2013/14 GUIDE TO PERSONAL INSOLVENCY

Transcription

1 2013/14 GUIDE TO PERSONAL INSOLVENCY

2 INDICATORS OF INSOLVENCY PLAIN TALK. STRAIGHT ANSWERS. FAST RESULTS. WORRELLS ARE A TEAM OF FULL TIME SPECIALISTS. SOLVENCY MANAGEMENT, RESTRUCTURE OR INSOLVENCY ADMINISTRATION CAN BE A PERIOD OF GREAT STRESS. AN EXPERIENCED AND SPECIALIST TEAM CAN EASE THE PROCESS, ENSURING A FAIR OUTCOME FOR ALL PARTIES CONCERNED. EDITORS Chris Cook, Partner Worrells Brisbane Kate Lee, Marketing Coordinator DISCLAIMER The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission within this brochure. Liability limited by a scheme approved under Professional Standards Legislation. 1 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

3 INDICATORS OF INSOLVENCY 1 PERSONAL INSOLVENCY BANKRUPTCY 18 DIVISIBLE PROPERTY IN BANKRUPTCY 22 BANKRUPTCY AND THE FAMILY HOME 28 GETTING OUT OF BANKRUPTCY 32 INCOME CONTRIBUTIONS IN BANKRUPTCY 34 VOID TRANSACTIONS IN BANKRUPTCY 37 PREFERENCES IN BANKRUPTCY 41 PART X PERSONAL INSOLVENCY AGREEMENTS 44 SECTION 73 PROPOSALS 46 DISCHARGE & ANNULMENT 48 RELATED TOPICS 5 PHASES OF FAILURE 58 PROOFS OF DEBT AND SECURED CREDITORS 63 MEETINGS OF CREDITORS 65 DIVIDENDS 68 CGT AND INSOLVENCY 73 GST AND INSOLVENCY 77 OBJECTIONS TO DISCHARGE 85 VOIDING SUPERANNUATION CONTRIBUTIONS 87 WORRELLS ARTICLES WHAT S IN A NAME? 100 IT S MY MONEY, ISN T IT? 101 ARE SUPERANNUATION MONIES WITHIN THE TAXMAN S REACH? WORRELLS.NET.AU 2

4 WORRELLS PARTNERS IT S OUR PEOPLE THAT DELIVER PLAIN TALK, STRAIGHT ANSWERS AND FAST RESULTS. At Worrells we re specialists - Solvency and Forensic Accounting is all we do. 19 Partners, 18 Registered & Official Liquidators, 13 Registered Trustees, 3 Certified Fraud examiners, 5 east coast major metro locations, we can have experienced staff at any location, quickly. Quick decisive action by a highly skilled team acting in a caring, respectful and fair manner does make all the difference. Established over 40 years ago, Worrells draws upon over 200 years of partner experience. Using proprietary technology, our team have successfully completed over 26,000 assignments. Specialist accounting services, delivered by dedicated full time specialists, on time, on budget every time. WORRELLS QLD IVOR WORRELL BRISBANE CA (Fellow) Liquidator Registered Trustee Justice of the Peace ivor.worrell@worrells.net.au Ivor is a leading Queensland insolvency practitioner. In a career spanning 40 years he has developed extensive experience in corporate and personal insolvency, receivership and litigation support. Ivor is often called upon as an expert witness and has experience as receiver of property. RAJ KHATRI BRISBANE CA (Fellow) Liquidator Registered Trustee Commissioner of Declarations raj.khatri@worrells.net.au Raj s area of expertise is corporate and personal insolvency and has nearly three decades of experience in the field. He has extensive experience in viability analysis and administration of corporate continued trade, resulting in more going concern sales. 3 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

