How we uncovered 3 properties that debtors failed to disclose
They say bad luck comes in 3s. This proved to be the case for the 3 debtors in 3 personal insolvency files over the last 3 months. The debtors, completely unrelated, have 3 things in common:
- All 3 had appointed a Worrells partner as controlling trustee under Part X of the Bankruptcy Act to propose a Personal Insolvency Agreement (“PIA”) to their creditors.
- All 3 failed to disclose real property assets in their respective Statements of Affairs (“SOA”).
- In all 3 cases our investigations uncovered the properties.
A summary of each of the matters follows:
1st Debtor – The South African Property
We held a meeting with the 1st debtor to discuss his PIA proposal; we were discussing the likelihood of creditors rejecting the proposal. The debtor was concerned and asking questions regarding the effect of bankruptcy on his family in South Africa. I became curious and started asking questions of my own, a few minutes later he revealed that he owned property in South Africa, jointly with his siblings, by way of a family inheritance.
It is very easy to conduct a land title search in South Africa, I only had to attend, in person, the land titles office in the relevant region of the country. That was impractical, so instead we used statutory authority to compel the debtor to provide certificates of title from his own records.
Outcome: An improved PIA proposal was offered and approved by creditors. The revised offer includes the proceeds from the sale of the South African property.
Lessons Learned: Don’t waste your time emailing South African land titles. They don’t respond.
2nd Debtor – The English Property
The 2nd debtor immigrated to Australia from England many years ago. During our investigation we found his former address in London. Property searches in the UK are even easier than South Africa, so I went online and obtained a title search on the debtor’s former London address. The property is registered in the Debtor’s name, and the interest of a private pension fund is also noted on title.
Outcome: The meeting of creditors is adjourned for various reasons including to conduct further investigation regarding the property and the private pension fund.
Lessons Learned: UK private pension funds are just as complicated as Australian SMSFs.
3rd Debtor – The Employer’s Property
We interviewed the 3rd debtor regarding his income. During the interview he revealed that he was party to a “housing buy-back scheme” through his employer. We obtained a copy of the housing buy-back agreement from the employer, it revealed that the debtor is paying instalments for a property, registered in the employer’s name, under a scheme where the employer matches the debtor’s contribution. The property transfers to the debtor when paid for in full. If the agreement terminates before the property is paid in full, the debtor is entitled to a pay-out equal to his contribution. The entitlement to payout is a divisible asset in bankruptcy.
This seemed like a win for creditors, but further investigation revealed an unregistered security over debtor’s interest, by way of irrevocable guarantee granted by the employer.
Outcome: The debtor’s PIA was eventually approved by creditors after an adjournment of the meeting. However, it resulted in additional and unnecessary costs.
Lessons Learned: Unregistered securities still exist, even after the introduction of the Personal Property Securities Act.
Even when real property is in another country or not registered in the debtor’s name, there is usually an audit trail leading us to the asset. In every case above the result could have been better for all stakeholders had the information and relevant documentation had been disclosed in the Statement of Affairs.