Section 10(2)(b) Insolvency Events

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This is a part of The Worker’s Liens Casebook, by Robert Fenwick Elliott. Copyright © 2010

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233.  It is not only the expiry of a section 10(2)(a) notice that will deem a contract price to have become due, but also a section 10(2)(b) insolvency event. These are as follows: the person liable to pay the same shall have

  • called a meeting of his creditors, or
  • committed an act of bankruptcy, or
  • executed a deed of assignment within the meaning of the Bankruptcy Act 1924 of the Commonwealth, or
  • shall have taken or attempted to take the benefit of any law relating to bankrupts or insolvent debtors, or
  • shall have suffered his goods to be taken in execution or seized under legal process or distress for rent.

234.  The list looks very much as if drafted with an individual person in mind, but the section applies also to corporations; Palyaris v Kauri Timber[1]

234A.  Receivership is not an insolvency event; see Marriott Industries v Mercantile Credit [1991] SASC 2874 at page 546 below. Neither is liquidation, per se, included within the list. However, in practice, the point is of limited importance since the calling of a meeting of creditors is a section 10(2)(b)insolvency event.

Multiple Section 10(2) Events

  1. What is the position where there is not only a section 10(2)(a) notice but also a section 10(2)(b) insolvency event? Does the artificial “due date” arise separately in respect of each event? No; in Palyaris v Kauri Timber, Legoe J held that the two subsections are not separate and distinct, but “part and parcel of an overall single criteria (sic) by which money or the contract price is deemed to have become due”. The effect of this decision is that the happening of a section 10(2)(b) insolvency event is to set the 28 day time limit running, apparently regardless of whether the money is at that time really due under the terms of the contract (see below).
  2. The principle that, once a lien has ceased to be available because not registered within the 28 days prescribed by section 10(1) may not subsequently be revived, appears to be similar to the principle that applies if a lien ceases for failure to bring proceedings within 14 days from registration as required by section 15.[2]

Section 10(2)(b) Insolvency Event before Money Payable

  1. The terms of the notice provision at section 10(2)(a) is fairly clear; a notice which will have the effect of deeming money due for the purpose of the Act can only be given after the money claimed is actually payable. Conversely, the language of subsection (b) is much more opaque. It begins:

(b)              If either before or after the same shall have become payable, the person liable to pay the same shall have called a meeting of creditors…

  1. The difficulty is this: how can a person be liable to pay a sum before it shall have become payable? It is by no means clear how this mechanism is intended to work.

[1] See paragraphs 18 and 30 of the judgment in Palyaris at pages 523 and 527 below, following the earlier dicta in W Curl.

[2] As to which, see paragraphs 39 – 40 of Advanced Civil Engineering v Wyara.

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