Kinh tế học - Chapter 20: Bankruptcy law

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Copyright © 2000 McGraw-Hill AustraliaBankruptcy lawChapter 201Copyright © 2000 McGraw-Hill AustraliaBankruptcyWhere legal possession is taken of a debtor’s possessions, for the benefit of that person’s creditors.2Copyright © 2000 McGraw-Hill AustraliaPurpose of Bankruptcy Act 1966 (Cwlth)Provides for the investigation of the bankrupt to determine if all assets have been disclosed or other offences have been committed.Ensures an equitable distribution of the bankrupt’s property among creditors.Enables a discharged bankrupt to start anew, free from the demands of creditors and the bankruptcy trustee.Benefits the community, by allowing the bankrupt to make his/her own living.3Copyright © 2000 McGraw-Hill AustraliaAdvantages and disadvantages for creditorsAdvantagesEquitable and proportionate distribution of the debtor’s assets.Recovery of property that was distributed prior to bankruptcy.Public examination may uncover property available for distribution to creditors.DisadvantagesSignificant fees for administering the estate, and court costs associated with the recovery of costs are paid before creditors.Delays and complicationsBankrupt must stop trading.4Copyright © 2000 McGraw-Hill AustraliaAdvantages and disadvantages for debtorsAdvantagesEnables bankrupt to avoid being sued by creditors for debts incurred prior to the bankruptcy.New start in six months to three years, with cooperation.Bankrupt maintains ‘necessary property’.DisadvantagesDebtor’s property available for settlement of debts.Earnings may be used as contribution towards debts.Stigma attached to bankruptcy.Restrictions in obtaining credit without notifying credit provider of bankruptcy. Bankrupt’s passport to be surrendered.Cannot be director of company without permission of Supreme Court.Cannot conduct a business without disclosure of bankruptcy.Details of bankruptcy published in National Personal Insolvency Index.Must comply with Bankruptcy Act.5Copyright © 2000 McGraw-Hill AustraliaDefinitionsInsolvency: The person is unable to pay all his/her debts as and when they become due and payable.Bankruptcy: A person who is required to provide a trustee with specified property, to be distributed among creditors.6Copyright © 2000 McGraw-Hill AustraliaAdministration of  Bankruptcy Act 1966INSPECTOR-GENERAL IN BANKRUPTCY(appointed by Attorney-General’s Department)Overseas general administration of Bankruptcy Act STATE OFFICIAL RECEIVER OR REGISTERED TRUSTEE(appointed by Governor-General) (appointed by Federal Court)Administration and distribution of Bankrupt’s estate:  Gathering Bankrupt’s estate  Realising non-money assets  Distributing dividend to creditors7Copyright © 2000 McGraw-Hill AustraliaOfficial trustee in bankruptcy A body corporate which holds andinvests property on behalf of the creditors, prior to sale and distribution.8Copyright © 2000 McGraw-Hill AustraliaHow a person can be made bankruptBy Creditor’s PetitionDebtor is “forced” into bankruptcyBy Debtor’s PetitionDebtor “volunteers” for bankruptcy9Copyright © 2000 McGraw-Hill AustraliaBankruptcy by debtor’s petition (voluntary bankruptcy)10Copyright © 2000 McGraw-Hill AustraliaActs of bankruptcyActs of bankruptcy are listed in Part IV, Division I, Section 40 of Bankruptcy Act 1966 (Cwlth)11Copyright © 2000 McGraw-Hill AustraliaFailure to comply with a bankruptcy notice12Copyright © 2000 McGraw-Hill AustraliaCourt proceedings for Sequestration OrderBANKRUPTCY NOTICEACT OF BANKRUPTCY(failure to comply with bankruptcy notice)CREDITOR’S PETITION(presented by creditors with >$2000 owed S44)SERVED ON DEBTORDEBTOR ATTENDS BANKRUPTCY COURTHEARING OF THE CREDITOR’S PETITION Prove:  debt exists  debtor committed one or more Act of Bankruptcy within six months before creditor’s petition presented  service of petition of debtorCOURT MAKES SEQUESTRATION ORDER13Copyright © 2000 McGraw-Hill AustraliaSequestration Order (on Creditor’s/Debtor’s Petition)Administration of the EstateDebtor files statement of Affairs (Assets/Liabilities) within 14 days.Trustee calls creditors to meeting within 28 days.Public examination of debtor.Creditors prove debt exists.Trustee realises assets.Trustee pays dividends to proven creditors.Debtor freed from all provable debts.14Copyright © 2000 McGraw-Hill AustraliaProof of debt SECURED UNSECURED RELY ON ESTIMATE REALISE/SURRENDER SECURITY SECURITY SECURITY SHORTFALL PROOF OF DEBT  Amount  How incurred  Substantiation15Copyright © 2000 McGraw-Hill AustraliaAssets available to the trusteeAssets of bankrupt owned on day of bankruptcy i.e. earliest Act of Bankruptcy that can be counted, within last six months.Assets bankrupt acquires while