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Bringing Bankruptcy to an end

The Australian Bankruptcy Act 1966 is an act of rehabilitation and accordingly, when a bankrupt has "served his time", he is discharged from bankruptcy, normally after three years.

Whether a person is entitled to discharge in the "normal" period depends on his or her behaviour while a bankrupt. Extensions to the term of bankruptcy may occur in certain circumstances, where the bankrupt has failed to co-operate with the Trustee or has done something (or failed to do something) and as a consequence, the Trustee’s task of administering the estate has been more difficult, adding to costs. In addition, the bankrupt’s behaviour may have made the location, identification and realisation of assets more difficult, reducing the potential returns to creditors.

Before dealing with the various forms of discharge, it would be useful to briefly look at how a person becomes bankrupt, the effect on property and the requirement to contribute.

HOW A PERSON BECOMES BANKRUPT

A person can become bankrupt:

1. Voluntarily by lodging a Debtors’ Petition and a Statement of Affairs (and upon acceptance of both forms by ITSA).

2. By the action of a creditor resulting in a sequestration order. The debt due to a creditor may be $2,000 or more.

A bankrupt who fails to file a Statement of Affairs as set out is guilty of contempt of Court.

PROPERTY

Upon bankruptcy, all property vests in the Trustee in Bankruptcy and is available for division amongst a bankrupt’s creditors by reason of Sections 58 and 116 of the Bankruptcy Act.

Certain property is exempt from vesting in the Trustee and includes necessary household furniture, personal effects, tools of trade and plant & equipment currently to the value of $2,600 (indexed), and a motor vehicle currently to the value of $5,050 (indexed).

Note however, that such exemption does not prevent the excepted items of property from being sold by a creditor who holds security over such items.

CONTRIBUTIONS FROM INCOME

Every bankrupt in receipt of an income is required to be assessed to determine whether he/she has an obligation to make contributions for the benefit of his/her creditors.

Such calculation is to be in accordance with the relevant formula and is determined pursuant to the provisions of Part VI, Division 4B, Sections 139J to 139ZT inclusive of the Bankruptcy Act.

Every year (or as determined by the Trustee), a bankrupt will be required to provide to his/her Trustee details of income earned for the past year and an estimate of income for the following year.

The information provided will be used to determine the amount of contributions a bankrupt may be required to pay.

If a bankrupt fails to provide these details an objection to his/her discharge may be entered and the Trustee will calculate contributions payable on information available.


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1. AUTOMATIC DISCHARGE FROM BANKRUPTCY

The Act [Section 149] provides that the statutory period of bankruptcy will be for 3 years from the date of the filing of the Statement of Affairs by the bankrupt; if there is no objection lodged (and the bankrupt has not become bankrupt a second or subsequent time – Section 59), the bankrupt is automatically discharged.

The bankruptcy may however, be extended to 5 years or 8 years if an objection is entered.

If a bankrupt has not filed his/her Statement of Affairs, the bankruptcy could be extended to more than 8 years.

AN OBJECTION WILL EXTEND A BANKRUPTCY TO:

5 years [Section 149D(1)(i) to (n)] if a bankrupt:

* failed, whether intentionally or not, to disclose to the Trustee a liability that existed at the date of bankruptcy.

* failed to comply with Section 80(1) - notify Trustee of change of name.

* refused or failed to sign a document after being lawfully required by the Trustee to sign that document.

* failed to attend a meeting of his/her creditors without having first obtained written approval of the Trustee not to attend or without having given to the Trustee a reasonable explanation for the failure to attend.

* failed to attend an interview or examination for the purposes of this Act without having given a reasonable explanation to the Trustee for the failure to attend.

* failed, whether intentionally or not, to disclose to the Trustee the bankrupt’s beneficial interest in any property.

8 years [Section 149D(1)(a) to (h)] if a bankrupt:

* has, whether before, on or after the date of bankruptcy, left Australia and has not returned.

* after the date of bankruptcy, continued to manage a corporation per Section 91A of the Corporations Law without having been given leave to do so under Section 229 of that Law.

* after the date of bankruptcy, engaged in misleading conduct in relation to a person in respect of an amount that, or amounts the total of which, exceeded $3,419.

* when requested in writing by the Trustee to provide written information about the bankrupt’s property, income or expected income, failed to comply with the request.

* failed to disclose any particulars of income or expected income as required by a provision of the Bankruptcy Act referred to in Section 6A(1) or by Section 139U.

* failed to pay to the Trustee an amount that the bankrupt was liable to pay under Section 139ZG (Assessed Contribution).

* at any time during the period of 5 years immediately before the commencement of the bankruptcy, or at ant time during the bankruptcy:-

1. spent money but failed to explain adequately to the Trustee the purpose for which the money was spent.

2. disposed of property but failed to explain adequately to the Trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal.

* while absent from Australia, the bankrupt was requested by the Trustee to return to Australia by a particular date or within a particular period but failed to return.

A Notice of Objection must be filed with the Official Receiver and must:

set out the ground/s of objection per S149D(1),
refer to evidence or other material that, in the opinion of the Trustee, establishes the ground/s,
state the reason/s of the Trustee for objecting to the discharge on the ground/s specified.
A copy of the Notice must be given to the bankrupt together with a notice to the effect that the bankrupt may do either or both of the following:-

1. request the Inspector-General to review the decision of the Trustee.

2. Subject to the Administrative Appeals Tribunal Act 1975, make an application to the Administrative Appeals Tribunal for a review of the decision.

The notice must also advise the bankrupt that a request to the Inspector-General for a review of the decision must be in writing, must be lodged with the Official Receiver’s office and must be accompanied by a copy of the notice of objection and any documents on which the bankrupt relies in support of the request.


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2. BANKRUPTCY ANNULMENT

The Bankruptcy Trustee can cancel (annul) a bankruptcy by issuing a Certificate of Annulment when:

* all the debts and costs of the administration of the bankruptcy have been paid in full [Section 153A] , or

* the bankrupt makes an offer of a composition which is accepted by the creditors at a meeting and the bankrupt has satisfied the terms of the offer [Sections 73 to 76], or

* through the Bankruptcy Trustee, a bankrupt enters into an arrangement whereby the bankrupt offers to pay a sum of money over a period of time (and such offer is accepted by the creditors) in full and final settlement of the bankrupt’s debts and the terms of payment have been completed [Sections 73 to 76].

(Section 75(4) deals with matter where bankrupt fails to meet terms of composition of arrangement initially accepted by creditors.)

an application is lodged with the Court and the Court is satisfied that a sequestration order ought not to have been made, or that the debtor’s petition ought not to have been presented or ought not to have been accepted by the Official Receiver [Section 153B].

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