Personal Insolvency Handbook

1800 246 801 svpartners.com.au


The contents of this handbook are based on current legislation. For additional information, we invite you to visit our website (www.svpartners.com.au) - the Insolvency Statistics page provides up to date and historical information on bankruptcy. The National Personal Insolvency Index (NPII) is maintained by the Insolvency and Trustee Service Australia (ITSA). This is a database allowing public access to details on Bankruptcies, Section 73 Compositions / Schemes of Arrangement, Part X Agreements (including the new Part X Personal Insolvency Agreements), Part IX Debt Agreements and Part XI Deceased Estate administrations. These details include the name of an individual, address, date of birth, occupation, estate number and certain documents filed with ITSA. Searches of this database can be conducted through various information providers, we invite you to visit our website at www.svpartners.com.au. The information contained in this Handbook is intended as a general guide. It is not intended or to be taken as advice to any person. While it is believed that the information contained herein is accurate and reliable, no warranty is given as to the accuracy and completeness of any statement or opinion. No liability is accepted by SV Partners Pty Ltd, its directors and/or staff or any associated entity for any error or omission or on any other account. The handbook is provided to you, on our behalf, as a quick and useful reference. Please do not hesitate to contact our office on (07) 3310 2000 should you wish to speak directly to any accountant who specialises in bankruptcy and personal insolvency.

Terry van der Velde

Managing Director

foreword

http://www.svpartners.com.au/


COMPARISON OF ADMINISTRATION TYPES COMPARISON OF ALTERNATIVE PERSONAL INSOLVENCY ADMINISTRATIONS BANKRUPTCY OVERVIEW

• How do you become a Bankrupt? • Why Bankrupt a Debtor? • Who can Act as a Trustee? • Rights of creditors against a Trustee • The effect of Bankruptcy on the Bankrupt

PERIOD OF BANKRUPTCY • Objection to Discharge • Annulment • Arrangements with Creditors

PROPERTY AVAILABLE TO THE ESTATE ORDER OF PAYMENT OF DEBTS SECURED CREDITORS

• Judgement Creditor CONTRIBUTION OF INCOME

• What is income? • What are the contributions required? • Review of Assessment

MEETING PROCEDURES • Convening a Meeting • Who receives a notice of a Creditors’ Meeting • Matters that must be included in the Notice • Items to be included in the Agenda • Meeting Held By Post

PROCEDURE AT THE MEETING CREDIT & OPERATING A BUSINESS RESTRICTIONS ON OVERSEAS TRAVEL INVESTIGATIVE AND RECOVERY PROCEDURES

• Investigative Powers • Recovery Powers • Statutory Charge • Failure to comply with Notice • Courts power to intervene (appeal against section 139ZQ notice)

PART IX PART IX DEBT AGREEMENTS

• What is a Part IX Debt Agreement? • Eligibility

EFFECTS OF A DEBT AGREEMENT • Varying a Debt Agreement • Ending a Debt Agreement

PART X PART X PERSONAL INSOLVENCY AGREEMENTS

• Objectives of Part X of the Bankruptcy Act • What is a Part X Personal Insolvency Agreement (PIA)? • How to commence a PIA • The Controlling Trustee • The Meeting of Creditors • Variation of a PIA • Termination of a PIA

PART X PROCEDURE - TIME FRAMES FURTHER INFORMATION

contents


BANKRUPTCY

PART X DEBT AGREEMENT

PART X PERSONAL INSOLVENCY AGREEMENT

Binding on all creditors

Yes

Yes

Yes

Property subject to the administration

Divisible property including after acquired property

Property as specified in the debt agreement

Property included in the Personal Insolvency Agreement (PIA), this can include non-divisible and after acquired property as well as income

Debtor’s income after date of bankruptcy, execution of PIA or Debt Agreement

Yes – under Section 139L

No – unless part of agreement

No – unless part of agreement

Release from provable debts

Yes – on discharge

Yes – when details of the accepted debt agreement are entered in the NPII maintained by ITSA

No – unless provided for in PIA (which is usually the case), then usually when terms PIA have been carried out. Other joint debtors may be released

Trustee’s power to carry on business

Yes – but limited to continuation for beneficial disposal

Yes – as specified in the PIA proposal

Yes – as provided for in the PIA

Examination of debtors and others

Section 77C and Section 81

No

Section 77C and Section 81

Relation back and avoidance provisions – application of Section 115 and 118-124

Yes

No

Yes – if provided for in the PIA

Stay of proceedings

Yes

Yes – moratorium provided

Yes

Dissolution of partnership (Section 36 of Partnership Act)

Yes

Yes

Yes

Can continue as director of company (Section 206B(3) of Corporations Act)

No – Unless Court approval is obtained

Yes

No – unless Court approval is obtained

administration types


OVERVIEW 1. How do you become a Bankrupt? Creditor’s Petition A creditor can make application to the Federal Court of Australia or Federal Magistrates Court of Australia where:

i. there is an amount of $2,000 owed in respect of one debt or, an aggregate of $2,000 in respect to two or more creditors who join in making the application;

ii. the debt is a liquidated sum due immediately or at a certain future time;

iii. there has been an Act of Bankruptcy committed within six months before presentation of a petition.

Section 40 of the Bankruptcy Act 1966 (the Act) defines what acts of Bankruptcy are. 40(1) (When act of Bankruptcy is committed) A debtor commits an act of bankruptcy in each of the following cases:

a. If in Australia or elsewhere he or she makes a conveyance or assignment of his or her property for the benefit of his or her creditors generally;

b. if in Australia or elsewhere:

i. he or she makes a conveyance, transfer, settlement or other disposition of his or her property or of any part of his or her property;

ii. he or she creates a charge on his or her property or on any part of his or her property;

iii. he or she makes a payment; or iv. he or she incurs an obligation;

that would, if he or she became a bankrupt, be void as against the Trustee;

c. if, with intent to defeat or delay his or her creditors:

i. he or she departs or remains out of Australia;

bankruptcy overview


ii. he or she departs from his dwelling-house or usual place of business;

iii. he or she otherwise absents himself or herself; or iv. he or she begins to keep house;

d. if:

i. execution has been issued against him or her under process

of a court and any of his or her property has, in consequence, either been sold by the sheriff or held by the sheriff for 21 days; or

ii. execution has been issued against him or her under process of a court and has been returned unsatisfied;

d.a if the debtor the presents a debtor’s petition under this Act; db. if the debtor presents to the Official Receiver a declaration under Section 54A;

e. if, at a meeting of any of his or her creditors:

i. he or she consents to present a debtor's petition under this

Act and does not, within 7 days from the date on which he so consented, present the petition; or

ii. he or she consents to sign an authority under Section 188 and does not, within 7 days from the date on which he or she so consented, sign such an authority and inform the chairman of the meeting, in writing, of the name of the person in whose favour the authority has been signed;

f. if, at a meeting of any of his or her creditors, he or she admits that

he or she is in insolvent circumstances and, having been requested by a resolution of a majority of the creditors present at the meeting either in person or by attorney to bring his or her affairs under the provisions of the Act, he or she does not, within 7 days from the date of the meeting, either:

i. present a debtor's petition; or ii. sign an authority under Section 188 and inform the chair of

the meeting, in writing, of the name of the person in whose favour the authority has been signed;

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g. if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia, or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

i. where the notice was served in Australia - within the time

specified in the notice; or ii. where the notice was served elsewhere - within the time fixed

for the purpose by the order giving leave to effect the service; comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgement or order was obtained;

h. if he or she gives notice to any of his or her creditors that he or she has suspended, or that he or she is about to suspend, payment of his or her debts;

ha. if the debtor gives the Official Receiver a debt agreement proposal;

hb. if a debt agreement proposal given by the debtor to the Official Receiver is accepted by the debtor’s creditors;

hc. if the debtor breaches a debt agreement;

hd. if a debt agreement to which the debtor was a party (as a debtor) is terminated under Section 185P, 185Q or 185QA;

i. if he or she signs an authority under Section 188;

j. if a meeting of his or her creditors is called in pursuance of such an

authority;

k. if, without sufficient cause, he or she fails to attend a meeting of his or her creditors called in pursuance of such an authority;

l. if, having been required by a special resolution of a meeting of his or her creditors so called to execute a personal insolvency agreement

bankruptcy overview


or to present a debtor's petition, he or she fails, without sufficient cause:

i. to comply with the requirements of this Act as to the execution of the agreement by him or her; or

ii. to present a debtor's petition within the time specified in the resolution;

iii. as the case may be;

m. if the personal insolvency agreement executed by him or her under Part X is

i. set aside by the Court; or ii. terminated;

n. if a composition or scheme of arrangement accepted by the debtor's

creditors under Division 6 of Part IV is

i. set aside by the Court; or ii. terminated;

o. if the debtor becomes insolvent as a result of one or more transfers

of property in accordance with a financial agreement (within the meaning of the Family Law Act 1975) to which the debtor is a party

bankruptcy overview


Debtor’s Petition Under Sections 55, 56 & 57 of the Act a person can make application to the ITSA for bankruptcy; that application is known as a Debtor’s Petition. The Official Receiver must reject a Debtor’s Petition unless when presented the Debtor was present or ordinarily resident in Australia, had a dwelling or business in Australia operated either personally or by an agent or was a member of a firm or partnership carrying on business in Australia. The Official Receiver may reject a Debtor’s Petition if:

i. the petition does not comply with the approved form; or

ii. the petition is not accompanied by a Statement of Affairs; or

iii. the Official Receiver thinks the Statement of Affairs is inadequate.

