01 Dec 2019

Proper advice could save your life


4 min

Self-misdiagnosis and self-treatment malpractice!

We’ve all heard of Dr Google, the 21st century art of turning to the internet to diagnose medical conditions. I mean it makes perfect sense when you think about it. What’s the value of seeing highly-qualified, experienced doctors when you can self-diagnose with an internet search engine, relying on some anonymous and potentially erroneous webpage to cure literally any ailment 24 hours a day—for free!

Perhaps the same equally applies to solving a financial dilemma. I’d like to think that this is the explanation for our poor old bankrupt who pretty much wasted seven years and paid over three times more than he probably had to, just to try and avoid paying anything at all.  Dr Google_OTP

Our story begins in 2010. The soon-to-be bankrupt was a company director facing creditor pressure due to owing a supplier approximately $82,000, backed by a personal guarantee. Long story short, the bankrupt apparently obtained advice that he should:

  • Transfer his sole ownership over real property for a $500,000 interest for ‘natural love and affection’ to his wife.

  • Use his power of attorney on behalf of his ailing parents, to sign and lodge a mortgage over the now transferred property for $750,000 as a “secured” loan purportedly provided 15 years earlier to the bankrupt (not the wife who now owned the property).

  • Let his company go into liquidation.

  • Allow the supplier to obtain a default judgment for the $82,000.

  • Lodge a debtors’ petition with the Australian Financial Security Authority (AFSA) owing around $200,000 in total (no mention of the $750,000 loan owing to the parents).

AFSA accepts the debtors’ petition in 2012 and subsequently transfers the appointment to our office. Unsurprisingly, we determine that the real property transfer is voidable as an undervalued transaction, having occurred four weeks before going bankrupt. Despite numerous attempts to get the supporting documentation and/or talk to us to resolve the claim, we are pretty much ignored. We sought indemnity funding from creditors to pursue voiding the transfer, but a potential 100 cent return didn’t seem that appealing. So, with no money, and no indemnity, we gently pursued the matter as best we could.

Fast forward to May 2018, nearly six years since the bankruptcy commenced and almost three years since his discharge, in view of the threat of legal proceedings finally compelled the bankrupt’s wife to attend a mediation. Within an hour, the matter is settled in favour of the bankruptcy trustees for $200,000 in exchange for the real property interest claim. Interestingly, it was the same value of the creditors’ claims in the bankrupt estate excluding the parent’s “claim” that fell away under the settlement terms. This achieved the bizarre result of recovering an amount equivalent to the value of creditors that appeared, based on some optimistic and ill-informed advice, the bankrupt had tried everything to avoid paying six years earlier.

Now we must formally adjudicate on the claims lodged against the estate including the claim subject to a default judgement. Turns out, of the $200,000 the bankrupt originally owed:

  • he’d paid $80,000 anyway to a key supplier post-appointment, so that creditor withdrew their claim

  • $40,000 for credit cards

  • $82,000 subject to the default judgement…or was it?

In scrutinising the documentation in respect of the $82,000 claim we found various inconsistencies between the chain of supply and invoicing. Ultimately, the invoices totalling $82,000 was not subject to the personal guarantee. This begged the question: did we as bankruptcy trustee need to admit the default judgment claim?

Turns out the answer was “no”.

Endgame is, after paying the $200,000 settlement he:

  • Went bankrupt over (largely) a default judgement debt he didn’t legally owe.

  • Missed out on a potential bankruptcy annulment through a section 73 proposal or by way of annulment by payment of all his creditors.

  • Ended up only owing $40,000 in respect to his estate creditors.

Unfortunately, this is a situation we see all too often: people not seeking advice from their accountant, a solicitor or their friendly Worrells insolvency specialist. Instead, someone at the pub or that friend that “did the same thing and nothing happened” or some so-called expert whose name pops up in a Google search selling the dream solution to a problem. I think this outcome is probably more of a nightmare than a dream if you ask me.

Business can be tough

Our team is focused and ready to help

Get in touch

Subscribe for all the latest help and news