Two bankruptcy estates that could be annulled

Early engagement leads to better outcomes!

If you’re a regular reader, you know that time and time again our advice is that early engagement with an insolvency practitioner often leads to better outcomes. Two bankruptcy files recently handled by our Melbourne office highlight this point, demonstrating the stark contrast between engagement with the practitioner and “living in a state of denial”. 

The files have several common traits: 

• Each bankruptcy resulted from a creditor filing a petition in court. The debt which resulted in the bankruptcy was relatively modest (less than $50k) compared to the available assets, discussed below.

• We quickly identified the debtors owned real property with relatively significant available equity.

The outcome of each of the files is summarised as follows. 

Debtor A

Despite an initial hesitancy, a few months into our appointment (and after a referral to the Australian Financial Security Authority (AFSA), the personal insolvency regulator for assistance), Debtor A filed a Statement of Affairs (SOA) that detailed their assets and liabilities.

We confirmed the real property’s equity available was sufficient to discharge all of the bankrupt estate’s debts—including the petitioning creditor costs in obtaining the sequestration order, amounts owed to creditors (including interest), our remuneration and outlays, and relevant government charges.

Debtor A engaged a solicitor, and we promptly established with them the available options to annul the bankruptcy, which were either: 

1. Sell the property, pay out the bankrupt estate’s debts, and pay the surplus back to the debtor; or

2. Obtain a contribution to the bankrupt estate (for example from the debtor’s family member) sufficient to discharge the debts. 

With the benefit of active engagement from Debtor A’s solicitor, the administration costs could be kept to a minimum. Ultimately, we were able to do a deal with a relative of Debtor A to provide a contribution sufficient to result in an annulment, completed approximately six months after the SOA was lodged. Debtor A has retained their property, has had their bankruptcy annulled (i.e. it’s taken to never have happened), and (hopefully) will never need to hear from us again. 

Debtor B

While we had initial communications with a relative of Debtor B, we’ve been unable to obtain an SOA or have any meaningful communication for over a year into our appointment. Attempts to obtain an SOA and outline the options available to Debtor B included issuing communications by registered post, obtaining AFSA’s assistance, and issuing correspondence by personal service.

Not having received an SOA, and with real property to realise, it became necessary to obtain a court order to enable us to sell the real property for  creditors’ benefit. The process for where assets are identified but no SOA is filed is set out in Colleen Simpson’s article (Plenty of assets in the bankrupt estate but no statement of affairs).

We also identified additional creditors which mean the equity available in the real property may be insufficient to annul the bankruptcy. However, if Debtor B actively engaged with us there may be other options available to them such as putting forward a section 73 proposal (which would also result in an annulment). At a minimum, it would potentially reduce the costs that continue to be incurred, including our remuneration and legal fees. 

These files represent real examples of the benefits of engaging with insolvency practitioners early to achieve the best possible outcome. 

We’re ready to listen to people’s story without judgement and find the solutions to individual situations. We’ve got the care, tools, and framework to help people start the next chapter. 

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A section 153A Bankruptcy annulment is the payment of all debts…well almost!

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