5 MORGAN LANE BRISBANE CA CPA (Fellow) Liquidator Registered Trustee Morgan Lane joined the firm in 1992 and became a full partner in He is a member of the Institute of Chartered Accountants in Australia, a member of Insolvency Practitioners Association of Australia and a fellow of CPA Australia (specialist in insolvency & reconstruction). MICHAEL GRIFFIN BRISBANE CA Liquidator Registered Trustee Commissioner of Declarations michael.griffin@worrells.net.au Michael is a member of the Institute of Chartered Accountants in Australia, an associate of the Insolvency Practitioners Association of Australia, and a member of the Association of Certified Fraud Examiners. He oversees a team in Brisbane and works closely in consultation with the Ipswich and Toowoomba offices. MICHAEL PELDAN BRISBANE CA (Fellow) Liquidator Registered Trustee Certified Fraud Examiner Commissioner of Declarations Justice of the Peace michael.peldan@worrells.net.au CHRIS COOK BRISBANE CA CPA Liquidator Commissioner of Declarations chris.cook@worrells.net.au Michael has been in public practice since He is a fellow of Institute of Chartered Accountants in Australia and a member of the Association of Certified Fraud Examiners. Michael oversees a personal and corporate insolvency team in the Brisbane office. Chris has in excess of a decade of experience in both the corporate and personal insolvency fields. He has significant involvement in numerous personal insolvency appointments at Worrells including bankruptcies and personal insolvency arrangements. Chris also has experience as a receiver of partnership property by court order and by private agreement. WORRELLS.NET.AU 4

6 WORRELLS QLD ADAM WARD IPSWICH/TOOWOOMBA CPA Liquidator Registered Trustee Commissioner for Declarations Ipswich Toowoomba Adam spent 10 years in the Worrells Brisbane office and subsequently spearheaded the Ipswich and Toowoomba offices. His experience is in managing distressed businesses and is adept in the manufacturing, building and construction, mining, hospitality and retail sectors. He specialises in conducting independent financial capacity assessments. JASON BETTLES GOLD COAST CA Liquidator Registered Trustee Justice of the Peace Jason is the managing partner of Worrells Gold Coast and is a Chartered Accountant and a member of the Insolvency Practitioners Association of Australia. With extensive experience in investigating and analysing corporate and personal insolvency matters, he presents appropriate informal and formal solutions to clients. PAUL NOGUEIRA SUNSHINE COAST CA CPA Liquidator Registered Trustee Commissioner of Declarations paul.nogueira@worrells.net.au Paul joined Worrells in 1999 and became a partner in He is experienced in all forms of corporate and personal insolvency administrations across numerous industry sectors. He specialises in the SME sector in business turnaround management and insolvency solutions. JOHN CUNNINGHAM SUNSHINE COAST CPA Liquidator Registered Trustee john.cunningham@worrells.net.au John has over 23 years experience in insolvency, starting out with the then Official Receivers Office in Melbourne in John joined Worrells as part of the Ramsay Clout merger in He has developed a particular expertise in the areas of building, retail and hospitality. 5 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

7 WORRELLS NSW/ACT NICHOLAS MALANOS SYDNEY CPA Liquidator Registered Trustee Certified Fraud Examiner Member IPA Graduate Diploma in Administration Nick is a senior partner in Worrells Sydney and has over 28 years experience in all aspects of corporate and personal insolvency. His vast knowledge in the areas of voluntary administration and deeds of company arrangement, has allowed numerous companies to successfully continue over the years nick.malanos@worrells.net.au CHRISTOPHER DARIN SYDNEY CA Liquidator Justice of the Peace chris.darin@worrells.net.au Chris became partner of Worrells Sydney in 2008, after having been in practice on his own since His solid understanding of corporate insolvency and advocacy appointments allows him to explore all financial avenues available and to assist companies to effectively deal with all stakeholders. AARON LUCAN SYDNEY CA aaron.lucan@worrells.net.au Aaron joined Worrells Sydney in January 2006 and became a partner of the firm in July Aaron has over 10 years experience in all forms of corporate and personal insolvency administrations. In addition to servicing clients and referrers in Sydney and surrounding areas, Aaron manages Worrells Central West NSW practice. STEPHEN HUNDY CANBERRA CA Liquidator Registered Trustee Member of IPA stephen.hundy@worrells.net.au Stephen joined Worrells in 2011 as a partner of Worrells Canberra. He has worked exclusively in the insolvency industry since 1995 and provides practical, commercial advice on business issues. He also provides fraud and financial investigation reports, financial viability reviews and assists in shareholder/partnership disputes. WORRELLS.NET.AU 6

