Non-compliance by a Bankrupt is a common occurrence when managing a Bankrupt Estate. More often than not, a Bankrupt will not respond to written correspondence from their Bankruptcy Trustees (“Trustees”), not return phone calls and simply not cooperate with their Trustees. Two of the most common documents not completed by a Bankrupt when requested, are their Bankruptcy Form and Income Contribution Questionnaire.
The majority of non-compliant Bankrupts are usually those individuals whose bankruptcy is a result of a Sequestration Order. A Sequestration Order is an order made by the Court due to a creditor (i.e. usually a company or an individual) who is owed money, having applied to the Court to declare a person Bankrupt. There are various conditions that must exist before a creditor can petition the Court for an individual’s bankruptcy. Historically, a creditor was able to petition the Court to bankrupt an individual if they were owed $5,000. However, this debt threshold temporarily increased to $20,000 in March 2020 as a result of the Federal Government’s temporary debt relief measures put in place to help ease the financial burden facing individuals due to COVID-19. These measures are currently still in place to 31 December 2020.
For further information regarding Sequestration Orders, please refer to the Australian Financial Security Authority’s (“AFSA”) Practice Statement 3, which can be found on AFSA’s website or via the following link: https://www.afsa.gov.au/sites/default/files/orps3.pdf
Upon the appointment to a Bankrupt Estate, the Trustees will attempt to contact the Bankrupt via phone and formal written correspondence to (amongst other things):
- Advise of their appointment and their role as Trustees;
- Outline the Bankrupt’s duties whilst bankrupt;
- Obtain details of the Bankrupt’s assets and liabilities; and
- Outline the consequences of non-compliance by the Bankrupt.
One of the key duties of a Bankrupt is to complete a Bankruptcy Form (formerly called a Statement of Affairs). If made bankrupt pursuant to a Sequestration Order, the Bankrupt is required pursuant to section 54 of the Bankruptcy Act 1966 (Cth) (“the Act”) to complete this form and file it with the Official Receiver within 14 days of being notified of their Bankruptcy and provide a copy to their Trustees. The period of Bankruptcy is three (3) years from when the Bankruptcy Form is filed with the Official Receiver. Therefore, it is imperative a Bankrupt completes this form as soon as possible after they have been made Bankrupt. If a Bankruptcy Form is not submitted by the Bankrupt, they will remain bankrupt indefinitely.
The Trustees can request AFSA issue a request for completion of the Bankruptcy Form pursuant to section 77CA of the Act. A potential consequence of non-compliance by the Bankrupt with this request from AFSA is imprisonment of up to 12 months.
Income Contribution Questionnaire
Subsequent to issuing initial correspondence to the Bankrupt, a Bankruptcy Trustee will request other information and documentation regarding a Bankrupt’s affairs. Information pertaining to a Bankrupt’s income will be requested in the form of an Income Contribution Questionnaire (“ICQ”) and supporting income documentation (e.g. pay slips, PAYG summary and bank statements). This information is requested to determine the amount of income earnt by the Bankrupt, as there are caps on the amount of income a Bankrupt can earn during the period of their bankruptcy before being required to make contributions to their Estate. In the event a Bankrupt earns over the income threshold (the amount varies and is determined by the number of dependants), they must contribute to their Bankrupt Estate. The Trustees will provide a deadline in which the Bankrupt is required to return the ICQ and supporting documentation, so their income can be assessed. This will occur each year for the duration of a bankruptcy.
In the event a Bankrupt does not return their ICQ after the initial request and subsequent requests, the following options are available to the Trustee:
- Obtain income information from other sources (e.g. bank statements directly from the Bank and tax returns from the Australian Taxation Office);
- Conduct a deemed income assessment based on available information;
- Submit an application to the Official Receiver to issue a garnishee notice to the Bankrupt’s employer pursuant to section 139ZL of the Act, in the event it has been determined the Bankrupt is liable for income contributions and payments are not forthcoming from the Bankrupt;
- Lodge an objection to discharge from bankruptcy with AFSA to extend the period of bankruptcy for up to five (5) or eight (8) years; and
- Report offences to AFSA, which may result in prosecution of the Bankrupt.
Even after a Bankrupt is discharged from Bankruptcy, the Trustees can pursue the debt owing by the Bankrupt for income contributions and even make the individual bankrupt again via a new Sequestration Order.
There are numerous avenues for Trustees to explore when dealing with a non-compliant Bankrupt, including:
- Requesting the Official Receiver issue a Section 77CA notice;
- Objecting to the Bankrupt’s discharge from Bankruptcy;
- Lodging an Offence Referral with AFSA;
- Obtaining relevant income documents from third parties; and
- Issuing garnishee notices to the Bankrupt’s employer.
In light of the numerous consequences of non-compliance with your Trustees, I urge any Bankrupts reading this article to:
- Complete and file your Bankruptcy Form, otherwise you will remain bankrupt indefinitely;
- Complete your Income Contribution Questionnaires and return these to your Trustees by the due date; and
- Cooperate with your Trustees by answering their phone calls, replying to their emails and letters, and providing responses to their queries by the deadlines provided.
Complying with your Trustees will ensure they are able to manage your Bankrupt Estate as efficiently and effectively as possible. It also helps reduce the costs of managing the Bankrupt Estate which maximises any return to creditors.