Member of Begbies Traynor Group Global Advisory

Bankruptcy: Transfers to defeat creditors

3 August 2017

Bankruptcy is often seen as a negative step however it has the benefit of providing a release from debts and the chance for a fresh start.  Along with the advantages of bankruptcy, it is important to be aware that there are consequences that may apply if certain transactions made prior to bankruptcy come under scrutiny of the Trustee. 

In certain instances, a Bankruptcy Trustee has the ability to claw back payments made prior to bankruptcy.  Certain payments made prior to bankruptcy give some creditors or parties an advantage over others, or have the effect of reducing the assets available to creditors of the bankrupt.  The Bankruptcy Act has provisions to allow a Trustee to recover certain transactions for the benefit of all creditors of the bankrupt.

A transfer to defeat creditors is a transaction that is void against the Trustee in bankruptcy.  In determining if a transfer of property is void, consideration is given to both the physical transfer of property and the intent with which the transfer was made.

Section 121 of the Bankruptcy Act provides that a transfer of property by a person who later becomes a bankrupt (transferor) to another person (transferee) is void if:

  • The property would probably have become part of the transferor’s estate or would probably have been available to creditors;
  • The transferor’s main purpose in making the transfer was
  • To prevent the transferred property from becoming divisible among creditors; or
  • To hinder or delay the process of making property available for division among creditors.

An example of such a transfer is a withdrawal or transfer of cash from the bankrupt’s account, or a transfer of the bankrupt’s share in a property, to a spouse or relative.

In certain circumstances, the transfer will not be void if it can be proved that the transferee acted in good faith including:

  • The consideration given by the transferee was at least as valuable as the market value of the property;
  • The transferee was unaware of the transferor’s purpose in making the transfer;  and
  • The transferee could not have inferred that the transferor was, or was about to become insolvent.

What penalties apply?

In addition to the transferee being required to repay the amount of the transfer to the Trustee (less any consideration that may have been given by the transferee), the Trustee may lodge an objection to the bankrupt’s discharge which has the effect of extending the period of bankruptcy to 8 years.  The usual bankruptcy obligations and restrictions will apply to the bankrupt for this entire period.

Action

Bankruptcy is often seen as a negative, however it provides an opportunity to start afresh and to be released from your debts.  If you are considering bankruptcy, it is important to be aware that certain transactions undertaken prior to bankruptcy may come under scrutiny by your Trustee.  Any transaction that is deemed to be a transfer to defeat creditors is voidable against the Trustee and may be recoverable from the transferee.  A Trustee may also use any such action as grounds to object to your discharge and extend your period of bankruptcy up to 8 years. 

If you have any queries in relation to your individual financial circumstances or would like more information in relation to bankruptcy, contact Rodgers Reidy now and take advantage of the guidance and assistance of an experienced, independent advisor.

Further resources:

1.       AFSA – www.afsa.gov.au - Personal Insolvency Information for Debtors

2.       AFSA – www.afsa.gov.au - Consequences of bankruptcy

3.       AFSA – www.afsa.gov.au - Indexed Amounts

 

 

Contact our team

Processing...
Latest News
Industry News: 1-year Bankruptcy Bill introduced into Federal Parliament
Industry News: 1-year Bankruptcy Bill introduced into Federal Parliament
The Bill to reduce the period of bankruptcy from three years to one year was introduced into Federal Parliament on 19th October 2017. The key features of the Bill are explained below: The bankrupt wi…
NEW: Rodgers Reidy Singapore Office
NEW: Rodgers Reidy Singapore Office
We are pleased to introduce Rodgers Reidy Singapore. Since the firm’s inception almost 19 years ago, Rodgers Reidy has grown to be one of the foremost providers of specialist forensic, insolvenc…
Simply Lease Pty Ltd (In Liquidation) - Information for Creditors
Simply Lease Pty Ltd (In Liquidation) - Information for Creditors
Brent Morgan of Rodgers Reidy was appointed liquidator of Simply Lease Pty Ltd on 16 August 2017. The Company had ceased to trade prior to the appointment. All creditors should contact Matt Huynh or C…
NEW: Rodgers Reidy NT Office (Darwin)
NEW: Rodgers Reidy NT Office (Darwin)
Rodgers Reidy has arrived in Darwin. Since the firm’s inception almost 18 years ago Rodgers Reidy has provided specialist service to distressed businesses throughout Australia including the regional…
RSL South Australia rescued via Deed of Company Arrangement
RSL South Australia rescued via Deed of Company Arrangement
On 17 August 2017, in accordance with creditors’ approval and after a four month restructuring process, a Deed of Company Arrangement (DOCA) was executed in respect of the South Australian RSL State…
NEW: Rodgers Reidy SA Office (Adelaide)
NEW: Rodgers Reidy SA Office (Adelaide)
Since the firm’s inception almost 18 years ago, Rodgers Reidy has provided specialist services to distressed businesses throughout Australia including the regional and rural sectors of the economy. …
Menu