ADMINISTRATIONS UNDER THE BANKRUPTCY ACT 1966

STATISTICS (PROVISIONAL*)

JUNE QUARTER 2011

BANKRUPTCIES  (Parts IV and XI)

The Insolvency Trustee Service Australia (ITSA) is the federal government agency who administers and regulates the personal insolvency regime in Australia.  ITSA has an office in every capital city of Australia.

The Australian Bankruptcy Act creates separate roles for delegates appointed by the Minister and office of the Official Trustee in Bankruptcy.

What does the Inspector General in Bankruptcy do?

The inspector General in Bankruptcy is appointed by the Minister and is charged with the role of licensing and regulating the activities of Registered Trustees in Bankruptcy and Registered Debt Agreement Administrators. Section 12 of the Bankruptcy Act sets out the powers and responsibilities of the Inspector General in Bankruptcy which are namely:

• to make any enquiries or investigations into the conduct of a Registered Trustee in bankruptcy;
• to review certain decisions of a Registered Trustee in Bankruptcy;
• to make any enquiries or investigation into the conduct of a Registered Debt Agreement Administrator;
• to make enquiries and investigations into the affairs of a bankrupt, a debtor subject to a Personal Insolvency Agreement or a Debt Agreement;
• to provide the minister after each financial year a report on the operations of ITSA and activities under the Bankruptcy Act
• to fulfill the Inspector General in Bankruptcy functions under the Bankruptcy Act, the Inspector General may:
• call for the production of any books or records maintained by a Registered Trustee in Bankruptcy or Registered Debt Agreement Administrator
• call for a written answer from a Registered Trustee in Bankruptcy or Registered Debt Agreement Administrator

What does the Official Receiver do?

The Official Receiver is also appointed by the Minister to discharge functions under the Bankruptcy Act and has powers, such as:

• issue Bankruptcy Notices (Section 41 of the bankruptcy Act);
• order access to premises to remove or take copies of records of a bankrupt (Section 77AA of the Bankruptcy Act);
• issue notices to persons to provide information pertaining to the affairs of a bankrupt (Section 77C of the Bankruptcy Act);
• issue notices to persons to make payments to the Trustee in Bankruptcy to discharge a bankrupt’s obligation under the compulsory income contribution regime (Section 139 ZL of the Bankruptcy Act);
• issue notices to persons to make payments  who have received money or property from a bankrupt that is void against the Registered Trustee in Bankruptcy (Section 139 ZQ of the Bankruptcy Act)

What does the Official Trustee in bankruptcy do?

The Official Trustee in Bankruptcy administers bankrupt estates where a Registered Trustee in Bankruptcy has not consented to act. The Official Trustee in Bankruptcy is a government body (ie it is not a natural person) and its functions are discharged by employees of ITSA under the supervision of the Inspector General in Bankruptcy.

Any property belonging to the bankrupt at the date of bankruptcy automatically vests in the Trustee in Bankruptcy (Section 58 of the Bankruptcy Act).

Trustee to take possession of property

A Trustee in Bankruptcy must take control of the bankrupt’s property including any books and records of the bankrupt (Section 129 of the Bankruptcy Act).On application by the Trustee in Bankruptcy the court may enforce the Trustee’s rights to take possession of property.

Any person holding books and records of a bankrupt is not entitled to withhold possession of the books and records from the Trustee in Bankruptcy.

A Trustee in Bankruptcy is not to take possession of protected property (Section 116 of the Bankruptcy Act), which includes:

• motor vehicles worth less than the prescribed value (currently $6,850); or
• tools of trade worth less than the prescribed value (currently $3,400); or
• personal property of the bankrupt of sentimental value; or
• other property identified to be protected by a special resolution of creditors.

Admit provable debts to distribute in accordance with priorities

Provable debts
All debts and liabilities owing by a bankrupt at the date of bankruptcy (excluding non-provable debts) are provable in the bankrupt estate (Section 82 of the Bankruptcy Act). The exception to this rule is non-provable debts.  Non-provable debts are debts are defined as debts such as:

• monies payable under a maintenance agreement;
• monies claimed as un-liquidated damages (ie an amount demanded as a result of a car accident);
• monies owing as a result of a court imposed fine;
• monies owed under the HECS scheme;
• monies owed under a proceeds of crime order;
• monies owed for interest after the date of bankruptcy

A provable debt needs to be submitted to the Trustee in Bankruptcy in the prescribed form (being a Proof of Debt in accordance with Section 84 of the Bankruptcy Act).

