Section 149B states:

(1) at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee may file with the Official Receiver a written notice of objection to the discharge.

(2) The trustee of a bankrupt’s estate must file a notice of objection to the discharge if the trustee believes:

(a) that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and

(b) that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged.

Bankruptcy can be extended for up to 5 years if the bankrupt contravenes any of the following:

• when bankrupt, you left Australia without permission by your Trustee;
• you entered into a transaction prior to bankruptcy which was later declared void by your Trustee (either a preferential payment or a transaction at undervalue);
• whilst bankrupt you continued to act as a company director;
• whilst bankrupt you obtained creditor of more than $5,009.00, without disclosing that you were bankrupt;
• you failed to attend an examination or interview as directed by your Trustee (without a reasonable explanation);
• you failed to attend a meeting of your creditors as directed by your Trustee;
• you failed to disclose an asset or a beneficial interest in an asset;

Worse again, Bankruptcy can be extended for up to 8 years if you if contravene any of the following:

• you entered into a transaction which was declared void by your Trustee but was entered into with the intention to defeat creditors;
• you made an excessive payment into a superannuation fund with the intent to defeat creditors;
• you failed to provide a written explanation to your Trustee about property, income or expected income;
• you intentionally provided false or misleading information to your Trustee;
• you failed to disclose full particulars of income or expected income;
• you failed to pay compulsory income contributions;
• if within 5 years of you becoming bankrupt, you did any of the following:
  1. spent money but failed to explain adequately to the trustee the purpose for which the money was spent; or
  2. disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal;
• whilst bankrupt you left Australia and failed to return to Australia when requested to do so by your Trustee;
• you refused or failed to sign a document after your Trustee requested you to sign the document;
• you intentionally failed to disclose to your Trustee your beneficial interest in any property

The message is clear — A bankrupt must act honestly and openly with his or her Trustee or risk extension of time in bankruptcy. If you or your clients have any questions about this or insolvency in general, call the Insolvency Experts 24 hours, 7 days/week, free of charge for professional and confidential advice on 1300 100 285.

More than 2.6 million Australians would have difficulty raising $3000 in an emergency and many lack access to basic banking services, according to the CSI Financial Exclusion Indicator.

The study, conducted by the National Australia Bank and the Centre for Social Impact, said those who couldn’t raise funds were less likely to have insurance cover, leaving them exposed to large costs.

The study found that just 46.4 per cent of severely financially strapped people had home contents insurance and only 59.2 per cent of them had cover for their cars.

NAB chief executive Cameron Clyne said financial exclusion often led to a debt spiral, where people who could not access financial services from banks turned to unregulated lenders who charged prohibitive interest rates.

At the Insolvency experts we have seen numerous cases of uninsured persons declaring bankruptcy after the unexpected does occur.

Times are tough and if you need some advice or guidance, you may contact us free of charge, 24 hours, 7 days on 1300 100 285.

News.com.au article excerpts

Who Does This Impact? All creditors of bankrupts.

What Action Should Be Taken? A creditor who wants to increase their prospect of a dividend should always consider providing an indemnity for costs to a bankruptcy trustee when a claim outlined by a trustee appears strong. A creditor providing an indemnity for costs to a bankruptcy trustee to commence proceedings, can obtain a Court order for a priority dividend over other unsecured creditors in relation to the property recovered.

A recent decision of the Federal Court allowed an unsecured creditor to be paid in priority to all other creditors.

Factual Summary

Mr Ilia Iliagouev obtained a judgment in the District Court of NSW against Mr Stuart Eaton and was an unsecured creditor of Mr Eaton. On the application of Mr Iliagouev (through his insurer), Mr Eaton was made bankrupt by the Court and a trustee in bankruptcy was appointed. When the trustee was appointed there were no available funds in Mr Eaton’s bankrupt estate for distribution to creditors.

Mr Eaton and his former wife were the previous proprietors of a property at Hay Street. 3 years before Mr Eaton’s bankruptcy, Mr Eaton and his former wife sold the Hay Street property and utilised the sale funds to purchase a new property in the name of Netoa Pty Limited (‘Netoa’).