The Official Receiver may reject a Debtor’s Petition if it appears that the Debtor would likely be able (either immediately or within a reasonable time) to pay all of the debts specified in the Statement of Affairs, and:

i. it appears that the Debtor is unwilling to pay 1 or more of those debts; or

ii. the Debtor has been bankrupt on a debtor’s petition on 3

previous occasions or at least once in the preceding 5 years. The Official Receiver is not required to consider the discretion in each case. The Debtor may apply to the Administrative Appeals Tribunal (AAT) to review the Official Receiver’s decision. Prior to accepting the lodgement of a Debtor’s Petition for Bankruptcy, the Official Receiver requires the debtor to acknowledge that he or she has received, read and understood certain prescribed information about bankruptcy and its alternatives.

bankruptcy overview


2. Why Bankrupt a Debtor? The commonly stated reasons are:

i. To recover monies due; ii. Social responsibility; iii. Vendetta; and iv. Irreconcilable disputes.

3. Who can Act as a Trustee?

i. The Official Trustee (ITSA); or ii. A registered Trustee (a private Trustee who is registered under

the Act). 4. Rights of creditors against a Trustee

i. Trustees must provide information about the administration of

the estate to a creditor who reasonably requests it. ii. To call a meeting of creditors - Section 64.

64(1) The Trustee must convene a meeting of the creditors of a bankrupt:

a. whenever the creditors so direct by resolution; and b. whenever so requested in writing by at least one-fourth in value of

the creditors; and c. whenever so required in writing by less than one-fourth in value of

the creditors, being a creditor who has, or creditors who together have, lodged with the Trustee sufficient security for the cost of holding the meeting.

iii. To remove a Trustee – Section 181.

181 The creditors may, by resolution, at a meeting of which not less than 7 days' notice has been given, remove a registered Trustee appointed by them, or a registered Trustee who is, by virtue of sub-Section 156A(3), the Trustee of the estate of the bankrupt concerned, and may at the same or a subsequent meeting appoint another registered Trustee to be Trustee in his or her place.

bankruptcy overview


Section 181A, allows the Trustee of a Bankrupt estate to notify creditors of a proposal to replace the Trustee to be effective from a specified date, providing the new Trustee has consented to be appointed. If no creditor objects in writing within 2 days prior to the specified date, the change of Trustee takes place on the date specified in the notice. If an objection is made, a meeting must be called and this matter decided under current voting rules.

iv. Trustee to take account of the creditors’ directions – Section 177

177(1) [Control of creditors over trustees] Subject to this Act, in the administration of the estate of a bankrupt, the Trustee shall have regard to any lawful directions given by resolution of the creditors at a meeting of the creditors or by the committee of inspection.

v. Appeal to Court against Trustee’s decision – Section 178 178(1) If the bankrupt, a creditor or any other person is affected by any act, omission or decision of the Trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. 178(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.

vi. Remuneration

a. Generally the Trustee’s remuneration will be fixed at a meeting of creditors – Section 162

162(1) Subject to section 161B, the remuneration of the Trustee of the estate of a bankrupt may be fixed, from time to time, by resolution of the creditors or, if the creditors so resolve, by the committee of inspection.

b. But if creditors do not fix the remuneration then 162(4) Where the remuneration of the Trustee is not fixed by the creditors or the committee of inspection, the Trustee is to be remunerated as prescribed by the regulations.

bankruptcy overview


c. Regulation 8.08 provides the rate and states 8.08 For the purposes of sub-Section 162(4) of the Act, the remuneration of a Trustee is to be:

a. in accordance with the scale of charges that is:

i. set out in the IPAA Guide to Hourly Rates published by the Insolvency Practitioners Association of Australia; and

ii. applicable to the work to be remunerated; and

b. at the level of 85 percent of those charges.

The last guide to hourly rates was issued, effective from 1 July 1999. As a result of intervention by the Competition Commission in 2000, the Insolvency Practitioners Association of Australia (IPAA) withdrew the IPAA guide to hourly rates, leaving practitioners to develop a fee structure commensurate with their own cost structures. In recent times the effect of Professional Indemnity Insurance costs has had a significant effect on costs.

SV PARTNERS PTY LTD BUSINESS RECOVERY AND INSOLVENCY SCHEDULE OF HOURLY RATES

EFFECTIVE 1 JULY 2007

CATEGORY HOURLY RATE

Director/Appointee $450 Manager 1 $329 Manager 2 $275 Consultant $329 Supervisor $219

Senior Accountant $204 Accountant 1 $156 Accountant 2 $136

Administrative Staff $108 Support Staff Nil

The above figures are exclusive of GST.

bankruptcy overview


vii. Minimum Entitlement. 161B(1) If the total remuneration payable to the Trustee under section 162 would be less than $1,109 (the statutory minimum), the Trustee is entitled to be paid additional remuneration equal to the shortfall. The minimum amount is adjusted by CPI and is $1,471 as at 1 January 2008. The Trustee’s statutory minimum remuneration is increased by 8.4% if the Trustee’s remuneration is consideration for a taxable supply.

viii. Taxation of a Trustee’s fees (however approved) can be requested by any creditor – Bankruptcy Regulation 8.09

8.09(1) Where the Trustee of the estate of a bankrupt claims remuneration under section 162 of the Act, the bankrupt or a creditor who is dissatisfied with the amount of the claim may, by notice in writing lodged within 28 days of being notified in writing or becoming aware of the amount of the claim, request a taxing officer to tax the claim. 5. The effect of Bankruptcy on the Bankrupt

i. The Bankruptcy Act

bankruptcy overview


The Basic Effects of Bankruptcy

• Must surrender passport • Needs approval of Trustee to travel overseas • Not to obtain credit exceeding $4,457 (CPI adjusted) without

disclosing bankruptcy • Must comply with directions of Trustee • Must advise Trustee of changes in name, address and daytime

telephone • Must provide all details of his/her assets and liabilities • To keep books in respect of period of bankruptcy • Must provide all details of income earned during the period of

bankruptcy • In some circumstances contribute a percentage of income to his/her

estate • Must attend a meeting whenever required by the Trustee • All divisible property passes to Trustee with bankrupt having no legal

power to sell or otherwise deal with any divisible property existing as at the date of bankruptcy or after-acquired property.

ii. The Corporations Act 2001

Section 206B(3) decrees that an insolvent under administration is not to take part in the management of a body corporate without the leave of the Court. An insolvent under administration includes all Bankruptcy Act administrations except Part IX Debt Agreements.

bankruptcy overview


The statutory period of bankruptcy is 3 years from the date a Statement of Affairs is filed with the Official Receiver (ITSA). Section 33A of the Act provides for the alteration of the date the Statement of Affairs is filed, in particular circumstances.

1. This section applies to a statement of affairs that was filed for the purposes of section 54, 55, 56B, 56F or 57 by a bankrupt, or by a person who later became a bankrupt.

2. If the Court is satisfied that the person believed, on reasonable

grounds, that the statement had already been filed at a time before it was actually filed, the Court may order that the statement is to be treated as having been filed at a time before it was actually filed.

3. The Court cannot make an order that would result in the person

being discharged from bankruptcy earlier than 30 days after the order is made.

4. In this section: filed includes presented, lodged or given.

1. Objection to Discharge An objection to discharge extends the period of Bankruptcy. Section 149(D)(1) of the Bankruptcy Act 1966 sets out the grounds for an objection. The severity of any breach will set the term of the extension of the bankruptcy. Bankruptcy can be extended to 8 years from the date the Statement of Affairs was filed if:

ab. any transfer is void against the trustee in the bankruptcy because of section 121;

ac. any transfer is void against the trustee in bankruptcy because of section 128B; ad. any transfer is void against the trustee in bankruptcy because of S128C;

d. the bankrupt, 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;

period of bankruptcy


da. after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the trustee;

e. the bankrupt failed to disclose any particulars of income or expected

income as required by a provision of this Act referred to in subsection 6A(1) or by section 139U;

f. the bankrupt failed to pay to the trustee an amount that the

bankrupt was liable to pay under section 139ZG; g. at any time during the period of 5 years immediately before the

commencement of the bankruptcy, or at any time during the bankruptcy, the bankrupt:

i. spent money but failed to explain adequately to the trustee

the purpose for which the money was spent; or

ii. 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;

h. while the bankrupt was absent from Australia he or she was

requested by the trustee to return to Australia by a particular date or within a particular period but the bankrupt failed to return by that date or within that period (in this case, the bankruptcy is extended from the date the bankrupt returns to Australia);

ha. the bankrupt intentionally failed to disclose to the trustee a liability

of the bankrupt that existed at the date of the bankruptcy; k. the bankrupt refused or failed to sign a document after being

lawfully required by the trustee to sign that document; ma. the bankrupt intentionally failed to disclose to the trustee the

bankrupt's beneficial interest in any property. The above grounds are referred to as special grounds. Bankruptcy can be extended to 5 years from the date the date the Statement of Affairs was filed if:



a. the bankrupt has, whether before, on or after the date of the bankruptcy, left Australia and has not returned to Australia (in this case, the bankruptcy is extended from the date the bankrupt returns to Australia);

aa. any transfer is void against the trustee in the bankruptcy because of

section 120 or 122; b. after the date of the bankruptcy, the bankrupt contravened section