bankrupt.Income above threshold amount (this includes the value of fringe benefits and money paid to associated entities).16Copyright © 2000 McGraw-Hill AustraliaProperty excluded from bankruptcySection 116 (2) Bankruptcy Act 1966e.g.  necessary household furniture  personal belongings  vehicle (worth up to $5500)  property used to obtain income by personal exertion17Copyright © 2000 McGraw-Hill AustraliaProperty available for payment of debtsDoctrine of Relation Back S115The bankruptcy will relate back to the earliest act of bankruptcy committed by the debtor within the six month period preceding the date of the presentation of the Creditor’s Petition, or the application for the making of a Sequestration Order (Debtor’s Petition).18Copyright © 2000 McGraw-Hill AustraliaDoctrine of Relation BackAimed at preventing persons aware of imminent bankruptcy from disposing of property that should be used to satisfy creditors’ debts.19Copyright © 2000 McGraw-Hill AustraliaProperty not available to trusteeProperty which has passed from bankrupt and is protected from trusteeS123: Payments made:  before day debtor became bankrupt`  without notice of petition by other party  in good faith, during ordinary course of business.S124: Payments or deliveries from someone who becomes bankrupt:  made in good faith  during ordinary course of business  without negligence.20Copyright © 2000 McGraw-Hill AustraliaProperty not available to trustee (continued)After acquired property  incomeS126: Protected transactions - good faith on part of acquirer - valuable consideration - completed before intervention of trustee 21Copyright © 2000 McGraw-Hill AustraliaAntecedent transactionsS118: Execution and attachments before bankruptcyMoney received via execution against property, six months before or after the presentation of the petition, must be paid to trustee (less costs).22Copyright © 2000 McGraw-Hill AustraliaAntecedent transactionsS120: Voluntary settlements (within fiveyears)Consideration inadequateVoid against trusteeExceptions: - to meet child support - to pay taxes - to fulfil a debt agreement obligation23Copyright © 2000 McGraw-Hill AustraliaAntecedent transactionsS121: Fraudulent dispositionsIntention of defeating creditors Exceptions: - market value paid - in good faith24Copyright © 2000 McGraw-Hill AustraliaPreferential paymentsS122: Transfer of property (within six months of presentation of petition)By insolvent personMade from person’s own moneyMade in favour of a creditor in preference to other creditorsExceptions: - received during normal course of business - received in good faith - purchased for at least market value25Copyright © 2000 McGraw-Hill AustraliaDischarge and annulment of bankruptcyEarly Discharge - After minimum six months from filing of statement of affairs.Discharge - Usually within three years from filing of statement of affairs. - May be extended to five years. - May be extended to eight years on return to Australia.Annulment - Where all debts are paid, or bankruptcy was not deserved.26Copyright © 2000 McGraw-Hill AustraliaDebt agreements under Part IXProposal options:Payment of debt over period of timeCreditors accept less than full amountAvailable if debtor has:unsecured debts of less than $62 353property of less than $62 353taxable income of no more than $26 400not been bankrupt or entered into Part X arrangement in last 10 years.27Copyright © 2000 McGraw-Hill AustraliaDebt agreements under Part IX (continued)PROPOSALOFFICIAL TRUSTEE75% CREDITORS APPROVEDEBT AGREEMENTRECORDED ON NATIONAL PERSONAL INSOLVENCY INDEX (NPII)28Copyright © 2000 McGraw-Hill AustraliaPart X schemesCompositionPayment of debts by instalments, orAccept less than full satisfaction of debts.Debtor can continue in business.Deed of AssignmentAssignment of all divisible property for the benefit of creditors generally (excludes property acquired after execution of deed).Deed of ArrangementAllows trading out of financial difficulties. 29Copyright © 2000 McGraw-Hill AustraliaBankruptcy Legislation Amendment Bill 2001 (Cwlth)Bankruptcy (Estate Charges) Amendment Bill 2001 (Cwlth)Debtor’s Petition may be rejected where undertaken to avoid other legal obligations, e.g. complying with a Family Court settlement.Debtor will have a thirty-day cooling-off period after lodging petition.Discharge from bankruptcy after six months removed.Alterations in lodging objections to discharge from bankruptcy.Automatic duration of bankruptcy to be two years.Administrative procedures to be streamlined. 30Copyright © 2000 McGraw-Hill AustraliaReasons for bankruptcyConsumer debtLack of business and investment skillsChange in economic and/or political climateUnforeseen liabilities31Copyright © 2000 McGraw-Hill Australia