Mr Eaton’s former wife and son were directors of Netoa. Mr Eaton was not a director or shareholder of Netoa.
Netoa sold the new property shortly after Mr Eaton’s bankruptcy. The Trustee was of the view that Mr Eaton had gifted Netoa half of the sale proceeds of the Hay Street property and that the transaction was voidable under section 120 of the Bankruptcy Act 1966 (Cth). The Trustee sought to injunct Netoa from distributing the sale funds and to also obtain an order for Netoa to pay to Mr Eaton an amount equal to Mr Eaton’s contribution to Netoa purchasing the property.

The Trustee had no funds to undertake the work required to recover monies gifted to Netoa for distribution to Mr Eaton’s creditors. The Trustee wrote to all creditors of Mr Eaton outlining the prospective claim against Netoa and sought an indemnity for his costs.

Mr Iliagouev’s insurer, CGU Workers Compensation (NSW) Limited (‘CGU’), agreed to provide a limited indemnity for costs to The Trustee so proceedings could be commenced. No other creditors agreed to provide an indemnity to The Trustee.

Mr Iliagouev’s debt totalled approximately 28% of all creditors in the bankrupt estate of Mr Eaton. Court action was commenced by The Trustee and he recovered $323,278.30 from Netoa for the bankrupt estate of Mr Eaton.

The Trustee brought an application under section 109(10) seeking an order that Mr Iliagouev (CGU) receive a dividend in priority to other creditors of the bankrupt estate of Mr Eaton from the monies recovered from Netoa.

Issue

Should Mr Iliagouev receive a dividend in priority to all other creditors of Mr Eaton in view of the indemnity to the trustee provided by the subrogated insurer CGU?

The Law

Section 109(10) of the Act provides:

Where in any bankruptcy:

(a) Property has been recovered, realised or preserved under an indemnity for costs of litigation given by a creditor or creditors; or

(b) Expense in relation to which a creditor has, or creditors have indemnified a trustee have been recovered;

the Court may, upon the application of the trustee or a creditor, make such order as it thinks just and equitable with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving the indemnifying creditor, or creditors, as the case may be, an advantage over others in consideration of the risk assumed by the creditor or creditors.

The Decision

Justice Nicholas of the Federal Court of Australia made an order that the proceeds recovered from Netoa shall be applied in its entirety in payment of the admitted debt of Mr Iliagouev in priority over the admitted debts of all other unsecured creditors.

Reasons for Decision

When considering an application under section 109(10) of the Act, there are a number of factors which the Court considers in order to determine whether an order under section 109(10) of the Act ought to be made. These factors include:

The risk run and costs incurred by the indemnifying creditor;
The complexity of the proceedings in respect of which the indemnity is given;
The sum recovered (or the value of the property recovered);
The opportunity afforded to other creditors to provide indemnity;
The failure of other creditors to provide indemnity;
The proportions between the debts of the indemnifying creditor and the other debts;
The opposition or support of other creditors to the application for priority; and
The public interest in encouraging creditors to provide indemnities so as to enable assets to be recovered.
Considering The Trustee had no funds available in the estate of Mr Eaton, if it was not for CGU agreeing to indemnify The Trustee, he would not have been able to commence or maintain the proceedings against Netoa. All other creditors were invited to provide an indemnity but none were prepared to do so.

The sum of the debt owed to Mr Iliagouev by Mr Eaton was approximately 28% of the total value of admitted proofs of debt of all unsecured creditors. This is more than what was owed to any of the other unsecured creditors.

All of the other unsecured creditors in the estate of Mr Eaton were provided with a copy of the application pursuant to section 109(10) of the Act, but none chose to oppose the application.

So far as the complexity of the proceedings commenced by The Trustee was concerned, there is nothing which would indicate that they were particularly complex or risky in terms of their prospects of success. But The Trustee’s need for the indemnity shows that, as with most litigation, there were risks involved which prudently he was not prepared to assume without the benefit of the indemnity.

