UPDATE: Recent Changes to Bankruptcy Law
• October 2004
Tracing assets to third parties
Trustees in bankruptcy will soon have extensive powers to recover assets from third parties, where those assets represent the bankrupt's true wealth. This will occur when those assets were acquired by the third party using funds or property of the bankrupt for a 'tainted purpose'. That is, in order to ensure that the property would not be available to creditors. The assets may be seized if the bankrupt has used or derived some benefit from those assets or any traceable replacements.
There will be exceptions to the rule where market value consideration is provided and other circumstances are satisfied. This highlights the need for you to review and restructure your existing asset protection strategies and agreements in line with the new laws, and the necessity of establishing an appropriate system for all future dealings.
It is crucial to obtain legal advice about these changes and to understand how they will apply to your situation and both the personal and business decisions you make. We will be able to discuss your options with you, as well as their legal implications and any other associated issues.
The 'Supervised Account' Regime
Regardless of employment status, a bankrupt will only have access to any income earned during bankruptcy after the bankruptcy trustee has examined it. The latter will be authorised to ensure that the bankrupt operates a supervised bank account into which all earnings must be deposited.
Financial agreements and Bankruptcy
Financial agreements will no longer come under the definition of a 'maintenance agreement' so as to defeat the claims of creditors. Consequently, any property transferred prior to bankruptcy pursuant to such an agreement may be recovered by the trustee.
A new act of bankruptcy has also been introduced, to cover situations where a person becomes insolvent as a result of the transfer of assets under a financial agreement. This will have considerable implications for the determination of what part of the bankrupt's estate constitutes divisible property.
You need to look into any agreements you make accordingly and seek legal advice to ensure that you understand the intricate operation of the new provisions, and how you can thereby effectively maximise your legal and financial position.
Competing claims in Bankruptcy & Family Law
Much uncertainty has existed among creditors, spouses and other family members in relation to how competing claims to interests in property will be resolved in circumstances of bankruptcy. The proposed amendments will allow bankruptcy and family law proceedings to be brought together to ensure that all issues are dealt with by one Court at the same time.
These changes will also address the issue of certain interests recognised by the Family Law Act though not under the Bankruptcy Act, such as the special interest of a non-bankrupt spouse in the marital property created through both financial and non-financial contributions.
What should I do to get ready for the changes?
The impacts of the impending changes will differ for each person and corporation according to their situation, existing personal and business structures and future goals. You need to review these in detail and optimally, arrange a time to speak to one of our senior solicitors before the amendments (and associated penalties) come into force.
If you are currently experiencing financial trouble or you are concerned about your future position, you should call us as soon as possible.
Published October 2004. This publication contains general information. It is not intended to be a definitive analysis of legislative or other changes and professional advice should be taken before any course of action is pursued.
Trustees in bankruptcy will soon have extensive powers to recover assets from third parties, where those assets represent the bankrupt's true wealth. This will occur when those assets were acquired by the third party using funds or property of the bankrupt for a 'tainted purpose'. That is, in order to ensure that the property would not be available to creditors. The assets may be seized if the bankrupt has used or derived some benefit from those assets or any traceable replacements.
There will be exceptions to the rule where market value consideration is provided and other circumstances are satisfied. This highlights the need for you to review and restructure your existing asset protection strategies and agreements in line with the new laws, and the necessity of establishing an appropriate system for all future dealings.
It is crucial to obtain legal advice about these changes and to understand how they will apply to your situation and both the personal and business decisions you make. We will be able to discuss your options with you, as well as their legal implications and any other associated issues.
The 'Supervised Account' Regime
Regardless of employment status, a bankrupt will only have access to any income earned during bankruptcy after the bankruptcy trustee has examined it. The latter will be authorised to ensure that the bankrupt operates a supervised bank account into which all earnings must be deposited.
Financial agreements and Bankruptcy
Financial agreements will no longer come under the definition of a 'maintenance agreement' so as to defeat the claims of creditors. Consequently, any property transferred prior to bankruptcy pursuant to such an agreement may be recovered by the trustee.
A new act of bankruptcy has also been introduced, to cover situations where a person becomes insolvent as a result of the transfer of assets under a financial agreement. This will have considerable implications for the determination of what part of the bankrupt's estate constitutes divisible property.
You need to look into any agreements you make accordingly and seek legal advice to ensure that you understand the intricate operation of the new provisions, and how you can thereby effectively maximise your legal and financial position.
Competing claims in Bankruptcy & Family Law
Much uncertainty has existed among creditors, spouses and other family members in relation to how competing claims to interests in property will be resolved in circumstances of bankruptcy. The proposed amendments will allow bankruptcy and family law proceedings to be brought together to ensure that all issues are dealt with by one Court at the same time.
These changes will also address the issue of certain interests recognised by the Family Law Act though not under the Bankruptcy Act, such as the special interest of a non-bankrupt spouse in the marital property created through both financial and non-financial contributions.
What should I do to get ready for the changes?
The impacts of the impending changes will differ for each person and corporation according to their situation, existing personal and business structures and future goals. You need to review these in detail and optimally, arrange a time to speak to one of our senior solicitors before the amendments (and associated penalties) come into force.
If you are currently experiencing financial trouble or you are concerned about your future position, you should call us as soon as possible.
Published October 2004. This publication contains general information. It is not intended to be a definitive analysis of legislative or other changes and professional advice should be taken before any course of action is pursued.