206A of the Corporations Act 2001 (disqualification from managing corporations);

c. after the date of the bankruptcy the bankrupt engaged in misleading

conduct in relation to a person in respect of an amount that, or amounts the total of which, exceeded $3,000;

d. the bankrupt has failed, whether intentionally or not, to disclose to

the trustee a liability of the bankrupt that existed at the date of the bankruptcy;

e. the bankrupt failed to comply with paragraph 77(1)(bb) or (bc) or

subsection 80(1); f. the bankrupt failed to attend a meeting of his or 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;

g. the bankrupt 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;

h. the bankrupt failed, whether intentionally or not, to disclose to the

trustee the bankrupt's beneficial interest in any property. The Trustee is not required to give reasons (as opposed to the grounds) why an objection is lodged for grounds specified in 149(D) (1) (ab), (ac), (ad), (d), (e), (f), (g), (h), (ha), (k) or (ma). For all other grounds, the Trustee must provide reasons as to why the objection is lodged. The bankrupt can request the Inspector-General to review any objection lodged by the Trustee. Such a request must be made within 60 days of the bankrupt being notified of the objection.



The Inspector-General must not cancel an objection if the objection specifies at least 1 special ground and there is sufficient evidence to support that ground and the bankrupt fails to establish a reasonable excuse for the conduct or failure. No notice is to be taken of the bankrupt’s conduct after the time when the ground concerned first commenced to exist. The bankrupt or the Trustee can appeal the review decision of the Inspector-General to the AAT. A bankrupt cannot appeal a decision of the Trustee directly to the AAT. If the normal 3 year period of bankruptcy (from the date the Statement of Affairs is filed with ITSA) has already expired before the review of the objection, then:

i. If upon review by the Inspector-General, the objection is cancelled, that cancellation doesn’t take effect and the bankrupt will not be discharged until the expiration of a period of 28 days.

ii. if the Trustee withdraws the objection, the discharge takes effect immediately.

2. Annulment The Trustee can issue a certificate annulling a bankruptcy where all of the debts (including interest, on such of those debts as bear interest, up until the date of payment) and the costs of administration have been paid in full. If the Court is satisfied that a Sequestration Order ought not to have been made, or that a Debtor’s Petition ought not to have been presented, the Court can order an annulment of the Bankruptcy. In the case of a Debtor’s Petition, the order can be made by the Court whether or not the bankrupt was insolvent when the petition was presented. Pursuant to Section 74 of the Bankruptcy Act 1966, the bankruptcy is annulled if creditors accept a proposal from the bankrupt under Section 73 of that Act. 3. Arrangements with Creditors Pursuant to Section 73 of the Act, a bankrupt may come to an arrangement with his or her creditors, through the Trustee by making an offer to the creditors in the form of a Scheme of Arrangement or a Composition which creditors may accept in final satisfaction of their debt. It does not have to represent a payment of 100 cents in the dollar and may include a payment over a period of time.



A Trustee can refuse to call the meeting if the proposal does not make adequate provision for his remuneration that is owed and has been approved prior to the proposal. A Trustee may require surety for costs of calling the meeting. Proposals that have previously been accepted can be varied. A variation proposal can be made in writing to creditors by the Trustee, with the debtor’s consent and without calling a meeting. If a creditor objects in writing, the variation proposal can only be considered by calling a meeting of creditors.

PROPERTY AVAILABLE TO THE ESTATE Generally all property that the bankrupt owns, has a right to or an interest in, at the date of bankruptcy, vests in the Trustee. The Act also states that property of the bankrupt at the commencement of the bankruptcy is available to creditors, however, it does not vest in the Trustee until the date of bankruptcy. The commencement date is not always the date that the person becomes bankrupt. For example, in the case of a Creditor’s Petition or a debtor’s petition where there has been an earlier act of bankruptcy, the commencement date is the earliest act of bankruptcy within 6 months before the presentation of the petition. Some property does not vest in the Trustee, including:

• Property held by the bankrupt in trust for another person; • Necessary household property and effects; • Items of a sentimental value to the bankrupt that is of a kind

prescribed in the regulations and is agreed to by a resolution of creditors before the Trustee realises the property (eg. sporting medals, trophies, civil and military awards, but not jewellery);

• Tools of trade to the value of $3,000 (indexed); • A motor vehicle used by the bankrupt primarily as a means of

transport to the value of $5,900 (indexed); • Bankrupt’s interest in a regulated superannuation fund or an

approved deposit fund or policies of life assurance or endowment assurance in respect of the life of the bankrupt or the bankrupt’s spouse not exceeding the pension RBL (currently $1,238,440 - indexed);

Property available to the estate


• Any right of the bankrupt to recover damages or compensation for personal injury or wrong done to the bankrupt or their family or in respect of a death of a member of the bankrupt’s family; and

• Amounts paid to the bankrupt under a scheme established between the Commonwealth and the States under the Grants (Rural Reconstruction) Act 1971 being amounts being paid by way of loan as assistance for the purpose of rehabilitation.

A Trustee is to realise property within 6 years of the discharge from bankruptcy, however the Trustee can seek an extension of that time. After that time any unrealised assets revest in the bankrupt (can be extended in cases where it is not practical to realise within this time frame). This time limit is increased in cases where a bankrupt has not disclosed assets to the Trustee.

ORDER OF PAYMENT OF DEBTS Section 109 of the Bankruptcy Act and the Bankruptcy Regulations set out the priority of payments to be made out of the receipts in a bankrupt estate:

i. Realisation Charges and regulation 16.14 Fees (if applicable); ii. Official Trustees remuneration on estates transferred to Registered

Trustees; iii. Expenses incurred by or on behalf of the Trustee; iv. Other costs payable by the Trustee in administration of the estate; v. The reimbursement of any amount that was deposited in relation to

an order under section 50 of the Act (relating to control of property pre bankruptcy), and used in meeting expenses under that section;

vi. Taxed costs of petitioning creditor; vii. The Trustee’s remuneration; viii. Committee of Inspection approved out of pocket expenses;

ix. Costs of any audit carried out under section 175; x. If an authority under Section 188 was signed before bankruptcy, the

Controlling Trustee’s remuneration and the costs reasonably incurred by the Controlling Trustee;

xi. If the bankruptcy occurs within 2 months of a Deed of Arrangement or Composition or Scheme of Arrangement being declared void, annulled, set aside or terminated; in payment of the liabilities, commitments, expenses incurred by the Trustee in good faith and the Trustee’s unpaid remuneration;

xii. In relation to Part XI Administration (bankruptcy of deceased estates), proper funeral and testamentary expenses;

order of payment of debts


xiii. Wages, salary or commission due to employees, including allowances or reimbursements (presently limited to $3,500);

xiv. Compensation payable relating to workers’ compensation; xv. Amounts payable in relation to workers’ leave entitlements; xvi. As the Trustee deems fit, refunds of any apprenticeships / indenture

fees paid; xvii. Such preferences, priorities or advantages as creditors approve by

special resolution; xviii. Such costs, charges and expenses incurred in the interests of

creditors before the date of bankruptcy as creditors approve by special resolution;

xix. Unsecured creditors’ proven debts; xx. Any deferred entitlement to interest; with xxi. Any surplus refunded to the bankrupt

Section 109 (1) has effect subject to:

a. Section 50 of the Child Support (Registration and Collection) Act 1988; and

b. sub-Sections 221YHJ(3), (4) and (5) and 221YHZD(3), (4) and (5) and Section 221YU of the Income Tax Assessment Act 1936.

Note: The provisions of the Income Tax Assessment Act 1936 referred to do not apply to liabilities arising after 30 June 1993. Other Notes:

1. Where in any bankruptcy:

a. property has been recovered, realised or preserved under an indemnity for costs of litigation given by a creditor or creditors; or

b. expenses in relation to which a creditor has, or creditors have, indemnified a Trustee have been recovered;

the Court may, upon the application of the Trustee or a creditor, make such orders as it thinks just and equitable with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving the indemnifying creditor or creditors, as the case may be, an advantage over others in consideration of the risk assumed by creditor or creditors.

2. Whilst it is arguable that point xiii incorporates superannuation, sections 109(1B) and (1C) of the Act specifically incorporate unpaid



superannuation contributions for employees being afforded a priority (at point xiii).

3. The priorities set out above do not include other specific priorities that may occur in some specific circumstances such as deceased estates or prior terminated administrations under the Act.

With the exception of points i to ix, the debts in each of the classes specified rank equally between themselves and shall be paid in full unless the proceeds of the property of the bankrupt are insufficient to meet them, in which case they shall be paid proportionately. Section 110 Application of estates of joint debtors

1. In the case of joint debtors, whether partners or not, the joint estate shall be applied in the first instance in payment of their joint debts, and the separate estate of each joint debtor shall be applied in the first instance in payment of his or her separate debts.

