bankrupt

What is bankruptcy?

Bankruptcy is a legal process where you’re declared unable to pay your debts and released from most debts (but not child support, court imposed fines, HECS and HELP debts etc) so you can make a fresh start financially.

You can either enter into bankruptcy:

  1. voluntarily; or
  2. on petition to Court by a creditor after not complying with a Bankruptcy Notice.

An order declaring someone as a “bankrupt” is known as a sequestration order.

Bankruptcy normally lasts for 3 years (and one day) provided you comply with your obligations. If you don’t, it can be extended several years.

Once a bankrupt, your Trustee has ownership and control over your assets (with exceptions such as some household items, a car up to a certain value, tools to earn an income, superannuation etc).

The trustee can be the Official Trustee (from the Australian Financial Security Agency, AFSA) or a registered (private) trustee. The trustee is either appointed by the Court or in the case of voluntary bankruptcy, by AFSA or you can nominate one of your choice.

When you are bankrupt:

  • you must provide details of your debts, income and assets to your trustee
  • your trustee notifies your creditors that you’re bankrupt – this prevents most creditors from contacting you about your debt
  • your trustee can sell certain assets to help pay your debts
  • it can affect your ability to be a company director
  • you may need to make compulsory payments if your income exceeds a set amount (currently around $64,000)

Bankruptcy may have a serious impact on you. It may affect your ability to get credit, travel overseas or gain some types of employment so you should get some advice before voluntarily bankrupting yourself. The National Debt Helpline provides free support on 1800 007 007.

Bankruptcy is just one formal option available under the Bankruptcy Act to manage your debt. Other formal options include temporary debt protection for 21 days reprieve from creditors enforcing a judgment against you, a debt agreement  or a personal insolvency agreement (both being arrangements to settle debts without becoming bankrupt).

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Commercial Law / Debt Recovery / Insolvency & Bankruptcy  by 01 May 2023 0 comments

Can Bankrupts be Company Directors?

The Corporations Act provides that undischarged bankrupts or those who have entered into personal insolvency agreements under Part X of the Bankruptcy Act (whether in Australia or another country) cannot act as a director of, or take part in the management of, a company.

Court can grant leave

The Court can however grant leave to an undischarged bankrupt to take part in management of a company and such leave can be granted either with or without conditions. Australian Securities and Investments Commission must be notified of any such application (so ASIC can intervene if required).

The applicant will bear the onus of establishing that the Court should make an exception to the legislative policy behind the prohibition (to protect the public). The court will not easily be convinced that the usual prohibition should not apply and will exercise its discretion with a view to balancing the considerations relevant to the bankrupt and the underlying public policy.

Leave will not be granted where the disqualification was imposed by ASIC (as opposed to an automatic disqualification due to the operation of the Corporations Act).

What is considered?

Hardship to the proposed director is not of itself a persuasive ground for the granting of leave however, it is one of many factors which may be considered by the court in exercising its discretion including the reason for the disqualification, the nature of the bankrupt’s involvement, the general character and conduct of the applicant in the intervening period since being removed from or prevented from being in office, the structure of the company, its business and the interests of shareholders, creditors and employees.

Although such applications are not commonplace, an undischarged bankrupt may be granted leave to take part in the management of companies generally or, more frequently, in the management of a particular company.

Penalties

The disqualification imposed by the Act continues despite the Court granting leave and care must be taken to ensure that any conditions on the leave are complied with as failure to do so can result in the leave being revoked and an offence then being committed and the penalty can include a significant 50 penalty unit fine and/or imprisonment for 12 months.

Bankruptcies generally last 3 years. You can check if someone is an undischarged bankrupt by checking the Australian Financial Security Authority’s Bankruptcy Register 

FURTHER INFORMATION

For further information in relation to bankruptcy, insolvency or company matters, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

Stay up to date - LinkedIn | Facebook | Twitter | Instagram

in Business / Commercial Law / Debt Recovery / General / Insolvency & Bankruptcy  by 01 May 2021 0 comments