8 WORRELLS VIC PAUL BURNESS MELBOURNE CPA Liquidator Registered Trustee Certified Fraud Examiner Member IPA Paul is the managing partner of Worrells Melbourne, having established the practice in He has extensive knowledge in all forms of corporate and personal insolvency and reconstruction. His experience extends to liquidations of both large and small entities, across many industries including, manufacturing, construction, agricultural, retail, and professional practices. MATTHEW JESS MELBOURNE CPA Liquidator Registered Trustee Member IPA Matthew joined Worrells in 2004 and became partner in He is an official liquidator and certified practising accountant, who has considerable experience in the insolvency, commercial accounting and corporate finance fields. He also has experience includes due diligence investigations, sale of business transactions, corporate reconstructions and financial turnarounds. CON KOKKINOS MELBOURNE CPA Liquidator Con Kokkinos became a partner in Worrells Melbourne in With over 15 years in public practice, Con is experienced in all forms of corporate and personal insolvency administrations and specialises in small to medium business turnaround management and solvency solutions. IVAN GLAVAS MELBOURNE CA Liquidator Member IPA ivan.glavas@worrells.net.au Ivan Glavas became a partner of Worrells Melbourne in January Ivan is a Chartered Accountant with over 18 years experience in dealing with corporate and personal insolvency related matters across numerous industries. Ivan s experience also includes litigation support, fraud investigation and business reconstruction advice. 7 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

9 NATHAN DEPPELER BALLARAT/BENDIGO CA Liquidator In July 2013, Nathan Deppeler was appointed a Partner of Worrells Solvency & Forensic Accountants and operates from offices in Ballarat and Bendigo servicing the Western and North/ Western Victoria region. Nathan has a broad range of experience in all forms of Corporate and Personal Insolvency having specialised in insolvency since graduating and became a registered and official liquidator in May FORENSIC PARTNERS Our Worrells Forensic arm naturally complements our core insolvency capability. A Forensic Accountant is often retained to analyse, interpret, summarize and present complex financial and business related issues in a manner which is both understandable and properly supported. Each of our Forensic Partners brings a wealth of practical experience and knowledge to the application of a full range of forensic services. ANITA OWENS SUNSHINE COAST CPA (Fellow) Liquidator Commissioner of Declarations Forensic Accountant anita.owens@worrells.net.au Anita joined Worrells in 2012 as part of the Ramsay Clout merger. Anita commenced her insolvency career in Noosa in She completed a Bachelor of Business at the University of Southern Queensland in 1995 and a Graduate Certificate of Forensic Studies (Accounting) at Monash University in Anita has experience in forensic accounting and all aspects of insolvency. SHARLENE ANDERSON MELBOURNE CPA Chartered Accountant Certified Fraud Examiner Forensic Accountant sharlene.anderson@worrells.net.au Sharlene is a forensic accountant and registered company auditor. Sharlene joined Worrells in 2013 as a Partner specialising in Forensic Accounting. Sharlene has considerable experience across various areas of forensic accounting including financial statement fraud, embezzlement, litigation support and valuations. WORRELLS.NET.AU 8

10 WORRELLS IS HERE TO ASSIST YOU INSOLVENCY SETS UP LARGE PRACTICAL AND EMOTIONAL HURDLES TO THOSE FACING THE CHALLENGE FOR THE FIRST TIME. THIS IS TRUE OF THE PROFESSIONAL ADVISOR OFFERING GUIDANCE TO HIS OR HER CLIENT, IT S TRUE FOR THE DIRECTOR FACING THE LOSS OF A COMPANY AND IT S TRUE FOR EACH INDIVIDUAL CONTEMPLATING THE POSSIBLE LOSS OF MUCH THAT THEY HAVE WORKED LONG AND HARD FOR. The insolvent client s level of dependence on his or her professional advisor is often both misunderstood and understated. It is the client s accountant or solicitor, or perhaps both working together, who commonly has the onerous task of discovering and demonstrating the true financial position. Frequently they must persuade the client that specialist insolvency help is necessary, and it is they who must find and nominate a suitable insolvency practitioner who they trust and can work with. The company director and the insolvent debtor, for their part, are faced with both emotional and practical problems. It is never easy to admit that a business venture has been unsuccessful, and added to this the need to understand new and confusing insolvency terms, processes and options is no easy feat. Fear that labels such as bankruptcy, insolvency and liquidation will conjure up in the minds of the minority suggestions of wrong doing, or financial profligacy, have to be overcome. The partners of Worrells know from regular contact with those facing impossible financial difficulties that an exaggerated sense of the perceived stigma can lead to delay in seeking the protection and assistance of insolvency legislation, and can add greatly and needlessly to the client s distress. Personal bankruptcy and each of the forms of company insolvency are not about punishing business owners for making mistakes. And they are not about penalising people for taking risks, because risk is at the very essence of our market economy. They are about removing impossible financial obligations in a way which is transparent and fair to all. They are about financial recovery and financial equity. It is true that many insolvencies are invested with strong emotions; creditors may be angry to learn of their loss, employees may suffer the stress of being thrown out of work without adequate notice, customers face the frustration of lost deposits and incomplete jobs, bankrupts and directors face crises of confidence in themselves, and marriage breakdowns are sometimes the bedfellows of financial difficulties. That is why we exist. For our professional advisor colleagues, Worrells provides an independent, objective and knowledgeable resource that can be called upon to help the professional advisor help their clients. For those facing insolvency we provide a service which is transparent, equitable and respectful. Worrells have now been providing high quality insolvency and related service for over 40 years. We pride ourselves on offering reliable and practical solutions to those burdened with debt. Our large investment in state of the art proprietary software streamlines all functions leading to savings which are passed on by way of competitive pricing. Worrells 2013/14 Guide to Personal Insolvency is an up to date, one volume, easy to understand explanation of the law and practice of personal insolvency in Australia and it draws together in a form convenient to all, the combined experience of Worrells 19 partners. We offer this Guide to help assist and inform in any role that you may find yourself in, when contemplating insolvency administration. Our advice is always made available on a complimentary and confidential basis with respect and openness as the cornerstone of all that we do. 9 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