In view of the above, Justice Nicholas was satisfied that it was appropriate to make an order under section 109(10) of the Act.

The question which remained was the extent of the benefit which was to be conferred on Mr Iliagouev over other unsecured creditors. On the one hand, the indemnifying creditor can be given full priority in relation to the proceeds of the settlement with Netoa, with other unsecured creditors receiving zero cents in the dollar and on the other hand, the indemnifying creditor can be given a priority which is less than a full priority, which would allow for the other unsecured creditors to receive something like 20 cents in the dollar.

Justice Nicholas concluded that there was no presumption that the indemnifying creditor should not receive the full benefit of the net proceeds of the property or expenses recovered under an indemnity for costs of litigation (Official Trustee in Bankruptcy as Trustee of the Estate of Rodolfo Servio Pastro v Pastro [2004] FCA 713). Consequently, an order was made that the property recovered from Netoa be applied in its entirety in payment of the admitted debt of Mr Iliagouev in priority over the admitted debts of all other unsecured creditors.

Conclusion

Creditors who are prepared to assist an insolvency administrator with a recovery by taking on some risk can be rewarded by achieving a dividend in priority to other creditors.

By: Chamila Fernando (Lawyer), Daniel Turk (Partner)

He was convicted and sentenced on 3 June 2010 to four months imprisonment which he will serve by way of intensive correction in the community.

Mr Smith’s conviction follows an ASIC investigation which found that he engaged in various acts of company management in relation to Colonial Holdings (Australia) Pty Ltd (Colonial Holdings) between 2 February 2004 and 2 May 2007. This investigation revealed that Mr Smith controlled the operation of Colonial Holdings (Australia) Pty Ltd by operating company accounts and signing caveats over land on behalf of the company while he was an undischarged bankrupt (under the Bankruptcy Act 1966, individuals are automatically disqualified from managing corporations).

Just days after it became public that the corporate regulator had ended its investigation into the Offset Alpine affair, it has emerged that the Rivkin estate, controlled by bankruptcy trustees Anthony Warner and Steven Kugel, has been given the green light to pursue one of Rivkin’s Swiss bankers for making “unauthorised transactions”.

Mr Warner told The Australian yesterday that after trawling through Rivkin’s bank account details he had on Friday received news from Switzerland that he could proceed with the claim.

It is understood Australian Securities and Investments Commission chairman Tony D’Aloisio decided four weeks ago to end the legal battle to uncover who owned the parcel of Offset Alpine shares that soared in value after a fire at the company’s Sydney printing plant in 1993.

Trevor Kennedy, a former Qantas director, was told two weeks ago of the decision and his friends believe he has been unfairly pursued and his business interests have suffered as a result of the investigation.

“It is a very sad indictment on law enforcement in Australia,” said one friend yesterday, “that someone of Trevor’s prominence has had to live the last seven years of his life in limbo, without any claim or charge being made.”

One of the longest-running investigations on ASIC’s books, the Offset Alpine investigation began in 2003 after revelations that Rivkin had told Swiss prosecutors that he, Mr Kennedy and Labor powerbroker Graham Richardson were the owners of a secret parcel of Offset Alpine shares. A fire on Christmas Eve 1993 triggered a massive insurance payment and a surge in the share price. Mr Kennedy told ASIC he knew nothing of the shareholding and Mr Richardson also denied ownership.

ASIC was looking at possible perjury charges and also civil charges into not declaring share ownership.

But in recent years ASIC has not discovered any smoking guns despite spending millions of dollars tracking down documents all around the world.

Rivkin died in 2005, Mr Richardson was no longer a serious target and ASIC homed in on Mr Kennedy.

Last November, The Australian learned that Swiss authorities had rejected Australia’s latest request for further documents. ASIC had already received a huge bundle of documents, but they did not prove anything.

The following month, court proceedings in the Isle of Man became tense when ASIC was accused of a “further major change in its position”, described as “at best, highly confused, inconsistent and deeply unsatisfactory”.

