the initiation of wind-up proceedings demonstrates the seriousness of the creditor’s intent, potentially prompting the corporate debtor to settle the debt.

Issuing a statutory demand can be an effective and strategic tool to compel the debtor company to pay the outstanding debt. By understanding the process and requirements associated with a statutory demand, creditors can navigate the enforcement process with confidence and increase their chances of successful debt recovery. However, it is essential to consider the financial position of the judgment debtor, the potential consequences and seek legal advice to navigate this complex legal process effectively.

NSW Credit Law articles are published as general information for the reader and should not be relied upon as legal advice for a reader’s specific legal needs. Should you have any queries with regard to this article or any other article published by NSW Credit Law please contact Paul Thorndike on 0429 008 247 or at paulthorndike@nswcreditlaw.com.au

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NSW government’s debt collection agency broke law using AI garnishee orders

Paul Thorndike — Tue, 21 May 2024 01:48:18 +0000

Ombudsman report finds Revenue NSW engaged in ‘maladministration’ by taking money directly out of millions of bank accounts.

The New South Wales government’s debt collection agency broke the law when it used an automated system to withdraw money from millions of bank accounts to claw back unpaid fines, a scathing report has found.

The NSW ombudsman Paul Miller’s report, released on Tuesday, found Revenue NSW’s use of AI to generate garnishee orders broke the law from its introduction in 2016 until 2019, and that it was “wrong” until March 2022.

A garnishee order is when Revenue NSW takes money directly out of people’s bank accounts if they have defaulted on their debt repayments and have not responded to repeated debt recovery notices.

Revenue NSW does not have to go to court to issue a garnishee order. Since 2016, the agency has used machine learning technology to assist it to generate high volumes of garnishee orders each day.

The ombudsman started investigating the scheme in 2016 after its introduction prompted a large number of complaints.

An earlier report, released in 2021, found Revenue NSW had unlawfully used the system to recover fines from financially vulnerable people, in some cases draining bank accounts and leaving people unable to buy food.

While in opposition, NSW Labor had labelled the scheme “Robodebt 2.0”. The then-Coalition government rejected those comparisons.

In its report released on Tuesday, the ombudsman found Revenue NSW engaged in “maladministration”.

Revenue NSW has obtained advice from the solicitor general confirming the version of the system that has been in place since May 2022 is lawful.

But the ombudsman found the agency broke the law with the garnishee order system it had in place from January 2016 to March 2019.

Despite undergoing some changes, the scheme was “wrong” between March 2019 to March 2022 because it did not provide decision-makers with clear reasoning and evidence, or clearly and fully record those decisions.

Among the ombudsman’s recommendations is for Revenue NSW to provide better information to people who owe debts, including publishing on its website how they may be challenged.

Revenue NSW should also include instructions in its garnishee orders reminding banks not to recover any Centrelink “saved amounts” and introduce safeguards to ensure “protected amounts” are left in people’s banks accounts after garnishee action.

The agency has applied a “protected amounts” policy since March 2019, meaning the minimum amount it must leave in someone’s bank account after garnishee action. The current minimum protected amount is $587.50.

The finance minister, Courtney Houssos, said the government was committed to implementing the ombudsman’s recommendations in full and had “already begun that work”.

“While garnishee orders can be an important tool of last resort to recover fines and state debts, it is crucial they are implemented in a fair and equitable way,” she said.

Credit – The source of this article is www.theguardian.com 30 April 2024

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