2. If there is a surplus in the case of any of the separate estates, it shall be dealt with as part of the joint estate and if there is a surplus in the case of the joint estate, it shall be dealt with as part of the respective separate estates in proportion to the right and interest of each joint debtor in the joint estate.

Realisation and Interest Charges Under the Bankruptcy (Estate Charges) Act 1997, proceeds received by a Trustee into an estate, less any permitted deductions, incur a realisation charge of 8 per cent which is payable to the Federal Government by the Trustee. The Realisation Charge applies to Controlling Trustees, Part XI administrations and Part X Personal Insolvency Agreements. Section 73 proposals commenced after 3 July 2002 also attract the charge. No charge is payable in relation to any surplus funds returned to a bankrupt, or any indemnity provided by creditors. The charge is also not payable for Part IX Debt Agreements. Interest charge An amount of interest to which a Trustee (including a Controlling Trustee) is entitled under sub-Section 169 (1B) of the Bankruptcy Act 1966, less bank charges, is payable to the Commonwealth as a charge.



The Act does not alter the rights that a secured creditor has to realise or manage assets subject to its security. However a secured creditor’s right to participate in an administration is restricted in that a secured creditor cannot vote at a creditor’s meeting unless it has estimated the value of it’s security. It can vote for any shortfall between the estimated realisable value and the debt.

i. The secured creditor is generally bound by the estimate of value – with any surplus going to the estate and not the secured creditor.

ii. The Trustee may, on giving a mortgagee 6 months written notice or payment of 6 months interest in lieu of no time, require a mortgagee to discharge the mortgage notwithstanding that the time for payment has not yet arrived.

Upon tender of the money secured by the mortgage and any interest if appropriate, the mortgagee is bound to execute such documents as are necessary.

iii. The Trustee has the right, on giving notice in writing, to inspect any goods of the bankrupt held as security. The person notified must not dispose of the goods until the Trustee has had a reasonable opportunity to inspect and to exercise any right of redemption.

NOTE: A secured creditor cannot present an application for a bankruptcy order unless:

i. There is a shortfall over the value of securities of $2,000 or more Or

ii. Is prepared to surrender its security. If a secured creditor presents a petition as if it was an unsecured creditor then it must, when called upon by the Trustee, surrender its security.

1. Judgement Creditor A judgement creditor who issues execution under which the Sheriff seizes property before the commencement of bankruptcy in effect becomes a secured creditor but if the Trustee gives the Sheriff notice of the bankruptcy any property in the Sheriff’s possession must be handed over to the Trustee.

secured creditors


The Trustee is required to assess the bankrupt's income and if it is above certain base levels then the bankrupt will be required to make contributions out of his/her income to the Trustee. The bankrupt is required to contribute 50% of any after tax income earned in excess of the threshold amount. How the bankrupt pays the assessed contribution will be determined by the Trustee, usually in consultation with the bankrupt. Section 139ZL of the Bankruptcy Act 1966 enables a notice to be served on third parties requiring them to pay any monies they owe the bankrupt (including wages or salary), to the Trustee in settlement of any unpaid assessment. The amount which the Trustee assesses will be the minimum payment which will have to be made. The bankrupt can of course make larger payments with a view to paying off his or her creditors which may lead to annulment of bankruptcy. Failure to make the payments as assessed may lead to the bankruptcy being extended by 8 years. The debt is able to be pursued by the Trustee who can obtain judgement before or after the bankruptcy ends. The base income threshold amount that a bankrupt is able to earn before being required to make an income contribution will vary from time to time; it is currently $35,763.00 (after tax) plus an allowance for any dependant which the bankrupt may have. The following table sets out the increase for dependants:

No. of Dependents

Threshold (After tax income able to be earned before contribution required is indexed)

No Dependents

$35,763.00

1 Dependent

$42,200.34

2 Dependents

$45,419.01

3 Dependents

$47, 207.16

4 Dependents

$47,922.42

>4 Dependents

$48,637.68

NOTE: Figures are CPI adjusted each ½ year and are current as at 20 September 2004.

contribution of income


A "dependant" of a bankrupt is defined as a person who:

1. resides with the bankrupt; and 2. the income derived by the dependent is less than $2,572.00; and 3. is wholly or partly dependent on the bankrupt for economic support

Note the three elements. If one of the elements is missing the person fails the test.

1. What is income? It is very broad in terms of the context of the Act. It is not just wages. The following are income in relation to a bankrupt (whether or not they come within the ordinary meaning of “income”):

i. an annuity or pension paid to the bankrupt from a provident, benefit, superannuation, retirement or approved deposit fund;

ia. an annuity or pension paid to the bankrupt from a Retirement Savings Account;

ii. a payment to the bankrupt in consequence of a termination of any

office or employment;

iii. an amount of annuity or pension received by the bankrupt under a policy of life insurance or endowment insurance;

iv. an amount received by the bankrupt as a beneficiary under a trust

to the extent that the amount was paid out of income of the trust;

v. the value of a benefit that:

A. is provided in any circumstances by any person (the provider) to the bankrupt; and

B. is a benefit within the meaning of the Fringe Benefits Tax

Assessment Act 1986 as in force at the beginning of 1 July 1992 (other than a benefit that would be an exempt benefit for the purposes of that Act if the provider were the employer of the bankrupt as an employee and the provider had provided the benefit in respect of the employment of the bankrupt);



vi. the value of a loan made to the bankrupt by an associated entity of the bankrupt, including:

A. a loan under which the loan money is not paid to the bankrupt, but

is paid or applied at the bankrupt’s direction; and

B. a loan that is not enforceable at law or in equity;

vii. the amount of any money, or the value of any other consideration, received by a person other than the bankrupt from another person as a result of work done or services performed by the bankrupt, less any expenses (other than expenses of a capital nature) necessarily incurred by the first-mentioned person in connection with the work or services;

The following are not income in relation to a bankrupt (even if they come within the ordinary meaning of “income”):

i. an amount paid to the bankrupt:

A. from the Child Support Reserve established under the Child Support (Registration and Collection) Act 1998; or

B. from another source for the maintenance of children of whom the

bankrupt has custody; or

ii. a payment to the bankrupt under:

A. a legal aid scheme or service established under a law of the Commonwealth or of a State or Territory of the Commonwealth; or

B. a legal aid scheme or service approved by the Attorney-General for

the purposes of paragraph 2(4)(a) of the Federal Court of Australia Regulations; or

C. any other legal aid scheme or service established to provide

assistance to people on low incomes;

iii. a payment or amount that the regulations provide is not income of the bankrupt.



The following are the categories of Fringe Benefits set out in the Fringe Benefits Act:

• Car Benefits • Loan benefits • Debt waiver benefits • Expense payments benefits • Housing benefits • Remote area housing and travel benefits • Living-away-from-home allowance benefits • Board benefits • Property benefits • Airline transport benefits • Entertainment benefits • Other benefits (such as provision of services and rights to use

property). Reasonable remuneration - Section 139Y

• If a bankrupt engages in, or has engaged in employment during an income review period and does not receive remuneration or reasonable remuneration, the Trustee may determine that the bankrupt receives or has received reasonable remuneration.

• If a bankrupt enters or entered into a transaction during an income review period that might reasonably be expected to produce or have produced income and the bankrupt does not or did not derive a reasonable income from that transaction, then the Trustee may determine that the bankrupt derives or has derived reasonable income from that transaction or employment.

No income disclosed - Section 139Z If a bankrupt:

• does not provide information in relation to income; or, • claims not to have derived, or is not likely to derive income, • during an income review period, but the Trustee has reasonable

grounds for believing income has or will be derived, the Trustee may determine an amount of income.



2. What are the contributions required? In essence: Contribution =

(deemed income less paid less exempt income less contribution threshold)

2

Tax paid includes both income tax and Medicare levy actually paid by the bankrupt. Where the tax actually paid by the bankrupt during a contribution assessment period is in excess of the subsequent income tax assessment for that period, then the refunded tax is apportioned as income over the period to which it relates. Where a bankrupt attempts to manipulate the amount of income he or she receives, the bankrupt runs the risk of having that income included as part of his or her “deemed” income, but not receive any allowance for the tax that would be payable in respect of that income (as the bankrupt would not have paid that tax). The Trustee will usually make an assessment of a bankrupt’s liability at the commencement of the contribution assessment period, based on expectations of what will happen during that period, and then proceed to review that assessment after the end of the period when actual amounts are known. The bankrupt must supply information to enable the assessment to be made within 21 days of the end of the contribution assessment period. Normally a Trustee will issue the bankrupt with a questionnaire at the end of each contribution assessment period seeking actual information about the period just ended and expectations about the subsequent period. Contributions overpaid (as determined on a year end review) are not refundable but contributions underpaid must be paid. Any overpayments can be offset against any subsequent liability. A review can be undertaken part way during a period if the bankrupt’s circumstances change during that period and those changes are likely to



have an impact on the bankrupt’s compulsory income contribution obligations. Any payments not met are a debt due even after discharge from bankruptcy and could result in a further bankruptcy if not paid.