Distribution of funds
A Trustee in Bankruptcy must distribute any surplus funds to creditors strictly in accordance with Sections 109 and 140 of the Bankruptcy Act.  Prior to any distribution of funds to creditors a Trustee in Bankruptcy is entitled to be remunerated in accordance with Sections 161B or 162 of the Bankruptcy Act.

What duties does a Trustee in Bankruptcy have?

A Trustee in Bankruptcy has fiduciary obligations to creditors and the bankrupt, however Section 19 of the Bankruptcy Act sets out statutory duties of a Trustee in Bankruptcy.  These duties can be summarized as follows:

• notify the creditors of the bankruptcy
• determine whether the estate has any property that be can realized to pay a dividend to creditors
• report to creditors on the likelihood of creditors receiving a dividend
• provide information about the estate as creditors reasonably request it
• determine whether the bankrupt has made any transfer which is void as against the trustee in bankruptcy
• take appropriate steps to recover property for the benefit of creditors
• take appropriate action to try and ensure that the bankrupt discharges their obligations under the Bankruptcy Act
• consider if the bankrupt has committed an offence under the Bankruptcy Act
• refer to the Inspector General in Bankruptcy any evidence of an offence the bankrupt has committed under the Bankruptcy Act
• administer the estate as efficiently as possible by avoiding any unnecessary delay
• exercise powers and perform functions in a commercially sound way

Section 173 of the Bankruptcy Act states that a Trustee in Bankruptcy must maintain proper books and records to exhibit a full and correct account of the administration of the estate and the Trustee shall allow any creditor to inspect the records at any reasonable time.

Section 177 of the Bankruptcy Act states that a Trustee should also have regard for any lawful direction as resolved by creditors at a meeting of creditors.

• by your voluntary application (debtor’s petition)
• by application of your creditors (creditor’s petition)

Voluntary appointment (debtor’s petition)

You can voluntarily lodge a debtor’s petition with the Official Receiver of ITSA if you are insolvent (Section 55 of the Bankruptcy Act).

The Official Receiver may reject a debtor’s petition on the following grounds:

• if the debtor is not ordinarily resident in Australia (Section 55 2A of the Bankruptcy Act)
• if the statement of affairs or debtors’ petition is not complete (Section 55(3) of the Bankruptcy Act)
• if the Official Receiver believes (based on the information contained with the statement of affairs) that the debtor has the capacity to pay all debts immediately or within a reasonable period of time (Section 55 3AA of the Bankruptcy Act)

In-Voluntary appointment (creditor’s petition)

A creditor can apply to court for a sequestration order (Section 43 of the Bankruptcy Act) by filing a creditor’s petition with the Federal Court of Australia.  A creditor may only file a creditors petition, if

• the petitioning creditor is owed at least $5,000; and
• the debtor has committed an act of bankruptcy; and
• the petitioning creditor has issued a bankruptcy notice which the debtor has not complied with.

A creditor applying to court for a sequestration order may appoint a trustee of their choosing.

How long will I be bankrupt?

A bankrupt will ordinarily be automatically discharged from bankruptcy after 3 years of filing a statement of affairs (Section 149 of the Bankruptcy Act) unless the Trustee in Bankruptcy files an objection to discharge in accordance with Section 149B of the Bankruptcy Act.

A Trustee in Bankruptcy may file an objection to automatic discharge and if accepted, a bankruptcy can be extended up to 5 years in total or in extreme cases up to 8 years in total.

Who do I appoint as my Trustee in Bankruptcy?

If you file a debtor’s petition (ie you voluntarily file for bankruptcy) you can elect to appoint a Registered Trustee or the Official Trustee.

Registered Trustee

A Registered Trustee in Bankruptcy is a suitably qualified accountant in private practice. Learn more about a registered Trustee.

Official Trustee

The Official Trustee is the ITSA government agency who administers bankrupt estates in public practice.  Learn more about the Official Trustee.

• details on your Assets
• details on your liabilities
• income details

Part B of the Statement of Affairs is a public document which includes your financial details. Part A which includes your personal details is not a public document.

You can download a Statement of Affairs here.  We offer a fixed fee service of $99 to help you complete the Statement of Affairs.