The Australian has uncovered some sympathy for ASIC in the English courts, with a judge saying last year “it is a total disgrace that as a result of Mr Hafner’s intervention in these proceedings there has been such a huge delay in the transmission of evidence to Australia for many years”. Benno Hafner was Rivkin’s Swiss lawyer.

The dropping by ASIC of the Offset Alpine investigation is viewed by some in the business community as a shrewd decision.

After the losses in the One.Tel and Fortescue Metals cases, ASIC took a long look at Offset.

Mr D’Aloisio has restructured the litigation department since his appointment and worked hard to secure insider trading and market manipulation charges.

Yesterday, one observer said of his decision: “He has had the courage to do what is correct.”

by Susannah Moran, The Australian, May 31, 2010 12:00AM

According to a study, bankruptcies have risen by more than a third in the past four years.

The report shatters the commonly held belief that most people who file for bankruptcy are either chronically poor with no other options or the hugely wealthy avoiding debt obligations.

The report from the University of Melbourne Centre for Corporate Law and Securities Regulation says Bankruptcy is increasingly becoming a ”middle class phenomenon” in Australia.

The report said the number of personal bankruptcy filings jumped by 6 per cent in 2008-09, after rising steadily over the past four years.

There were 27,520 in 2008-09, an increase of 34 per cent since 2004-05, when there were 20,501 cases of bankruptcy. In 2009 the number of personal insolvency cases (which mainly involves bankruptcy but includes debt agreements) shot up to 36,487.

An earlier study found that since 1990 there had been a 300 per cent increase in the number of personal insolvencies in Australia, far exceeding population growth and indicating a strong middle-class presence.

One of the biggest findings was that more and more of the middle class are being claimed by bankruptcy.

The report says that a major cause of rises in bankruptcy among the middle class has been due to unsustainable home loans and excessive use of credit.

Liquidation Direct are experts in assisting people facing bankruptcy.

Call The Insolvency Experts at CRS Warner Kugel, owners of LD.

Call for free, impartial, anonymous advice – 24 hours a day everyday on

Free insolvency advice – 1300 100 285

SMH article excerpts

An executive director of the serious organised crime division of the Australian Crime Commission (“ACC”) said the accountant illegally conspired with others to evade paying between $25.78 million and $27.68 million in tax, involving family trusts, between 1999 and 2001.

Mr Thomson, by using false documents deliberately attempted to hide profits generated by his clients’ businesses and knowingly misled the Australian government to ensure his clients did not pay their required tax.

The executive fo the ACC said accountants and lawyers who help clients evade their tax responsibility by using complicated, deceptive schemes such as this one, will be investigated and prosecuted.

Thomson was arrested as part of Project Wickenby, conducted jointly by the Australian Tax Office, Australian Federal Police, Australian Crime Commission, Australian Securities and Investments Commission, and the Commonwealth Director of Public Prosecutions.

Tax Commissioner Michael D’Ascenzo said the commission would continue to crack down on undeclared offshore accounts.

Mr D’Ascenzo said in a statement “Our ability to trace fund flows around the world is constantly expanding and we are identifying transactions and participants in abusive secrecy haven schemes,”.

“This sentencing sends a clear message to participants and promoters of complex offshore schemes that they will face serious consequences.”

CRS Warner Kugel, specialised liquidators and bankruptcy trustees have been appointed to bankruptcies directly from the Wikenby investigations. We also have extensive experience in dealing with secrecy haven schemes and undeclared offshore accounts through administering the Estate of the Late Rene Rivkin.

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, called for submissions on proposals to take a more informal approach to business rescue plans, including a more lenient treatment of directors’ liabilities.

His announcement was timed to coincide with controversial law changes overruling the 2007 Sons of Gwalia High Court decision.

“The use of formal insolvency reorganisation procedures is not always appropriate,” Mr Bowen said, highlighting the cost and complexity of external administrations and the impact on stakeholders including shareholders and employees.

He set out three options: maintaining the current insolvent-trading laws, adopting a modified business judgment rule or an expressly invoked moratorium.

He told BusinessDay there was a “certain attractiveness” to a modified business judgment rule.