3. Review of Assessment The bankrupt can request the Inspector-General to review any income contribution assessment made by the Trustee. Such a request must be made within 60 days of the bankrupt being notified of the assessment. The bankrupt or the Trustee can appeal the review decision of the Inspector-General to the AAT. A bankrupt cannot appeal a decision of the Trustee directly to the AAT. Section 139T of the Bankruptcy Act 1966 gives the Trustee the power to vary the threshold amount if the bankrupt considers that, if required to pay that contribution, he or she will suffer hardship for the following reasons:

a. the bankrupt or a dependant of the bankrupt suffers from an illness or disability that requires on-going medical attention and the supply of medicines, and the bankrupt is required to meet a substantial proportion of the costs of that medical attention or those medicines from his or her income;

b. the bankrupt is required to make payments from his or her income

to meet the cost of child day-care to enable the bankrupt to continue in employment or other work;

c. the bankrupt is living in rented accommodation that is not provided

by:

i. the Commonwealth, a State or a Territory; or ii. an authority of the Commonwealth, a State or a Territory; or iii. a local government authority;

and the bankrupt is required to pay the cost of that accommodation wholly or mainly from his or her income;

d. the bankrupt incurs substantial expense in travelling to and from the bankrupt's place of employment or other work, whether by public transport or otherwise;



e. the spouse of the bankrupt, or another person residing with the

bankrupt, who ordinarily contributes to the costs of maintaining the bankrupt's household has become unable to contribute to those costs because of unemployment, illness or injury;

f. any other reason prescribed by the regulations.

It is up to the bankrupt to make a request to the Trustee and to provide evidence of the hardship he or she will suffer. MEETING PROCEDURES

1. Convening a Meeting Section 64 provides that a Trustee must convene a meeting of creditors of the bankrupt:

• whenever the creditors so direct by resolution; and • whenever requested by at least 1/4 in value of the creditors; and • whenever requested by less than 1/4 in value of the creditors,

providing that creditor or those creditors has/have lodged sufficient security for the cost of holding the meeting.

• When convening a meeting, the Trustee must consider whether the proposed time and place is convenient for the creditors.

2. Who receives a notice of a Creditors’ Meeting

Section 64A(1) provides that the Trustee must give a notice of a creditors’ meeting to every creditor, whether or not that creditor has been notified by the bankrupt or by another source, where he or she is aware of any of the following:

• the address of creditor's place of business • the address of residence of creditor • the address of registered office of creditor • the creditor's address for notices • the creditor's document exchange number • the creditor's facsimile number • the creditor’s e-mail address

meeting procedures


3. Matters that must be included in the Notice Section 64B

• Bankrupt's full name, address and residential address • For the first meeting - the bankrupt's trade or business name\ • Time, date and place of meeting • Meeting agenda - including advice that additional agenda items can

be added with leave of the meeting • Advice that creditors or their proxies or attorneys may make a

statement at the appropriate time during the meeting Section 64C If the Trustee considers it appropriate to use available telephone conference facilities, the notice must advise:

• the relevant telephone number; and advise that a creditor (or proxy or attorney) who wishes to participate by telephone must, not later than the second to last working day before the meeting, give the Trustee a written statement setting out the creditor's (or proxy's or attorney's) name, address for notices, fax number for notices and contact telephone number

• that the creditor (or proxy or attorney) must pay any costs incurred by participating by telephone and is not entitled to reimbursement from the estate

Section 64D The notice of meeting must advise that at or before the meeting, each creditor must give the Trustee a written statement setting out:

• the amount of the bankrupt's debt to the creditor; • if the creditor has been assigned a debt that the bankrupt owes –

the value of the consideration given by the creditor for the assignment; and

• whether the creditor holds security, the creditor's estimate of the value of the security and the value of the unsecured difference, as well as brief particulars of the transactions and circumstances giving rise to the debt.

meeting procedures


Section 64E

• a form to be used by the creditor to appoint a proxy is to be attached; and

• advice that the creditor should complete the form of appointment of proxy which should be presented to the Trustee at the meeting or sent with the statement of particulars of the creditor's debt.

Section 64F

• advice that any power of attorney is to be produced to the Trustee at or before the meeting

4. Items to be included in the Agenda

Section 64G

• Opening and introduction of the Trustee and bankrupt. If the Trustee has authorised a representative to attend, circulation of the Trustee's authority (Section 63B)

• Appointment of Minutes Secretary • Announcement of appointment of proxies and attorneys • Determination of existence of a quorum • Election of president of meeting • Proposal of motion that "the meeting is being held at a time, date

and place that is convenient to the majority of creditors" • For a first meeting - tabling of the bankrupt's Statement of Affairs • Statements by the Trustee, creditors and creditors' representatives • Questions to the Trustee and to the bankrupt • President's summary of matters raised in statements and questions • Proposal of other motions (if any) • Approval of remuneration proposed by registered Trustee (if first

meeting) otherwise a statement by the registered Trustee of the amount of remuneration drawn before the meeting was held

• Appointment of Committee of Inspection (if applicable) • Any other business • Fixing time, date and place of next meeting • Closure of meeting

meeting procedures


5. Meeting Held By Post Section 64ZBA The Act allows creditors to pass a single resolution without the need for a formal meeting of creditors to be convened. The meeting is held by post. For a resolution to be dealt with in this manner, at least one (1) creditor must respond by a deadline date. If any creditor notifies the Trustee in writing by the deadline that they object to this process, the resolution cannot be considered without a formal creditors’ meeting, regardless of the number of votes received in favour of the resolution sought. The Trustee may at any time put a proposal to the creditors by giving a notice under this section. The notice must:

a. contain a single proposal; and b. include a statement of the reasons for the proposal and the likely

impact it will have on creditors (if it is passed); and c. be given to each creditor who would be entitled under section 64A

to receive notice of a meeting of creditors; and d. invite the creditor to either:

i. vote Yes or No on the proposal; or ii. object to the proposal being resolved without a meeting of

creditors; and

e. specify a time by which replies must be received by the Trustee (in order to be taken into account).

If the proposal requires a special resolution and there is a Yes vote by a majority in number, and at least 75% in value, of those who voted within the required time - the proposal is taken to have been passed by a special resolution of creditors at a meeting. If the proposal does not require a special resolution and there is a Yes vote by a majority in value of those who voted within the required time - the proposal is taken to have been passed by a resolution of creditors at a meeting.

meeting procedures


In addition to the above, other procedures which are to be followed at the meeting are as follows.

• The Trustee (or his representative) is to preside over the meeting until a person is appointed to preside under Section 64P.

• A minutes secretary must be appointed under Section 64L. • The Trustee must announce particulars of proxies and attorneys and

must determine whether or not a quorum is present. A quorum will consist of the Trustee (or his representative) and a creditor or the creditor’s representative participating in person or by telephone.

• A proxy may be allowed to vote even if the proxy is not lodged prior to the announcement of voting entitlements.

• The Trustee must invite the creditors to nominate a person for the role of president. The meeting then proceeds to elect a president.

• The president elected must invite the creditors to propose a motion that the meeting has been held at a time, date and place convenient to the majority in number of creditors. If no motion is proposed, or proposed and not passed, the meeting is adjourned to the date, time and place as resolved.

• The president must request the Trustee to lay the Statement of Affairs completed by the bankrupt before the meeting (if it is the first meeting).

• The president must invite the Trustees and creditors to make statements to the meeting after which they may question the Trustee and the bankrupt.

• The meeting may consider the Trustee's remuneration. If the meeting is not the first meeting of the bankrupt's creditors and the Trustee is a registered Trustee, the president must request the Trustee to lay before the meeting a statement of the amount of remuneration drawn by the Trustee from the funds of the bankrupt's estate before the meeting is held and the Trustee must comply with that request.

• The president must advise the creditors and their representatives that if they wish to appoint a Committee of Inspection a motion for the appointment of such a committee may be proposed. The president must explain to them the effect of Section 70 of the Act, which details the requirements for the committee.

• The president must invite the creditors to propose a motion fixing time, date and place for another meeting. This does not prevent the Trustee from convening any other meeting before or after the date they fixed.

procedure at the meeting


CREDIT AND OPERATION A BUSINESS The Bankruptcy Act does not stop a bankrupt from borrowing money or purchasing goods on credit. However it does place upon him or her an obligation to inform the person he or she is dealing with that he or she is an undischarged bankrupt when the amount of credit being sought is in excess of the threshold amount, even if that credit is being obtained jointly with another person who is not a bankrupt. Some transactions which fall into this category are hire purchase agreements, leases, monthly store accounts, credit cards, loan accounts, obtaining goods and services by payment by cheque or promises to pay to a value in excess of the threshold amount. As at the date of issuance of this document, the threshold is $4,083. This amount is indexed in relation to movement in the CPI index. If the bankrupt carries on a business under an assumed name, in the name of another person, or either alone, or in partnership under a firm name, then the bankrupt must disclose to every person with whom he or she or the partnership deals with, his or her true name and the fact that he or she is an undischarged bankrupt. This disclosure is irrespective of the amount of credit obtained.

