Bankruptcy and its Implications
What is bankruptcy?
Bankruptcy is best described as a legal process where a trustee is appointed to administer an insolvent person’s affairs to provide a fair distribution of that person’s assets to their creditors.
Bankruptcy – What Property is “Divisible”
Put simply trustees of bankrupt estate collect and sell the assets of the bankrupt and distribute the proceeds to the bankrupt’s creditors.
The Bankruptcy Act defines “divisible” assets (those assets that are available to the trustee) from “non-divisible” assets (those assets that are not available to the trustee). Whether an asset is divisible or not is sometimes a disputed issue.
Caveats – An Effective Weapon – When and how to use them to your advantage
A caveat operates like an injunction. A caveat may be lodged by a person holding a legal or equitable interest in land.
Companies – Creditors Statutory Demands – Genuine Dispute
In terms of Section 459C(2)(a) of the Corporations Act a company is presumed to be insolvent where it fails to comply with a Creditor’s Statutory Demand (“a Demand”) in terms of Section 459(F) of the Act.
Companies – Winding Up – Section 459F Creditors’ Statutory Demands
Where a debtor is a company incorporated under the provisions of the Corporations Act 2001 (“the Act”) a creditor is in certain circumstances able to apply to Court to wind up the company. Winding up is the process whereby the assets of a company are realised, the creditors paid out in accordance with the Act, any surplus is distributed amongst the shareholders and the company is then de-registered.
Fair Entitlements Guarantee
The Australian Government provides financial assistance to cover certain unpaid employment entitlements to eligible employees who have lost their job due to the liquidation (if a company) or bankruptcy (if a private individual) of their employer.
Income Contributions by a Bankrupt
A Bankrupt is entitled to be employed and earn income during his/her bankruptcy. However the Bankruptcy Act provides that a Bankrupt should also pay contributions to his/her Trustee (Estate) from the income earned by the Bankrupt.
Injurious Falsehood as Opposed to Defamation
Defamation is the “catch all” phrase for remarks spoken or written (libel, slander) that hurt someone’s (personal) reputation. The term injurious falsehood is a sub category of defamation, written or oral and is generally used when sizable [commercial or economic interest] are involved. Generally speaking a corporate entity cannot be defamed as it can suffer no “hurt feelings”.
Insolvency Facts and Misconceptions
Insolvency practitioners DO NOT always get paid first and often DO NOT get paid at all.
Most business people are aware of a director’s duty to prevent a company from trading that is, (incurring debts) whilst insolvent, and the liability that may arise to a company’s liquidator if that duty is breached pursuant to Section 588G of the Corporations Act 2001 (“the Act”).
A right of set-off arises through the mutuality of a debit and a credit. When a person is both owed money by and owes money to someone the net balance is calculated and that balance is then payable or receivable.
Surety Wives (Guarantors) and Undue Influence
Where one person is in a position of influence over another, equity will presume that any transfer from the subordinate to the dominant party has been brought about by the exercise of undue influence by the latter and will strike the transaction down unless the dominant party can show that it was a product of the free and independent will of the other.