Divisible assets and protected property in bankruptcy
This article looks at investigating and realising divisible assets as one of the key functions of a Registered Trustee in Bankruptcy.
Investigating and realising divisible assets is one of the key functions of a Registered Trustee in Bankruptcy. This article explains which assets are divisible and what is protected property, or property that is exempt from being realised by a Trustee.
Section 116(1) of the Bankruptcy Act 1966 (“the Act”) specifies the property that is divisible amongst creditors. Generally, it is all property of the Regulated Debtor with the exception of property described in Section 116(2) of the Act.
The items that are not divisible can be grouped as follows:
- Ordinary household items of the Regulated Debtor;
- Property that is held in Trust for someone else;
- Property of the Regulated Debtor that has sentimental value, where creditors vote to let the Regulated Debtor keep the specific property;
- Property of the Regulated Debtor that is used to earn income (tools of trade), up to the prescribed limit in the Bankruptcy Regulations;
- Property of the Regulated Debtor used primarily as means of transport, up to the limit prescribed in the Bankruptcy Regulations;
- Life insurance policies;
- Any balance the Regulated Debtor has in a properly regulated superfund;
- Certain payments received pursuant to the Family Law Act 1975;
- The right of a Regulated Debtor to recover damages or compensation (in certain circumstances); and
- Amounts paid under certain government schemes.
As mentioned above, it is not always clear and there are many different types of assets that can be divisible in a Regulated Debtor Estate. The Official Trustee Practice Statements 2, provides a detailed list of the various types of assets and whether they are divisible or not. The practice statement can be found at https://www.afsa.gov.au/otps2.
Another important consideration is the length of time that a Bankruptcy Trustee has to realise divisible assets. Section 129AA of the Act sets the period that a Trustee has to realise an asset. Any divisible asset that a Regulated Debtor discloses to their Trustee, must be realised within six years of the Regulated Debtor being discharged from Bankruptcy. A Trustee can extend this period for up to three years at a time by giving written notice to the Regulated Debtor before the six-year period expiry. There is no limit on how many extensions a Trustee can issue.
In the case of after-acquired property (being property that the Regulated Debtor receives once becoming bankrupt) disclosed during a Bankruptcy, the property must be realised within six years after the date of the Regulated Debtor being discharged from Bankruptcy. In the case of property disclosed after discharge from Bankruptcy, a Trustee has six years from the date of disclosure. In this case, a Trustee has the same rights to extend the period.
Section 127 of the Act provides that a Trustee has 20 years from the date of Bankruptcy to deal with the property of a Regulated Debtor. After the expiration of that period, the property revests with the Regulated Debtor.
If you have any questions, or your clients are experiencing financial distress, please contact Brodie Hilet or Neil McLean on (03) 9670 8700 for a confidential and obligation free discussion.
Brodie joined Rodgers Reidy in 2017, following around 7 years at a boutique insolvency firm. Gaining extensive expertise in in both Personal and Corporate insolvency appointments, restructuring and advisory appointments across a wide range of industries.