BANKRUPTCY
BANKRUPTCY LAW
SUMMARY
PX SOLUTIONS
Sources used 5
INTRODUCTION TO BANKRUPTSY 6
Policy 6
Legislation 6
History 7
Secured v unsecured creditors 8
Bankruptcy Act 1966 and its provisions 9
CREDITOR’S PETITIONS 10
Requirements 10
Kinds of Debtors 10
Form, presentation and service 11
Form of Petition 11
Substitution of petitioners 12
Lapsing of petition 13
ACTS OF BANKRUPTCY 14
Generally 14
1. Certain dealings with his property 14
2. Certain conduct intended to defeat or delay creditors 15
3. Certain conduct/events indicating inability to pay debts as due 16
Execution against debtor 16
Failure to Comply with a bankruptcy notice 17
Notice of suspension of payment of debts 17
Signing Authority under Part X 17
DEBTOR’S PETITIONS 18
Generally 18
Declaration of intention to present petition 18
Entitlement 18
Effect 19
Acceptance or rejection of petition 19
Bankruptcy upon acceptance 19
BAKRUPTCY NOTICES 21
Final judgement or order 21
“Final” Judgment or Orders 21
Deemed final judgment or order 22
Form and content 23
Old Notices 23
New Notices 24
Amount other than judgement debt 26
Overstatements 26
Understatements 26
Interest on judgement debt 26
Service 27
Time for compliance 27
Extension of Time for Compliance 27
Counterclaim, set-off or cross-demand 28
Counterclaim, set-off…: 28
Could not have set up in the action 28
Setting aside notice 29
Going Behind the Judgment 29
CREDITOR’S PETITION TO SEQUESTRATION ORDER 31
Requirements 31
Positive Requirements 31
Negative Requirements 31
Debtor ‘able’ to pay all the debts 31
Other sufficient cause 31
Sufficient Cause 31
Going behind the judgment 32
Commencement of bankruptsy 33
EFFECT OF BANKRUPTCY UPON PROPERTY AND PROCEEDINGS 34
Property 34
Proceedings 34
PROPERTY AVAILABLE – RELATION BACK 35
Property 35
Exempt property 35
Protected transactions 36
Transactions for market value, in good faith and in the ordinary course of business (s123(1)) 36
Certain Dispositions of Bankrupt’s Property to the Bankrupt or to the Bankrupt’s Order (s124) 39
Payments of Fines and Penalties (s123(4)) 39
Maintenance Agreements and Orders (s123(6)) 40
Protection after Lapse of Time (s127) 40
Protection for Things done under Part IX or X (ss125S, 209 and 224) 40
PROPERTY AVAILABLE – AFTER ACQUIRED 41
Income received after bankruptsy 41
PROPERTY AVAILABLE – VOIDABLE TRANSACTIONS 42
1. Undervalued transactions (S 120) 42
2. Payments and transfers to defeat or delay (S 121) 43
3. Voidable preferences (S122) 45
Running Accounts: 48
Consideration 49
Good Faith 49
Examples 50
Good Faith - Knowledge of dishonoured cheques 51
Ordinary Course of Business 51
DISTRIBUTION 52
DISCHARGE, EXTENSION AND ANNULMENT 53
1. Automatic discharge 53
3 Years 53
More than 3 years (Objections) 53
2. Early discharge 55
3. Annulment of bankruptsy 56
ALTERNATIVES TO BANKRUPTCY 59
Part IX 59
Part X 59
DECEASED PERSONS’ ESTATES IN BANKRUPTCY 61
PROPERTY AVAILABLE – RELATION BACK
A trustee is entitled to
- property belonging to the bankrupt at the “commencement” of the bankruptcy; and
- property acquired by the bankrupt after the “commencement” of the bankruptcy and before the date of bankruptcy.
unless within exceptions or protective provisions referred later [s116(1)(a)].
Giving of security is wholly ineffective[Worrell]
Property
Property = real or personal property [s5]
Includes all forms of tangible property and also choses in action:
- Goodwill of deceased solicitor’s practice [Re Lazarus]
- Good will of medical practice: [Re Norris]
- Includes property abroad [s5]
Does not include
- Interest of a person in a super fund if covered by a “protective trust” clause to the effect that interest is strictly personal and cannot be assigned [Re Coram]
- Pensions, grants payable under Cth or State legislation to the debtor personally.
Exempt property
Exemptions in s116(2).
- Property the bankrupt held on trust [(a)]
- Household property – sufficient furniture and one TV set and one VCR [(b), reg 6.03]
- Property for use in earning income by personal exertion – total value not exceeding $2,600 [(c), reg 6.04(1)(b)]
- Car used by bankrupt primarily as means of transport not exceeding $5,000 [(ca), reg 6.04(3)(b)]
- Life insurance policies in respect of life of bankrupt or spouse, and proceedings [(d)]
- Interest in regulated super fund and payment from fund [(d)]
- Interest in Retirement saving accounts and payment from account [(d)]
- Any right of the bankrupt, and damages, from personal injury or death of family member [(g)]
Protected transactions
Transactions for market value, in good faith and in the ordinary course of business [s123(1)]
Subject to ss118 to 122, a trustee cannot recover property of the bankrupt from a person who acquired it by transaction before the date of bankruptcy where [s123(1)]:
- The other party did not have notice of the presentation of a petition against the debtor; and
- The transaction was in good faith and in the ordinary course of business
Types of transactions [s123(1)]:
- Payment by the debtor to any of his creditors;
- Conveyance, transfer or assignment by the debtor for market value;
- Contract, dealing or other transaction by or with the debtor for market value; or
- Any transaction to the extent of a concurrent advance made by an existing creditor.
Good Faith
Objective test:
Whether the transferee knew or suspected that conduct contrary to the Act had taken place [Mitchell]
- No inference of absence of good faith where person making payment or delivery had notice of an act of bankruptcy by that person: s123(4)
Ordinary Course of Business
- Transaction made according to the common flow of transactions in affairs of business [Re Henbury]
- Part of the undistinguished common flow of business [Re Whitgift]
- Arising out of no special or particular situation [Re Whitgift]
Objective Test
Nature and effect of the transaction, not the state of mind of the debtor [Re Whitgift]
Transactions not in the ordinary course of business if they are not “business” transactions.
- However must be seen in light of all circumstances: Taylor
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