RESTRICTIONS ON OVERSEAS TRAVEL Section 77(1) of the Act imposes certain duties on a bankrupt, including delivering his or her passport to the Trustee. A bankrupt is not permitted to leave the country without the consent of his or her Trustee and commits an offence under the Act if they do. A bankrupt will be required to seek the consent of the Trustee prior to each trip overseas. The Trustee will generally take a number of matters into consideration when assessing whether or not to provide consent, including:

• the purpose of the bankrupt’s travel; • any outstanding obligations that the bankrupt has failed to comply

with; • any compulsory income contribution obligations outstanding; • the “flight” risk (that is the possibility of the bankrupt failing to

return to Australia); and • any other relevant factors.

procedure at the meeting


If the Trustee grants permission, he or she may impose certain conditions on that approval, such as requiring a monetary bond that would be forfeited to the bankrupt’s estate in the event that the bankrupt fails to return to Australia or comply with any other conditions imposed. Any person affected by a decision of a Trustee can apply to the Federal Court of Australia for a review of the Trustee’s decision, under Section 178.

INVESTIGATIVE AND RECOVERY PROCEDURES Some of the more relevant obligations of a bankrupt are:

1. The bankrupt must, within 14 days from the day on which he or she is notified of the bankruptcy, make out and file with ITSA a Statement of Affairs and provide a copy of to his/her Trustee. In practice, the bankrupt generally will provide the Statement of Affairs to the Trustee, who then files it with ITSA. (Section 54 (1))

2. The bankrupt must give to the Trustee all books and records relating to his or her examinable affairs - Section 77(a).

3. The bankrupt must attend upon the Trustee when required to do so by the Trustee - Section 77(b).

4. The bankrupt must give such information about any of the bankrupt’s conduct and examinable affairs as the Trustee requires – Section 77(ba).

5. The bankrupt must attend a meeting of creditors if required to do so by the Trustee - Section 77(c).

6. The bankrupt must give information at a meeting of creditors as the meeting requires - Section 77(d).

7. The bankrupt must execute such documents as the Trustee or the court orders - Section 77(e).

8. The bankrupt must disclose to the Trustee as soon as practicable any after acquired divisible property - Section 77(f).

1. Investigative Powers

The Bankruptcy Act 1966 provides a trustee with a number of investigative tools. Some of the more relevant provisions are: Section 77AA - Access by Official Receiver to premises This Section allows the Official Receiver or any officer authorised in writing by the Official Receiver at all reasonable times the full and free access to all

investigative procedures


premises and books and to make copies or to take extracts from any such books. The authorised officer must produce written authority to the occupier of the premises if requested to do so. The occupier of any premises must provide to the Official Receiver or authorised officer reasonable facilities and assistance. There is a penalty of $3,000 for failure to comply with this Section. Section 77A – Access by Trustee or Official Receiver to Books of Associated Entity Where the Trustee is conducting a formal investigation into the bankrupt’s examinable affairs (pursuant to section 19AA), the Trustee can by written notice pursuant to this section, require an associated entity to attend before the Trustee and deliver to the Trustee such books and records of that associated entity that are in that entity’s possession that are relevant to the Trustee’s examination, and answer questions relating to those books and records. Associated entities are defined in sections 5B to 5E of the Act, and include companies, natural persons, partnerships and trusts. Section 77C – Power of Official Receiver to obtain Information and Evidence The Official Receiver can by written notice pursuant to this section, require any party to attend before an authorised representative to give evidence and deliver such books and records of that entity that are in that entity’s possession that relate to any matters connected with the performance of the functions of the Official Receiver or Trustee. Section 81G – Effect of Non-Compliance with Notice If a party fails to supply information requested under a notice issued pursuant to section 77A or 77C, then that information is inadmissible as evidence in any subsequent proceedings, provided the party has been made aware of the effect of this provision. Section 265 – Offences relating to exercise of powers under sections 77A, 77B or 130



A person who refuses or fails to comply with a notice issued under sections 77A, 77B or 130, or who gives false or misleading information in purported compliance with such a notice, commits an offence that is punishable by 12 months imprisonment. Section 267B is a similar provision in relation to notices issued pursuant to section 77C of the Act. Section 81 – Public Examinations Upon the application by a creditor who has a provable debt, or by a registered Trustee or the Official Receiver, the Court may issue a summons to any of the following persons, whether before or after the end of the bankruptcy:

a. The bankrupt or former bankrupt

b. Any “examinable person in relation to” the bankrupt, namely:

i. Any person known to be, or suspected of being, in possession of any property of the bankrupt;

ii. Any person believed to be indebted to the bankrupt; iii. Any person (including an “associated entity” of the bankrupt, or a

person with whom an “associated entity” is or has been associated) who may be able to give information about the bankrupt or any of the bankrupt’s “examinable affairs”; or

iv. Any person in possession of any books that may relate to the bankrupt or the bankrupt’s “examinable affairs”

The public examination is held before a Registrar or appointed Deputies in the Federal Court of Australia or Federal Magistrates Court. The benefits of an examination are:

• To discover property to which the Trustee is entitled; • To ascertain the debts and further evidence relevant to offences

that may have been committed; • To obtain details about the bankrupt’s past, present and future

income; • To examine the bankrupt’s past and present activities.

The “examinable affairs” of the bankrupt is very wide in scope and is not only related to the bankrupt’s own dealings, transactions, property and affairs but also to the “financial affairs” of an “associated entity” of the



bankrupt as far as they relate or appear to relate to the bankrupt or any of the bankrupt’s conduct, dealings, transactions, or affairs. A witness, including the bankrupt, must not refuse to answer any questions put to him or her on the grounds of self-incrimination but can refuse to answer on the grounds that the answer would be a breach of professional privilege. Creditors can attend the examination and assist with reviewing the evidence provided by the examinees. Section 81A – Offshore Information Notices Where the Official Receiver has reason to believe that information or books relevant to the examinable affairs of the bankrupt is known by or held by a person outside of Australia, the Official Receiver may issue a written notice (Offshore Information Notice) requiring that person to provide that information or those books. Where a person refuses or fails to comply with a notice given under this Section the information sought cannot be used in evidence in relevant proceedings.

2. Recovery Powers The Bankruptcy Act 1966 provides a Trustee with a number of recovery tools for the recovery of property. Some of the more relevant provisions are: Section 118 – Execution by creditor against property of debtor who becomes a bankrupt Where a creditor has, within 6 months before the presentation of a petition, or after the presentation of a petition, received monies as a result of execution having been issued against property of the debtor, being monies which are the proceeds of the sale of property of the debtor which have been sold in pursuance of the process or that were seized, or paid to avoid seizure or sale of property of the debtor, or received monies as a result of the attachment of a debt due to the debtor, and the debtor subsequently becomes a bankrupt, the creditor shall pay to the Trustee the amount by which the amount of those monies exceeds the taxed costs of the execution or attachment, as the case may be.



Section 120 – Undervalued Transactions A transfer of property by a person who later becomes a bankrupt to another person is void against the Trustee in the transferor’s bankruptcy if the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy and the transferee gave no consideration to the transferor or gave consideration of less than market value of the property. Exemptions apply to:

• a payment of tax; • a transfer to meet all or part of a maintenance agreement; • a transfer under a Debt Agreement (Part IX of the Act); and • where the cost of recovery would exceed the value to creditors of

that property. Transfers are not void if they took place more than 2 years before the commencement of the bankruptcy and the transferee proves that at the time of the transfer, the transferor was solvent. Section 121 - Transfers to defeat creditors The transfer of property by a person who later becomes bankrupt to another person is void against the Trustee in the transferor’s bankruptcy if the property would have become part of the transferor’s estate or would have been available to creditors if the property had not been transferred and the transferor’s main purpose in making the transfer was to prevent the property from becoming divisible amongst creditors or to hinder or delay the process of making property available to the creditors. Section 122 – Avoidance of preferences A transfer of property by a person who is insolvent in favour of a creditor is void against the Trustee in the debtor’s bankruptcy if the transfer had the effect of giving that creditor a preference, priority or advantage over other creditors and occurred within 6 months of the bankruptcy. At the Trustee's request, the Official Receiver (ITSA) may issue a notice under Section 139ZQ of the Act requiring a person who has received any money or property in relation to a void transaction to pay to the Trustee an amount equal to the money or the value of the property received.



The notice has to set out the facts and circumstances by which the Official Receiver believes the transaction to be void as against the Trustee. The recipient of the notice may be required by its terms to pay the amount at a particular time or by such instalments as are detailed. Instead of paying the money, the notice could be settled by the recipient of property transferring that property back to the Trustee.

3. Statutory Charge Where a notice under Section 139ZQ of the Act has been given in respect of property, and the recipient has failed to comply with the notice, that property can be charged with the liability of the person to make payments to the Trustee. A charge over property pursuant to a Section 139ZQ notice has priority over any existing or subsequent mortgage, lien charge or other encumbrance over the property in favour of an associated entity of the bankrupt and such priority is declared to exist despite any other law of the Commonwealth or State or Territory. The only exception is where the associated entity satisfies the court that the mortgage, lien, charge or other encumbrance arose from a transaction that was entered into at arms length, and for adequate, and valuable consideration (so long as the charge is not void against the Trustee under division three or Part VI of the Act, namely sections 115 to 128). An associated entity can include a natural person, a company, a partnership or a trust.

4. Failure to comply with Notice Where a person does not comply with a Section 139ZQ notice, then an offence is committed which is punishable upon conviction by imprisonment for a period not exceeding six months. Additionally, the Court can order that the amount owing in terms of the notice be paid.

