How does someone become bankrupt?

A person can voluntarily become bankrupt, or a person can be made bankrupt by a creditor (or creditors) owed over $5,000.
A person who wants to voluntarily become bankrupt can do so by completing a Debtor’s Petition and a Statement of Affairs (which is a form setting out the person’s assets, creditors and other information) and filing these documents with the Australian Financial Security Authority, which is a Commonwealth Government agency.

What are the benefits of bankruptcy?

Bankruptcy provides for the discharge from most, if not all, of a person’s unsecured debts, which allows for the person to make a fresh start without the burden of debts which he or she cannot pay.

What assets will be sold in bankruptcy?

In bankruptcy all of a bankrupt’s divisible property will be sold or realised by the bankruptcy trustee, including a bankrupt’s house or land, shares, boat, cash at bank and motor vehicle (if valued at over a certain amount).

What assets can a bankrupt keep?

A bankrupt can keep certain assets, which will generally include household furniture and belongings, personal items, superannuation, tools of trade and motor vehicles (valued at under a certain amount). The value of certain assets which a bankrupt can retain are available at the following link (page opens in new tab).

Can a bankrupt keep a motor vehicle?

A bankrupt can keep a motor vehicle, or vehicles, which are used as the bankrupt’s primary means of transport, up to a certain net value. The value of a motor vehicle that a bankrupt can keep is available at the following link (page opens in new tab).

What debts are included in bankruptcy?

Most debts are included in a person’s bankruptcy, including personal loans, credit card debts, debts owed to trade creditors and debts owed to the ATO. There are however, some debts that are not included in bankruptcy, such as Child Support debts and Court-imposed penalties and fines.

How long does bankrupcy last?

Bankruptcy will generally last for three years from the date a bankrupt files a Statement of Affairs (which is a form setting out a bankrupt’s assets, creditors and other information).

Can the period of bankruptcy be extended?

The period of a bankrupt’s bankruptcy can be extended so that the period of bankruptcy can be up to eight years. This will most commonly occur in circumstances where a bankrupt has failed to pay income contributions to his or her trustee, or the bankrupt has failed to provide information or documentation requested by the trustee.

What are income contributions?

A bankrupt is required to pay income contributions to his or her trustee if the bankrupt’s net (after tax) income exceeds a certain amount. The amount of after tax income which a bankrupt is able to earn prior to being liable to pay income contributions increases if a bankrupt has children or other people who are financially dependent on the bankrupt for support. The amount of income that a bankrupt is able to earn before being liable for more controbutions is available at the following link (page opens in new tab).
Generally a bankrupt will be able to pay income contributions by weekly, fortnightly or monthly installments.

Can a bankrupt travel overseas?

A bankrupt is required to provide his or her passport to their bankruptcy trustee to be held for the period of their bankruptcy.
A bankrupt can only travel overseas with the consent of his or her bankruptcy trustee. A request by a bankrupt to travel overseas will generally be decided on a case by case basis.

Can a bankrupt be a director or secretary of a company?

A bankrupt can not be a director or secretary of a company during the period of their bankruptcy.

Can a bankrupt trade a business?

A bankrupt is able to trade a business, subject to certain exceptions, including:

  • The business must be traded in the bankrupt’s name.
  • The bankrupt must maintain suitable and accurate records for the business.
  • A bankrupt is not entitled to incur credit over a certain statutory amount (available at the following link – page opens in new tab), without notifying the person who is providing credit that they are an undischarged bankrupt.

Are there alternatives to bankruptcy?

As an alternative to bankruptcy, a person, depending on his or her circumstances, may propose a Personal Insolvency Agreement or a Part IX Debt Agreement.

If you require further information regarding bankruptcy and its alternatives, you should contact our Brisbane or Gold Coast office and our experienced staff will be able to assist you.

 

What should a director do upon becoming aware that a company is insolvent?

A director has a fiduciary duty to act in the best interests of the company at all times. If a director identifies that the company is insolvent and does not take proactive steps to ensure that the company does not incur any further debts, when there is little or no prospect that these debts will be paid, then a director may become personally liable for the damage caused to the company as a result of insolvent trading.
A director should seek advice from a qualified insolvency practitioner as soon as he or she becomes aware that the company may be trading whilst insolvent.
If you are concerned that your company may be trading whilst insolvent you should contact Pearce & Heers’ Brisbane or Gold Coast Offices to discuss the options available to you.Brisbane Gold Coast

How is a company placed into liquidation?

