Disposing Assets and Common Bankruptcy Offences | Is it worth it?

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disposing assets

By Liyan Tay 

Liyan Tay

It is common for debtors experiencing financial difficulty to seek advice on how to mitigate their situation or prepare for bankruptcy by disposing of their assets. However, debtors should be very wary of the advice they receive and also the actions they take prior to their bankruptcy in order to prevent committing certain offences.

One of the most common misconceptions is that if a bankrupt does not have any assets registered in their name at the time they enter bankruptcy then the Trustee will not have access to those assets.

Unfortunately this is not the case and in some instances if a bankrupt is found to have disposed of their assets that would have otherwise come under the Trustee’s control, the Trustee can apply for Orders to void the transaction and “claw back” the assets.

Below are some instances of transactions in which a Trustee could “claw-back” an asset:

  • Undervalued Transactions: Occurs when a bankrupt transfers / sells an asset and receives less than market value for the asset with the transaction occurring in the last 2 years prior to the commencement of bankruptcy or in the last 4 years if the recipient is a related entity. A transfer of an asset for “natural love and affection” is not considered consideration.
  • Preferential Payments: A Trustee can attack preferential payments when a creditor receives payment of their debt and had reason to suspect the debtor was insolvent at the time of payment. This would apply if the creditor receives payment within 6 months prior to the commencement of bankruptcy.
  • Transfers to defeat creditors: Where the bankrupt transferred assets prior to bankruptcy with an intention to prevent, hinder or delay the asset from becoming available in the bankrupt estate. There is no time limit for such a transaction to be voided.

As with all offences there are defences available to creditors who received pre-bankruptcy payments or assets. For example, if the creditor can prove they received payment in good faith and in the ordinary course of business and had no reason to know or suspect the debtor was insolvent at the time or if the creditor is a secured creditor.

Outlined below are a number of common bankruptcy offences:

  • failure to disclose property to a Trustee;
  • failure to provide information to a Trustee;
  • making false statements to the trustee;
  • obtaining credit above the indexed amount (currently $5,681 indexed) without disclosing their bankruptcy status;
  • concealment or disposal of property with the intent to defraud creditors;
  • incur debts or liability fraudulently;
  • leaving Australia without Trustee’s consent in writing; and
  • gambling or hazardous speculation within 2 years of bankruptcy.

Offences are reported to the relevant authorities which could result in prosecution by the CDPP. The possible penalties include fines and or imprisonment.

Not all transactions that take place prior to bankruptcy are valid. Depending on certain circumstances a Trustee could potentially recover property disposed of prior to bankruptcy. This can be a complex and overwhelming process therefore it is extremely important to seek specialist advice regarding your situation.

Want to know more?

If you would like to know more about disposing assets, please contact Insolvency & Reconstruction Senior Manager Liyan Tay for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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