5. Courts power to intervene (appeal against section 139ZQ notice) If the recipient of a notice issued under Section 139ZQ of the Act disputes the facts and circumstances of that notice, the recipient is required to apply



to the Federal Court of Australia or Federal Magistrates Court to have the notice set aside. The court may also set aside a 139ZQ Notice on the application of any other interested person. Previously it was up to the Trustee to prove to the satisfaction of the court that the transaction was void. That onus has now shifted to the person seeking to set aside the notice, proving that the transaction is not void.



1. What is a Part IX Debt Agreement? Part IX Debt Agreements are a simpler and easier method and thus cheaper, than Part X Personal Insolvency Agreement (PIA), for a debtor and creditors to reach a commercially beneficial arrangement for the satisfaction of an insolvent party’s debts. The process for a Part IX Debt Agreement usually involves a written offer being forwarded to creditors by the Official Trustee, and the creditors responding by mail (although a formal meeting of creditors can be held), all of which happens within 25 days. However, unlike Part X PIA’s, there is no report to creditors by a Controlling Trustee on the insolvent party’s affairs, although the effect of the proposal is explained. At present there is no restriction on who can be appointed to administer a Part IX Debt Agreement, unless they have been disqualified from acting by the Inspector-General in Bankruptcy. If the administrator is to be remunerated, that remuneration must be set out in the proposal. The Official Receiver must refuse to accept a debt agreement proposal for processing if the person nominated as administrator is ineligible, in accordance with the regulations, to act as an administrator. There are restrictions on who can offer a Part IX Debt Agreement.

2. Eligibility A Debt Agreement proposal can be made by a debtor at any time, provided that the debtor is insolvent and satisfies the following requirements:

• within the proceeding ten years, the debtor has not been bankrupt or a party (as debtor) to a Debt Agreement, and has not given an authority under Section 188 of Part X of the Act;

• at the time of the proposal, the debtor’s unsecured debts (including the amounts by which the secured debts exceed the values of the respective securities) do not total more than the “threshold amount” (the threshold amount is an amount seven times, that, at the time, is the standard partnered pension rate under the Social Security Act 1991 or greater prescribed amount, and is currently $71,526.00);

part IX debt agreements


• the value of the debtor’s property that would be divisible among creditors (if the debtor were the bankrupt) is not more than the “threshold amount” or any greater prescribed amount (the threshold amount is currently $71,526.00);

• the debtor’s “after tax income” in the year beginning at the proposal time was not likely to exceed the “threshold amount”, which is currently $53,644.50 (the “after tax income” is defined as the amount likely to be the taxable income in the relevant year, less income tax and Medicare levy imposed on that taxable income).

EFFECTS OF A DEBT AGREEMENT A Debt Agreement proposal is given to ITSA and must identify the property that is to be dealt with, how that property is to be dealt with, and who is to deal with the property. The person appointed to deal with the property can be the Official Trustee (ITSA), a registered Trustee or some other person that is not disqualified from acting. If ITSA is not appointed to deal with the property, and the person dealing with the property is to be remunerated for the work involved, then the proposal must provide for that remuneration otherwise no remuneration will be allowed. Acceptance of the Debt Agreement proposal for processing stops a creditor from enforcing their debt until the proposal is rejected by creditors, lapses or the deadline for acceptance expires. Upon accepting a Debt Agreement proposal for processing, ITSA will either:

a. call a meeting of creditors to consider a proposal. A special resolution is required for acceptance of the proposal; or

b. write to each creditor asking whether the proposal should be accepted.

The proposal is accepted if the majority in number and at least 75% in value of the creditors who reply before the deadline accept the proposal. The deadline for acceptance is twenty-five (25) days after the proposal is accepted for processing by the Official Receiver.

effects of a debt agreement


1. Varying a Debt Agreement The terms of a previously accepted Debt Agreement can be varied by either the debtor or a creditor, who is a party to the Debt Agreement, by giving ITSA a written proposal to vary the agreement. ITSA is required to process the variation in the same manner as the original proposal.

2. Ending a Debt Agreement A Debt Agreement is ended when the earliest of the following occurs:

a. All the obligations under it have been discharged (in this case the debtor is entitled to keep any surplus property and to receive from ITSA a certificate evidencing the discharge).

b. Acceptance by the creditors of a termination proposal by the debtor (or the debtor’s personal representative if the debtor has died), after processing by ITSA in either of the ways in which an original proposal for a debt agreement can be processed.

c. Termination by the Court on application by the debtor (or the debtor’s personal representative), a creditor or the Official Trustee, if the Court is satisfied:

• that the debtor (or personal representative) has failed to carry out a

term of the agreement and it is in the creditor’s interest to terminate the agreement;

• that carrying out the agreement would cause injustice or undue delay to the creditors or the debtor;

• that for any other reasons, the agreement should be terminated and that it is in the interest of the creditors to do so.

(In any of these cases, the Court may make a sequestration order on application by a creditor)

d. The debtor becomes bankrupt. It is noted that if the Debt Agreement is terminated by reason of the discharge of all of the obligations under it, anything done in good faith under the agreement and without notice of termination is valid and cannot be avoided by a Trustee in bankruptcy or a Trustee under a Part X PIA. The Inspector-General in Bankruptcy has the power to review all Part IX Debt Agreements.

effects of a debt agreement


1. Objectives of Part X of the Bankruptcy Act

i. To provide a method for insolvent debtors to propose to creditors an arrangement under the regulation of the Bankruptcy Act.

ii. To protect insolvent debtors from the stigma of bankruptcy as long as they remain amenable to the directions of their creditors.

To be acceptable to creditors, it must offer more to them than creditors would obtain in a bankruptcy where any divisible property would be realised.

2. What is a Part X Personal Insolvency Agreement (PIA)? A Part X Personal Insolvency Agreement is a formal legally binding arrangement that enables debtors to make an offer to their creditors in satisfaction of their debts. There are no income, asset or debt limits for Part X Personal Insolvency Agreements, as opposed to the limits for proposing a Part IX Debt Agreement. Personal Insolvency Agreements are very flexible and can be structured according to the debtor’s circumstances. It is available to individuals, partnerships and joint debtors but not to corporations (which use the Voluntary Administration process).

3. How to commence a PIA To start the process, a debtor provides the following, to the proposed Controlling Trustee:

• An acknowledgement that he or she has received and read certain prescribed information about bankruptcy and other alternatives available to persons in financial difficulty.

• A Statement of Affairs (a Statutory Form in which he or she sets out all of his or her assets and creditors and certain personal and business details) including noting if any of those creditors are a related entity. (A related entity is a relative or any Body Corporate, Partnership or Trust in which a relative has a direct interest). A relative includes:

a. a spouse or de facto. b. a parent or remoter lineal ancestor of the debtor or the debtor’s

spouse or de facto.

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c. a child or remoter lineal descendant of the debtor or the debtor’s spouse or de facto.

d. a brother, sister, uncle, aunt, nephew or niece of the debtor or the debtor’s spouse or de facto.

e. the spouse or de facto of anyone identified in (b), (c) or (d). A spouse or de facto includes ex-spouses or de factos.

• A draft of the offer (PIA) the debtor wishes to make to the creditors for consideration.

• A signed Authority under the Bankruptcy Act, called a section 188 Authority (the Authority), authorising either a registered Trustee, the Official Trustee or a solicitor to call a meeting of the debtor’s creditors to vote on whether to accept the PIA or any amendment to it that may be agreed between the parties.

For the Authority to become effective, it must be signed by a registered Trustee, the Official Trustee or a solicitor. The registered Trustee, the Official Trustee or solicitor then becomes known as the Controlling Trustee. Regulation 10.02 of the Bankruptcy Regulations provides that before the Controlling Trustee accepts appointment, he or she must have received a signed acknowledgment that the debtor has received and read certain prescribed information about bankruptcy and other alternatives available to persons in financial difficulty. The PIA proposal must:

• expressly state that it is entered into under Part X of the Bankruptcy Act 1966 (‘the Act’)

• identify what property and / or income is to be made available to pay creditors claims

• specify how that property and / or income is to be dealt with • specify the extent to which the debtor is to be released from the

provable debts • specify whether or not the antecedent transaction provisions of the

Act are to apply to the agreement • detail any specific conditions for the agreement to come into force • provide details of any circumstances where the agreement will

terminate and the effect such termination will have on the release from provable debts

• specify the order in which the proceeds of realisation of property and / or income is to be distributed to creditors

part x agreements


• make provision for a person or persons to be appointed as Trustee(s)

• provide that the debtor will execute such instruments and generally do all such acts and things in relation to the property and income as is required by the agreement

• provide details of any other relevant matters Antecedent transactions are transactions that fall into 3 categories:

1. Undervalued Transactions - where property has been sold or transferred at less than market value.

2. Transfers to Defeat Creditors - transfers made with the intention of preventing property being available to creditors.

3. Avoidance of Preferences - where some creditors have been paid in preference to other creditors.

Antecedent transactions are covered in more detail earlier in the Handbook.

