This last article in the current series discusses the enforcement and review procedures that are available to the trustee and bankrupt respectively. The previous two articles have dealt with what is income, and how an income assessment is calculated. They also dealt with the deeming powers used by trustees when a bankrupt does not disclose the proper amount of income.
Trustees also have powers to enforce payment of assessed contributions. These powers are in addition to the right to object to the discharge of a bankrupt for failing to provide information or paying an assessed contribution. Objecting to the discharge of the bankrupt is a punishment for not complying with the Bankruptcy Act, but does not of itself obtain money for the estate.
There are two major powers that allow a trustee to enforce payment.
Section 139ZL Notices
A section 139ZL notice is very similar to a garnishee order. The notices are issued by ITSA on the application of the trustee, and served on parties that owe the bankrupt money that would not otherwise be divisible property. Usually that other party is an employer, and the monies targeted are wages. In some cases the target is monies payable under income protection insurance policies.
This facility works well when the bankrupt is employed by someone, but not so well when the bankrupt is self employed. To be useful against a self-employed bankrupt, the trustee will usually need to find a post-bankruptcy debtor, and get the notice issued and served before the debt is paid. This is only possible in limited circumstances.
The supervised account regime is a fairly recent introduction to the Bankruptcy Act and is designed to assist trustees collect income contributions from self-employed bankrupts. The provisions have been little used due to their recent enactment.
The provisions give trustees wide and great powers to deal with the bankrupt’s post-bankruptcy financial affairs. The powers are so great that the threat of them being implemented has been sufficient incentive for bankrupts to comply with the Act and pay outstanding contributions. These powers only come into force when the bankrupt does not pay assessed contributions.
The provisions allow a trustee to make a determination that the regime should apply and force the bankrupt to open a separate bank account (the supervised account) into which all monies received or earned by the bankrupt have to be deposited. The trustee can then, at his or her discretion, allow the bankrupt to withdraw some monies to live. This is an extraordinary power, and a great incentive to pay contributions when they are due. The downside is that the process may be costly in terms of the time that the trustee may need to allocate to it.
Trustees do not have an absolute power. If the bankrupt does not agree with the trustee’s income assessment or wishes to oppose a 139ZL notice or supervised account determination, they may seek a review of the trustee’s decisions.
The reviews are initially made to the Inspector General, but the application to review must be made with 60 days of the assessment. Appeals to the Inspector general’s review may be made to the AAT. The review provisions are fairly detailed and not reproduced here, but it is fair to say that the bankrupt can have decisions reviewed to be certain that he or she is being treated equitably.
Bankrupts are entitled (and encouraged) to earn income whilst they are bankrupt. But if the amount of income exceeds a statutory threshold, the trustee can assess contributions to be made to the estate, based of a statutory formula. The trustee is given powers to collect those monies from the bankrupt or third parties, and the bankrupt has the power to have assessments and other decisions reviewed.
The object is to provide creditors with an increased return from contributions from high income bankrupts, not to punish the bankrupt for working hard during the bankruptcy.