11 FOCUSED LOCALLY, RESOURCED NATIONALLY WORRELLS IS THE FIRM OF CHOICE FOR ALL INSOLVENCY APPOINTMENTS. NOOSA MAROOCHYDORE BRISBANE IPSWICH TOOWOOMBA GOLD COAST BALLINA CENTRAL COAST SYDNEY CANBERRA BENDIGO BALLARAT MELBOURNE WORRELLS.NET.AU 10

12 LATEST PERSONAL INSOLVENCY STATISTICS INSOLVENCY FIGURES AS RELEASED BY AUSTRALIAN FINANCIAL SECURITY AUTHORITY (AFSA). NEW ADMINISTRATIONS UNDER THE BANKRUPTCY ACT 1966 STATISTICS (PROVISIONAL) JULY 2012 JUNE 2013 RELEASE NO: 131 DATE ISSUED: 9 JULY 2013 BANKRUPTCIES (PARTS IV AND XI) 11/12 12/13 DEBT AGREEMENTS (PART IX) % CHANGE 11/12 12/13 PERSONAL INSOLVENCY AGREEMENTS (PART X) % CHANGE 11/12 12/13 TOTAL PERSONAL INSOLVENCY ACTIVITY % CHANGE 11/12 12/13 % CHANGE NSW 7,627 6, % 3,089 3, % % 10,834 10, % ACT % % % % VIC 4,249 4, % 1,755 1, % % 6,102 6, % QLD 6,251 6, % 2,485 2, % % 8,816 8, % SA 1,523 1, % % % 1,899 1, % NT % % % % WA 1,567 1, % % % 2,403 2, % TAS % % % % TOTAL 22,163 20, % 8,955 9, % % 31,506 30, % Note 1: All the above figures refer to personal administrations under the Bankruptcy Act only (and not corporate insolvency). Note 2: Provisional statistics are correct at the date of compilation. Verified annual figures for all types of personal insolvency administrations are available from our Annual Report. These figures, together with some historical data, may be found on the Australian Financial Security Authority homepage at For further information on these statistics, please read the Guide to provisional personal insolvency statistics. 11 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

13 BANKRUPTCY 2010/ / /13 NSW , ACT VIC , QLD , SA , NT WA , BANKRUPTCY 2010/11 BANKRUPTCY 2011/12 BANKRUPTCY 2012/13 TAS NSW ACT VIC QLD SA NT WA TAS PERSONAL INSOLVENCY AGREEMENTS (PART X) 2010/ / /13 NSW ACT VIC QLD SA NT PERSONAL INSOLVENCY AGREEMENTS (PART X) 2010/11 PERSONAL INSOLVENCY AGREEMENTS (PART X) 2011/12 PERSONAL INSOLVENCY AGREEMENTS (PART X) 2012/13 WA TAS NSW ACT VIC QLD SA NT WA TAS TOTAL INSOLVENCY ACTIVITY 2010/ / /13 NSW , ACT VIC , QLD , SA , NT WA , TOTAL INSOLVENCY ACTIVITY 2010/11 TOTAL INSOLVENCY ACTIVITY 2011/12 TOTAL INSOLVENCY ACTIVITY 2012/13 TAS NSW ACT VIC QLD SA NT WA TAS WORRELLS.NET.AU 12

