Bankruptcy

Once you become a Bankrupt, a trustee will be appointed to your estate. In order to pay your creditors, this trustee will:

• sell your assets (although you will be able to keep certain types of assets),
• mandate contributions from your income once you earn over a certain amount, and
• investigate your financial affairs and may recover property or money that you have transferred to someone else for inadequate consideration

The duties of a trustee are specified in legislation such as the Bankruptcy Act 1966 (Cth) and trustees have to adhere to certain standardswhile administering your estate. You can choose to appoint a registered trusteeby obtaining and providing their consent when you lodge your petition to become bankrupt. If you do not choose a trustee, the a trustee at the Insolvency & Trustee Service of Australia (ITSA) is initially appointed to administer your estate. Your creditors may choose to change the trustee at any time.

In addition to seeking to declare bankruptcy yourself, any of your creditors may serve a Bankruptcy Notice on you (where you owe a judgment debt in excess of $5,000) and if that notice is not complied with, you will have committed an "act of bankruptcy" entitling the creditor to present a Creditor's Petition to the Court for an order for your bankruptcy (a sequestration order). The effect is the same – a trustee in bankruptcy is appointed.

The duties of the Trustee of the estate of a bankrupt are detailed in section 19 of the Bankruptcy Act and include the following:

• notifying the bankrupt's creditors of the bankruptcy;
• determining whether the estate includes property that can be realised to pay a dividend to creditors;
• reporting to creditors on the likelihood of creditors receiving a dividend before the end of the bankruptcy;
• providing information about the administration of the estate to a creditor who reasonably requests it;
• determining whether the bankrupt has made a transfer of property that is void against the Trustee;
• taking appropriate steps to recover property for the benefit of the estate;
• taking whatever action is practicable to try to ensure that the bankrupt discharges all of the his/her duties under Bankruptcy Act;
• considering whether the bankrupt has committed an offence under the Bankruptcy Act;
• referring to relevant law enforcement authorities any evidence of an offence by the bankrupt pursuant to the Bankruptcy Act;
• administering the estate efficiently and effectively to avoid unnecessary expense;
• exercising powers and performing functions in a commercially sound way.

A Trustee in bankruptcy has very strong and broad powers under the Bankruptcy Act to enable him/her to fulfil his/her duties. Some of the more relevant powers are to:

• investigate the bankrupt's conduct and examinable affairs (examinable affairs extend to associated companies, trusts, partnerships and natural persons such as professional advisors and relatives);
• take possession of and realise the bankrupt's divisible property;
• obtain books and records relating to the bankrupt's examinable affairs from the bankrupt, entities holding records of the bankrupt (such as solicitors or accountants) and associated entities of the bankrupt;
• require the bankrupt to attend upon the Trustee;
• obtain information from the bankrupt about his/her conduct and examinable affairs;
• require a bankrupt to attend a meeting of creditors;
• require a bankrupt to execute such documents as the Trustee or the Court orders;
• obtain access to premises and books of other persons;
• conduct public examinations before a Registrar or appointed Deputies in the Federal Court of Australia or Federal Magistrates Court of Australia;
• conduct examinations and obtain records and information from persons (including bankrupts) under oath pursuant to a notice obtained from the Official Receiver;
• request that the Official Receiver issue an offshore information notice to a person residing outside Australia, if it is believed that the person's information or books or copies of books are relevant to the examinable affairs of the bankrupt.

Call one of our Commercial Lawyers for free initial telephone advice on your circumstances on (02) 9525 8688.