Among proposals are a possible “safe harbour” for company directors, in effect allowing a company to trade while insolvent to determine whether it can be rescued rather than moving straight to voluntary administration.
“The scope and application of a safe harbour . . . would essentially relieve directors of their liability in relation to insolvent trading for a period of time,” the discussion paper said.

But the paper acknowledged the risk of such a proposal, including “the possibility that any safe harbour might be subject to abuse and might create additional difficulties in addressing undesirable behaviour such as phoenix company activity”.

Mr Bowen expressed a preference for a modified business judgment rule for insolvent trading “so that directors would be relieved of the duty not to trade whilst insolvent” subject to certain conditions.

“You’ve got to write the law to apply broadly and to provide maximum opportunity for a company to survive a difficult time that is in in best interests of creditors, employees and directors.”

The third option features a moratorium on insolvency trading provisions similar to the US Chapter 11 rules. This allows directors to continue trading even while insolvent until creditors order a stop, a suggestion Mr Bowen acknowledged was “more radical”.

Some shareholder groups were unhappy. The president of the Australian Shareholders Association, Stuart Wilson, said: “There is a responsibility on directors not to mislead the owners of the company, and with this ruling it simply means that shareholders won’t have any effective means of suing when they’ve had wrong done to them.”

John Walker of the litigation funder IMF Australia said it was a question of “where you draw the line on how much insolvent trading is too much.”

The Government also moved yesterday to introduce legislation to overturn the Sons of Gwalia High Court decision that had allowed shareholders who had been misled in a corporate collapse to be treated the same as unsecured creditors.

The moves are contrary to the Markets Advisory Committee recommendation on the issue and the position adopted by the Australian Securities and Investments Commission. Neither would comment yesterday.

Mr Wilson said: “The Sons of Gwalia case ruling provided access to shareholders who have been misled to get some recourse, but minister Bowen has effectively shut the door on that.”

Smh article

The recovery was concentrated in Australia’s southeast, with insolvency still high in Queensland and Western Australia.

A total of 8880 people were declared insolvent in the December quarter, down 8.57 per cent from the 9712 insolvencies in the September quarter.

But bankruptcies were still 2.2 per cent higher than at the same time in 2008, when 8686 people were declared insolvent.

The number of Part X arrangements, which provide a way debtors can settle debts without declaring bankruptcy, rose to 156 in the December quarter – 151 per cent more than the 62 deals done at the same time in the previous year.

Under a Part X arrangement, creditors may be paid an upfront lump sum, take control of assets or accept instalment payments.

The debtor appoints a trustee who takes control of their property and reports to creditors on how much they can expect to recover compared with the amount likely to be retrieved through conventional bankruptcy.

While bankruptcy lasts for at least three years, the so-called “personal insolvency agreements” can clear debts more quickly.

As insolvencies dropped in NSW, Victoria and Tasmania over the year, Queenslanders and Western Australians continued to declare themselves bankrupt in large numbers.

Queensland, which has suffered the collapse of much of its Gold Coast-based property industry, recorded an 18.1 per cent surge in insolvencies over the year – from 1978 in 2008 to 2336 in the December quarter.

Western Australia saw a 25 per cent surge over the same period – from 531 to 664.

News.com.article

If you are struggling with debt, call Liquidation Direct. We can help you with Liquidation, Voluntary Administration, Bankruptcy and alternatives to bankruptcy including Part X Personal Insolvency Agreements and Part IX Debt Agreements.

Call Liquidation Direct on 1300 767 525 for 24 hour free insolvency advice and help.

The US saw 1.43 million bankruptcy filings in 2009 – an increase of 32 per cent from 2008.

In December, there were 116,000 recorded bankruptcies – up 22 per cent from the same month a year before.

Arizona had the fastest increase in bankruptcies – a jump of 77 per cent from the year before. Wyoming (60 per cent), Nevada (59 per cent) and California (58 per cent).

The rise in bankruptcies comes three years after Congress overhauled the nation’s bankruptcy laws following fears from lenders that some consumers were abusing the system to wipe away debts.