The shareholders of a company can resolve to appoint a liquidator to the company, often by signing a Resolution for the liquidator’s appointment. In most circumstances this can be done in a prompt and timely manner.
A creditor who is owed over $2,000 (and certain other parties) can apply to Court to have a liquidator appointed to a company.

What is the cost of putting a company into liquidation?

If a company has available assets of a sufficient value to cover some or all of the costs of liquidation, then it is likely that there will be no up front costs to the directors or shareholders to appoint a liquidator to the company.
If a company has little or no assets, then a liquidator will generally seek that funds be made available to pay his or her costs of acting as liquidator of the company.

What is voluntary administration?

Voluntary administration is an alternative to the liquidation of a company, which may provide the company with an opportunity to compromise its debts and continue trading.Voluntary administration

What is the effect of liquidation?

If a company is placed in liquidation, then an independent person (the liquidator) is appointed to the company. The tasks which a liquidator will perform include:

  • Taking control of the company’s assets.
  • Examining the events and circumstances preceding the winding up of the company.
  • Examining the company’s financial position in order to determine whether the company traded whilst insolvent.
  • Reporting to creditors regarding the results of the liquidator’s investigations and the prospect of a dividend being paid to creditors in the liquidation.
  • Providing for a fair and equitable distribution of the company’s property between creditors.

What are the benefits of appointing a liquidator to a company?

There are a number of benefits of appointing a liquidator to a company, including:

  • It is a way in which a director can avoid personal liability under a Director Penalty Notice issued by the ATO.
  • It may limit or reduce the company’s directors’ liability for insolvent trading.
  • It may limit or reduce the company’s directors’ liability for certain offences under the Corporations Act 2001.
  • It results in an independent person being appointed to the company, who will conduct an orderly winding up of the company’s affairs.
  • It avoids the company being placed in liquidation by the ATO or another creditor.

What are the responsibilities of a director of a company placed in liquidation?

A company’s director has a duty to assist the liquidator during the liquidation process. A company‘s director must also complete a Report as to Affairs form (setting out the company’s assets and creditors) and promptly provide the liquidator with all of the books and records of the company.

What is insolvent trading?

Insolvent trading, is the continued trading of a company which is unable to pay its due and payable debts. If a company is traded whilst it is insolvent then the company’s directors can be liable for insolvent trading if the company is placed in liquidation and the liquidator pursues legal action against the directors.
The amount of a director’s liability for insolvent trading (if a claim is pursued by a liquidator) will be the total amount of the company’s unpaid debts which were incurred during the period of the company’s insolvency.

What is a Director Penalty Notice?

The ATO can issue a Director Penalty Notice to a company’s director, which can make the director liable for the company’s unpaid PAYG Tax. The director will be liable for the company’s unpaid PAYG Tax unless one of the following occurs within 21 days from the date of the Notice:

  • The company pays the tax.
  • A voluntary administrator is appointed to the company.
  • The company is placed in liquidation.

Is a company’s director liable for the company’s debts?

A company’s director is generally not liable for a company’s debts, subject to certain exceptions, including:

  • Debts which the director has personally guaranteed.
  • The director’s liability to the ATO under a Director Penalty Notice which expired prior to the appointment of a liquidator or voluntary administrator to the company.
  • The director’s liability for insolvent trading.
  • Certain personal liabilities to the QBSA (Queensland Building Services Authority), or under a Deed of Covenant & Assurance executed at the request of the QBSA.

If a company is placed in liquidation is the director excluded from managing other companies?

A director of a company which is placed in liquidation, who has not been the director of any other companies which have been wound up in insolvency in the last seven years, will generally (subject to certain exceptions), not be disqualified from being a director of further companies.
However, it is common for the ASIC to seek to disqualify a person from acting as a director for up to five years, if that person has been the director of two or more companies which have been placed in insolvent liquidation in the last seven years.
This does not apply to directors of companies which have been wound up by way of a (solvent) Members Voluntary Liquidation.

If you require further information regarding liquidation and its alternatives, you should contact our Brisbane or Gold Coast office and our experienced staff will be able to assist you.

 

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