14 PERSONAL INSOLVENCY THRESHOLDS The following information outlines both the monetary thresholds and time limits that apply in relevant insolvency practices. INCOME CONTRIBUTION THRESHOLD Income Thresholds before Income Contributions become Payable (after tax & s139n deductions): $50, No Dependents $59, Dependent $63, Dependents $66, Dependents $67, Dependents $68, Dependents Maximum Dependant Income - $3, PART IX THRESHOLDS To be eligible to proposal a Part IX Agreement: $75, Income (after tax) $100, Available Assets (after secured debts) $100, Unsecured Creditors PRIORITY EMPLOYEE ENTITLEMENT THRESHOLD Priority Claim for Employee: A maximum priority dividend (including superannuation) of $4, The balance paid as a non-priority debt. BANKRUPTCY NOTICES Minimum amount for issuance of a Bankruptcy Notice: $5, Time period for compliance: The debtor has 21 days to pay the debt or be deemed insolvent. These figures are correct as at 31 July For current figures please visit our website via the QR code below. ASSET ALLOWANCES $3, Tools of Trade allowance $7, Motor Vehicle Allowance $5, Obtaining Credit without Disclosure GENERAL DIVIDENDS Notice to be given to creditors to lodge Proofs of Debt: at least 21 days before Declaration Minimum time after Declaration before payment of Dividend: at least 21 days after the end of the lodgement period. Minimum Dividend: Liquidators are not required to pay a dividend under $25.00 to any creditor. 13 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

15 STAY CONNECTED WITH WORRELLS 2013/14 GUIDE TO CORPORATE INSOLVENCY ENSURE YOU RE COVERED DOWNLOAD A COPY OF OUR 2013/14 GUIDE TO CORPORATE INSOLVENCY. SUMMER 2013 GUIDE TO INSOLVENCY STAY CONNECTED WITH WORRELLS JOIN US ON FACEBOOK OR STAY CONNECTED WITH OUR E-UPDATE FOR ALL THE LATEST INFORMATION AND UPCOMING EVENTS. VISIT WORRELLS.NET.AU FOR MORE DETAILS. WORRELLS.NET.AU 14

16 INDICATORS OF INSOLVENCY 15 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

17 INDICATORS OF INSOLVENCY 1 PERSONAL INSOLVENCY BANKRUPTCY 18 DIVISIBLE PROPERTY IN BANKRUPTCY 22 BANKRUPTCY AND THE FAMILY HOME 28 GETTING OUT OF BANKRUPTCY 32 INCOME CONTRIBUTIONS IN BANKRUPTCY 34 VOID TRANSACTIONS IN BANKRUPTCY 37 PREFERENCES IN BANKRUPTCY 41 PART X PERSONAL INSOLVENCY AGREEMENTS 44 SECTION 73 PROPOSALS 46 DISCHARGE & ANNULMENT 48 WORRELLS.NET.AU 16

18 PERSONAL INSOLVENCY INDICATORS OF INSOLVENCY PERSONAL INSOLVENCY NUMBERS APPEAR TO BE ON THE DECLINE, HOWEVER THE NEED FOR AN UNDERSTANDING IN THIS AREA HAS NOT LESSENED. 17 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

