1. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia This is the prescribed textbook for your course. Available NOW at your campus bookstore!

2. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Bankruptcy law Chapter 20

3. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-2 Bankruptcy Where legal possession is taken of a debtor’s possessions, for the benefit of that person’s creditors.

4. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-3 Purpose of Bankruptcy Act 1966 (Cwlth) Provides for the investigation of the bankrupt to determine if all assets have been disclosed or other offences have been committed. Ensures an equitable distribution of the bankrupt’s property among creditors. Enables a discharged bankrupt to start anew, free from the demands of creditors and the bankruptcy trustee. Benefits the community, by allowing the bankrupt to make his/her own living.

5. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-4 Advantages and disadvantages for creditors Advantages Equitable and proportionate distribution of the debtor’s assets. Recovery of property that was distributed prior to bankruptcy. Public examination may uncover property available for distribution to creditors. Disadvantages Significant fees for administering the estate, and court costs associated with the recovery of costs are paid before creditors. Delays and complications Bankrupt must stop trading.

6. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-5 Advantages and disadvantages for debtors Advantages Enables bankrupt to avoid being sued by creditors for debts incurred prior to the bankruptcy. New start in six months to three years, with cooperation. Bankrupt maintains ‘necessary property’. Disadvantages Debtor’s property available for settlement of debts. Earnings may be used as contribution towards debts. Stigma attached to bankruptcy. Restrictions in obtaining credit without notifying credit provider of bankruptcy. Bankrupt’s passport to be surrendered. Cannot be director of company without permission of Supreme Court. Cannot conduct a business without disclosure of bankruptcy. Details of bankruptcy published in National Personal Insolvency Index. Must comply with Bankruptcy Act.

7. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-6 Definitions Insolvency: The person is unable to pay all his/her debts as and when they become due and payable. Bankruptcy: A person who is required to provide a trustee with specified property, to be distributed among creditors.

8. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-7 Administration of Bankruptcy Act 1966 INSPECTOR-GENERAL IN BANKRUPTCY (appointed by Attorney-General’s Department) Overseas general administration of Bankruptcy Act STATE OFFICIAL RECEIVER OR REGISTERED TRUSTEE (appointed by Governor-General) (appointed by Federal Court) Administration and distribution of Bankrupt’s estate:  Gathering Bankrupt’s estate  Realising non-money assets  Distributing dividend to creditors

9. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-8 Official trustee in bankruptcy A body corporate which holds and invests property on behalf of the creditors, prior to sale and distribution.

10. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-9 How a person can be made bankrupt By Creditor’s Petition Debtor is “forced” into bankruptcy By Debtor’s Petition Debtor “volunteers” for bankruptcy

11. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-10 Bankruptcy by debtor’s petition (voluntary bankruptcy)

12. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-11 Acts of bankruptcy Acts of bankruptcy are listed in Part IV, Division I, Section 40 of Bankruptcy Act 1966 (Cwlth)

13. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-12 Failure to comply with a bankruptcy notice

14. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-13 Court proceedings for Sequestration Order BANKRUPTCY NOTICE ACT OF BANKRUPTCY (failure to comply with bankruptcy notice) CREDITOR’S PETITION (presented by creditors with >$2000 owed S44) SERVED ON DEBTOR DEBTOR ATTENDS BANKRUPTCY COURT HEARING OF THE CREDITOR’S PETITION Prove:  debt exists  debtor committed one or more Act of Bankruptcy within six months before creditor’s petition presented  service of petition of debtor COURT MAKES SEQUESTRATION ORDER

15. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-14 Sequestration Order (on Creditor’s/Debtor’s Petition) Administration of the Estate  Debtor files statement of Affairs (Assets/Liabilities) within 14 days.  Trustee calls creditors to meeting within 28 days.  Public examination of debtor.  Creditors prove debt exists.  Trustee realises assets.  Trustee pays dividends to proven creditors.  Debtor freed from all provable debts.

16. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-15 Proof of debt SECURED UNSECURED RELY ON ESTIMATE REALISE/SURRENDER SECURITY SECURITY SECURITY SHORTFALL PROOF OF DEBT  Amount  How incurred  Substantiation

17. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-16 Assets available to the trustee Assets of bankrupt owned on day of bankruptcy i.e. earliest Act of Bankruptcy that can be counted, within last six months. Assets bankrupt acquires while bankrupt. Income above threshold amount (this includes the value of fringe benefits and money paid to associated entities).

18. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-17 Property excluded from bankruptcy Section 116 (2) Bankruptcy Act 1966 e.g.  necessary household furniture  personal belongings  vehicle (worth up to $5500)  property used to obtain income by personal exertion

19. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-18 Property available for payment of debts Doctrine of Relation Back S115 The bankruptcy will relate back to the earliest act of bankruptcy committed by the debtor within the six month period preceding the date of the presentation of the Creditor’s Petition, or the application for the making of a Sequestration Order (Debtor’s Petition).

20. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-19 Doctrine of Relation Back Aimed at preventing persons aware of imminent bankruptcy from disposing of property that should be used to satisfy creditors’ debts.

21. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-20 Property not available to trustee Property which has passed from bankrupt and is protected from trustee S123: Payments made:  before day debtor became bankrupt `  without notice of petition by other party  in good faith, during ordinary course of business. S124: Payments or deliveries from someone who becomes bankrupt:  made in good faith  during ordinary course of business  without negligence.

22. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-21 Property not available to trustee (continued) After acquired property  income S126: Protected transactions - good faith on part of acquirer - valuable consideration - completed before intervention of trustee

23. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-22 Antecedent transactions S118: Execution and attachments before bankruptcy Money received via execution against property, six months before or after the presentation of the petition, must be paid to trustee (less costs).

24. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-23 Antecedent transactions S120: Voluntary settlements (within five years) Consideration inadequate Void against trustee Exceptions: - to meet child support - to pay taxes - to fulfil a debt agreement obligation

25. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-24 Antecedent transactions S121: Fraudulent dispositions Intention of defeating creditors Exceptions: - market value paid - in good faith

26. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-25 Preferential payments S122: Transfer of property (within six months of presentation of petition) By insolvent person Made from person’s own money Made in favour of a creditor in preference to other creditors Exceptions: - received during normal course of business - received in good faith - purchased for at least market value

27. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-26 Discharge and annulment of bankruptcy Early Discharge - After minimum six months from filing of statement of affairs. Discharge - Usually within three years from filing of statement of affairs. - May be extended to five years. - May be extended to eight years on return to Australia. Annulment - Where all debts are paid, or bankruptcy was not deserved.

28. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-27 Debt agreements under Part IX Proposal options: Payment of debt over period of time Creditors accept less than full amount Available if debtor has: unsecured debts of less than $62 353 property of less than $62 353 taxable income of no more than $26 400 not been bankrupt or entered into Part X arrangement in last 10 years.

29. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-28 Debt agreements under Part IX (continued) PROPOSAL OFFICIAL TRUSTEE 75% CREDITORS APPROVE DEBT AGREEMENT RECORDED ON NATIONAL PERSONAL INSOLVENCY INDEX (NPII)

30. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-29 Part X schemes Composition Payment of debts by instalments, or Accept less than full satisfaction of debts. Debtor can continue in business. Deed of Assignment Assignment of all divisible property for the benefit of creditors generally (excludes property acquired after execution of deed). Deed of Arrangement Allows trading out of financial difficulties.

31. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-30 Bankruptcy Legislation Amendment Bill 2001 (Cwlth) Bankruptcy (Estate Charges) Amendment Bill 2001 (Cwlth) Debtor’s Petition may be rejected where undertaken to avoid other legal obligations, e.g. complying with a Family Court settlement. Debtor will have a thirty-day cooling-off period after lodging petition. Discharge from bankruptcy after six months removed. Alterations in lodging objections to discharge from bankruptcy. Automatic duration of bankruptcy to be two years. Administrative procedures to be streamlined.

32. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright © 2000 McGraw-Hill Australia 20-31 Reasons for bankruptcy Consumer debt Lack of business and investment skills Change in economic and/or political climate Unforeseen liabilities