4. The Controlling Trustee The Controlling Trustee has the power to gather information from the debtor and other parties regarding the debtor’s examinable affairs. The Controlling Trustee has certain duties that he or she must perform, including:

• taking control of the debtor’s property • notifying the creditors of the signing of the 188 Authority; • filing the Authority, Statement of Affairs and PIA with ITSA; • completing and sending a report to the debtor, creditors and ITSA;

creditors are to receive the report at least 10 days prior to the meeting of creditors taking place. The report will:

1. provide a summary of the debtor’s assets and creditors; 2. provide details of the results of any investigations made; 3. comment on any relationships between the debtor and creditors; 4. comment on any relationship between the debtor, any associated

entity and the Controlling Trustee; 5. disclose any relationship between the debtor, any associated entity

and the proposed Trustee of the PIA; 6. make a recommendation as to whether the PIA is in the best

interests of creditors; and 7. comment of the basis of remuneration for the Trustee of the PIA.

part x agreements


• calling a meeting of creditors within 25 working days of the date the

188 Authority becomes effective (the period is extended to 30 working days for Authorities signed during the month of December)

• advertising the meeting; • providing information about the administration to a creditor who

reasonably requests it; • taking appropriate action to ensure the debtor discharges all of

his/her duties under the Act; • considering whether the debtor has committed an offence under

the Act and if so, report the alleged offence to the relevant authorities;

• making appropriate enquiries and investigations in connection with the debtor’s property and examinable affairs;

• disclosing to creditors any material personal interest held by the Trustee that could conflict with the proper exercise of their powers or functions; and

• exercising powers and performing functions in a commercially sound way and an impartial and independent manner.

The Controlling Trustee is empowered to:

• take immediate control of the debtor's property and affairs; • make such inquiries and investigations in connection with the

debtor's property and examinable affairs as the Controlling Trustee considers necessary;

• carry on a business of the debtor if, in the opinion of the Controlling Trustee, it will be in the interests of the creditors to do so; and

• deal with the debtor's property in any way that will, in the opinion of the Controlling Trustee, be in the interests of the creditors.

5. The Meeting of Creditors

A debtor must attend the meeting of creditors unless prevented by illness or other sufficient cause. In order to vote at the meeting, the creditors must lodge a “Statement of Claim and Proxy Form” (a Statutory Form) with the Controlling Trustee. That form sets out certain information that must be provided by creditors, including:

1. The amount they claim, and whether they hold any security for that debt, as well as brief particulars of the debt.

part x agreements


2. Whether the debt has been assigned to them, and if so the consideration given for that assignment.

3. Whether or not they are a related entity. Creditors must disclose, either on the instrument appointing a proxy to vote at the meeting or to the Controlling Trustee when requested at the meeting, details of any financial incentive they may have received to vote in a particular way. In order for the PIA to be accepted, it must be passed by a majority in number and at least 75% in value of creditors voting at the meeting. If creditors vote in favour of the PIA they must then appoint either a Registered Trustee or the Official Trustee to administer the PIA. If the PIA is accepted at the meeting of creditors, it is binding on all provable creditors, whether or not they agreed to its acceptance. At the meeting, creditors may also consider, and if appropriate, appoint a committee of the creditors to help and oversee the Trustee in the administration of the PIA.

6. Variation of a PIA A PIA that has been accepted by creditors can, with the consent of the debtor, be varied either by the creditors or the Trustee. By Creditors Creditors can vary a PIA by passing a special resolution at a meeting called for that purpose, provided the debtor agrees to that variation. By the Trustee The Trustee may be requested by the debtor to propose a variation of the PIA on the basis that their circumstances have changed. The Trustee may give notice to the creditors of the proposed variation, setting out the reasons for the variation, the likely impact it will have on creditors and specify a date (at least 14 days after the notice is given) on which the variation will take effect. That notice must also state that any creditor may by written notice (given to the Trustee at least 2 days before the specified date) object to the notice taking effect without a meeting being held. In such case a meeting must be held to consider the proposed variation. If no such

part x agreements


notice is lodged by any creditor then the variation takes effect from the date specified in the notice.

7. Termination of a PIA A PIA can be ended in the following ways:

• When all of the terms of the PIA have been fulfilled, that is, all parties have completed their obligations and responsibilities under the PIA. Once this has occurred, the Trustee will provide a certificate to the debtor as evidence that the terms of the PIA have been satisfied.

• The terms of the PIA itself may stipulate circumstances where the agreement will terminate.

• If the terms of the PIA are not complied with, the Trustee and/or creditors may terminate the PIA using the same procedure as a variation.

• By an order of the Court. This involves the Trustee, a creditor or the debtor making an application to the Court. There are a number of reasons why the Court may make an order to terminate the PIA. The main reasons include:

a. The debtor provides false or misleading information at a meeting of

creditors. b. The debtor has omitted a material particular from the Statement of

Affairs or included an incorrect and material particular in the Statement of Affairs.

c. The terms of the PIA cannot be fulfilled for some reason. d. The terms of the PIA are unreasonable, will not benefit the creditors

generally or are unjust and cause undue delay to creditors. Generally, the Court will take into consideration whether terminating the PIA is in the best interests of creditors. The Court may also make an order declaring the debtor bankrupt.

part x agreements


Section 188(5) Controlling Trustee files with ITSA within 2 working days 1. Authority (Form 13) 2. Statement of Affairs (Form

3) 3. Draft Personal Insolvency

Agreement

Section 188(1) Debtor gives the following to a Registered Trustee, a Solicitor or The Official Trustee, who must consent to that authority. 1. signed authority (Form 13) 2. Draft Personal Insolvency Agreement 3. Statement of Affairs (Form 3) 4. Acknowledgement of receiving and understanding

the Prescribed Information

Section 190A Controlling Trustee to notify creditors of execution of Section 188 Authority

Controlling Trustee sends to all creditors, the Debtor and ITSA, at least 10 days prior to the meeting: 1. Notice of Meeting 2. Copy of Controlling Trustee's (S189A) report -

including recommendation on acceptance of proposal, details of relationships and basis of Trustee’s remuneration

3. Statement about possible resolutions (S189B) 4. Proposed Personal Insolvency Agreement

Meeting of Creditors To be held within 25 working days of Controlling Trustee consenting to the Authority (30 working days if Authority given in December)

Meeting to be advertised 1. In National daily

newspaper 2. Regional newspaper of

State or Territory in which Debtor resides

Special Resolution (Section 204) provides 3 options: 1. Accept a Personal Insolvency Agreement 2. Require the Debtor to present a Debtor's Petition for Bankruptcy within 7 days 3. Resolve that the Debtor's property be released from control under the Bankruptcy Act 1966

Personal Insolvency Agreement Accepted 1. Within 14 days after meeting

is completed, the Controlling Trustee is to file with ITSA:

a. Notice of Special Resolutions Passed (Form 18)

b. A copy of the resolution accepting the Personal Insolvency Agreement

2. The PIA is to be executed in the form of a Deed by the Debtor and Trustee of the PIA within 21 days of creditors’ acceptance.

3. Pay Filing Fee to ITSA of $300

Within 14 days after Meeting Completed 1. Minutes of Meeting

Section 64Z(10) 2. Certificate of Resolutions

passed Section 64Z(5) 3. Controlling Trustee to file

a Notice of Special Resolutions Passed with ITSA (Form 18)

Release from Control Property of the Debtor, reverts to the Debtor, subject to any lien the Controlling Trustee may hold for unpaid remuneration and costs

Debtor’s Petition • Property remains subject to control until petition is accepted or the end of 4 months from date authority was executed. • Controlling Trustee - should notify creditors if Debtor fails to lodge petition.

Trustee to notify all creditors as soon as practicable (Section 218)

part x procedure time frames


QUEENSLAND Terry van der Velde 07 3310 2007 [email protected] Managing Director

David Stimpson 07 3310 2002 [email protected] Executive Director

Terry Rose 07 3310 2099 [email protected] Director

Jason Cronan 07 5479 6199 [email protected] Director

Anne Meagher 07 3310 2076 [email protected] Director

NEW SOUTH WALES Stephen Hathway 02 8986 8905 [email protected] Executive Director

Joe Atkinson 02 8986 8922 [email protected] Director

Daniel Quinn 02 4023 0847 [email protected] Director

Darren Vardy 02 9531 8365 [email protected] Director

Ian Purchas 02 8986 8977 [email protected] Director

Ross Mottershead 02 9531 8365 [email protected] Director

VICTORIA Michael Carrafa 03 9669 1111 [email protected] Executive Director

Richard Cauchi 03 9669 1127 [email protected] Director

David Lofthouse 03 9669 1129 [email protected] Director

Peter Gountzos 03 9669 1188 [email protected] Director

further information

http://www.svpartners.com.au/our-people/insolvency-turnaround-team/terry-van-der-velde

http://www.svpartners.com.au/our-people/insolvency-turnaround-team/david-stimpson

http://www.svpartners.com.au/our-people/insolvency-turnaround-team/terry-rose

http://www.svpartners.com.au/our-people/insolvency-turnaround-team/jason-cronan

http://www.svpartners.com.au/our-people/insolvency-turnaround-team/anne-meagher

http://www.svpartners.com.au/our-people/insolvency-turnaround-team/stephen-hathway

Personal Insolvency Handbook

Law

x agreements

debt agreements

meeting of creditors

creditors meeting matters

bankruptcy act

effect of bankruptcy

meeting credit

agenda meeting