19 1 INDICATORS OF BANKRUPTCY INSOLVENCY WHAT IS BANKRUPTCY? Bankruptcy is a legal process where a trustee is appointed to administer an insolvent person s affairs in order to provide a fair distribution of that person s assets to their creditors. Bankruptcy is a legitimate and just way for a debtor to solve their debt problems, and is one way for creditors to take action against someone for unpaid debts. WHY CHOOSE BANKRUPTCY? The Bankruptcy Act has been developed for the protection of both debtors (the bankrupt) and creditors. The debtor is protected from being pursued by his or her creditors and, with limited exceptions, is released from his or her debts at the end of the bankruptcy. It provides a debtor with a fresh start. Bankruptcy protects the interests of creditors by having an independent, qualified professional control and investigate the affairs of the bankrupt and oversee the collection and distribution of the bankrupt s assets. HOW DOES A PERSON BECOME BANKRUPT? A person may become bankrupt in one of two ways. They may bankrupt themselves by filing a debtor s petition and a Statement of Affairs with the Official Receiver. This process is referred to as lodging a debtor s petition. A person is made bankrupt when the Official Receiver processes the debtor s petition and issues an estate number. A person may also be made bankrupt by the Federal Court on the application of one of their creditors through a creditor s petition. In most instances, a creditor must have obtained a judgment on their debt and have served a bankruptcy notice on the debtor. If the debtor does not pay the debt before the expiry of the bankruptcy notice, the creditor may file a creditor s petition with the Federal Court seeking a sequestration order bankrupting the debtor. CAN A DEBTOR BE MADE BANKRUPT IF THEIR ASSETS EXCEED THEIR DEBTS? Yes. A person is legally insolvent if they are unable to pay their debts as and when they fall due. If a debtor owns sufficient assets to cover their debts but is unable to liquidate them (sell them or borrow against them) to actually pay the debts, they may be bankrupted. Technically a debtor is legally insolvent if they do not satisfy a bankruptcy notice, regardless of whether they can pay the debt or not. But, the Official Receiver has the discretion not to accept a debtor s petition if they believe that the debtor is solvent and could satisfy their debts. WHAT IS A STATEMENT OF AFFAIRS? A Statement of Affairs is a document that must be completed by all bankrupts that sets out their personal and financial information. This is an important document for two reasons: 1. It is the financial disclosure of a bankrupt s assets and debts and this information is used by the trustee in conducting the estate. 2. The date of lodgement of the Statement of Affairs will determine when the bankruptcy ends (the date of discharge). HOW DOES BANKRUPTCY AFFECT SOMEONE? A person is an undischarged bankrupt from the date of bankruptcy until they are either discharged or annulled. During this period they: > Can t act as a company officer; > Can t trade under a registered business name without advising people that they are bankrupt (they can trade under their own name); > Must make all of their divisible assets available to the trustee; > Can t incur credit over an indexed amount without advising the lender that they are bankrupt; > Must surrender their passport(s) and must seek permission for overseas travel; and > Must make all books and records and financial statements available, including those of associated entities such as companies and trusts. PERSONAL INSOLVENCY WORRELLS.NET.AU 18

20 INDICATORS BANKRUPTCYOF INSOLVENCY CAN A BANKRUPT CONTINUE TO EARN INCOME? Yes, a bankrupt may continue to earn income and is encouraged to do so. If income earned during the bankruptcy exceeds certain indexed threshold limits, the bankrupt will have to pay a contribution from that income to the estate. Income under these provisions includes personal income, certain benefits provided by third parties and income from superannuation or trusts. Income is then reduced by the income tax payable on the income, legitimate business expenses (where appropriate) and certain child support payments. The liability to pay this contribution to the estate survives beyond the discharge of the bankruptcy and can be enforced by the trustee. The trustee may garnishee the bankrupt s wages or use the supervised account regime to collect contributions. The bankrupt may be re-bankrupted by the trustee for non-payment of contributions. HOW DOES BANKRUPTCY AFFECT PROPERTY? All of a bankrupt s divisible property is controlled by their trustee. This includes all property the bankrupt owned when he or she was bankrupted and all property received after the date of bankruptcy but before discharge. This latter property is called after-acquired property. Some property is not divisible. Divisible property (i.e. property that can be divided amongst creditors) does not include the following: > Necessary clothing and household items; > Tools of trade to an indexed amount; > A motor vehicle to an indexed amount; > Life assurance or endowment policies (subject to some limitations); > Certain damages and compensation payments; > Sentimental property (as defined in the Bankruptcy Act); > Superannuation payments (subject to certain limitations). CAN THE TRUSTEE RECOVER PROPERTY THAT WAS SOLD BEFORE BANKRUPTCY? Maybe. The trustee will look at any sales or transfers of property that occurred within the five years before the bankruptcy. If these transactions appear improper, undervalued, or to have had the purpose of attempting to defeat creditors, that property or its value may be recovered from the recipient. The trustee may also recover monies from creditors who may have received payment of their debts in the six months before the bankruptcy. Such payments are commonly referred to as preferential or preference payments. HOW DOES BANKRUPTCY AFFECT JOINTLY OWNED REAL PROPERTY? The trustee of a bankrupt estate may have his or her name placed on the title deed in place of the bankrupt. This is called entering transmission. The trustee will usually invite the co-owner of the property to either buy the bankrupt s interest or join in selling the property. If the co-owner will not cooperate with the trustee or they cannot agree on a satisfactory arrangement, the trustee can force the sale of joint property. CAN BANKRUPTCY AFFECT A FAMILY TRUST? A trustee may recover any property that a bankrupt has given or sold to a trust at less than its true value. The trustee will also receive any monies that may be owed to the bankrupt by a trust in the form of a loan or outstanding entitlements, and receive any distribution due to the bankrupt. Usually the trustee of a discretionary trust will not make distributions to someone while they are bankrupt. Trustees of unit trusts will not have that discretion. WHAT IS THE AFFECT ON CREDITORS? When a person is made bankrupt, their creditors exchange the right to enforce their claims for a right to prove in the bankrupt estate for a dividend. All creditors with claims at the date of bankruptcy can prove for a dividend. 19 WORRELLS SOLVENCY & FORENSIC ACCOUNTANTS

21 INDICATORS OF BANKRUPTCY1 INSOLVENCY ARE THE RIGHTS OF SECURED CREDITORS AFFECTED? The bankruptcy does not affect the rights of secured creditors in relation to their security. They can enforce their charges or securities and prove for any deficiency in the estate. There are special provisions on how secured creditors may prove for shortfalls before the secured assets have been sold. WHAT ARE NON-PROVABLE DEBTS? Certain debts cannot be claimed in the bankruptcy. Non-provable debts cannot be proved for and will not be released at the end of the bankruptcy. These debts include: > Some portion of a HECS debt; > Court imposed fines; and > The remainder of maintenance agreements under the Family Law Act; Full details of provable debts are set out in section 82 of the Bankruptcy Act. CAN THE TRUSTEE PAY DIVIDENDS? Yes. Ultimately the role of the trustee is the distribution of the bankrupt s assets to the creditors. Obviously this can only occur if the bankrupt has assets. Section 109 of the Bankruptcy Act sets out the order of priorities under which dividends must be paid. Some payments and certain debts need to be paid before dividends are paid to unsecured creditors. WHEN DOES BANKRUPTCY END? The bankruptcy period automatically ends (the bankrupt is discharged) three years after the date on which the bankrupt files his or her Statement of Affairs. But the conduct of the estate may continue for some time thereafter. A BANKRUPT IS NORMALLY DISCHARGED THREE YEARS AFTER A COMPLETED STATEMENT OF AFFAIRS IS LODGED WITH ITSA. The period of bankruptcy may be extended for up to five years. This is done when the trustee lodges an objection to discharge. This may happen if the bankrupt fails to cooperate with the trustee, leaves Australia without permission, manages a company without the leave of the court, or engages in misleading conduct in relation to an amount over an indexed sum. WHAT IS AN ANNULMENT OF THE BANKRUPTCY? An annulment is the cancellation of the bankruptcy and reinstatement of the affairs of the debtor as if no bankruptcy had occurred. An annulment can be obtained: > By an order of the court on the basis that the bankruptcy should not have occurred; > By the bankrupt s debts and the costs of the administration being paid in full; or > By a proposal under section 73 being accepted by creditors. WHO LOOKS AFTER A BANKRUPT ESTATE? When a person is made bankrupt, a trustee in bankruptcy is appointed to administer the bankrupt s estate. The trustee is an appropriately qualified and registered specialist accountant who is either an officer of the Federal Court (a registered trustee) or a public servant (the Official Receiver). A debtor presenting a debtor s petition or a creditor filing a creditor s petition can obtain consent from a registered trustee. If no consent is obtained, the Official Receiver will be the trustee. WHAT ARE THE TRUSTEE S POWERS? The trustee has the power to sell any divisible asset of the bankrupt, investigate the affairs of the bankrupt and examine the bankrupt and others under oath, conduct and sell any business of the bankrupt, admit debts and distribute dividends. The trustee is empowered to exercise all of the rights and powers that the bankrupt would have had if they had not become bankrupt, plus has recovery powers that the bankrupt would not have. PERSONAL INSOLVENCY WORRELLS.NET.AU 20