There are numerous occasions where alleged offenders under Bankruptcy Act 1966 (Cth) (the “Act”) can be referred to the Commonwealth Director of Public Prosecutions (“CDPP”).
There have been a number of recent cases where this has occurred for various breaches of the Act. Bankruptcy Trustees are assigned the duty to report such offences under s. 19 of the Act, playing an important role in supporting the integrity of Australia’s personal insolvency system.
This process is typically initiated through the Trustee lodging an ‘objection to discharge’ [from bankruptcy] or an ‘offence referral’ with the Australian Financial Securities Authority (“AFSA”). AFSA would then investigate whether the alleged offence warrants referral to the CDPP.
Failure to lodge a Statement of Affairs
A common ground for referring bankrupts to AFSA is where the bankrupt has failed to file their Bankruptcy Form, previously known as a Statement of Affairs (“SOA”). This is often, in circumstances following a sequestration order, where:
- there is evidence that the person was advised of their bankruptcy and of their obligation to file their SOA; and
- after 12 months of being advised of the above, the person has not filed their SOA without a justifiable reason.
In April 2019, a former Senator for Western Australia was convicted and fined $2,000 for failing to file his SOA after being made bankrupt in December 2016. In that case, the bankrupt refused to accept the sequestration order or cooperate with the administrative process for managing his bankruptcy.
Following an appeal by the bankrupt in August 2021, it was determined that the conviction would be upheld.
As it stands though, the individual’s bankruptcy commenced on the date of the Court order in December 2016. As he failed to lodge his SOA, his bankruptcy would have likely been well over by now. However, he will remain an undischarged bankrupt until 3 years (subject to any objection to discharge) after his SOA is lodged with, and accepted by, the ‘Official Receiver’ of AFSA.
Disposing of property to defraud creditors
The majority of offences under the Act require evidence to prove that someone has intentionally or recklessly failed to comply with their obligations.
This has been demonstrated in a recent Victorian case, where a woman was prosecuted for disposing of property with the intent to defraud creditors, both in the 12 months prior to her bankruptcy and during her bankruptcy.
The conviction has resulted in the woman being sentenced to 2 years imprisonment by the Victorian County Court, after it was found that she withdrew and disposed of more than $50,000 from a range of bank accounts following the initial bankruptcy notice served in August 2018.
Following the creditor’s petition being filed in November 2018, the woman then disposed of a further $95,000 between December 2018 and January 2019. Information about the bank accounts in her name was not provided to her bankruptcy trustee, nor included in her SOA.
Bankrupts’ accountant charged
In a similar case a bankrupt couple, along with their accountant, have recently been charged with concealing and disposing of property before the bankruptcy.
The trio from Western Australia are accused of “working together” to transfer more than $500,000 that would have been available in the husband’s bankrupt estate (from a deceased estate). The trio have indicated their intention to plead not guilty to the charges.
But if they are found guilty, they could face a maximum penalty of 5 years imprisonment and fines of $63,000.
The matter is a warning, not only for individuals facing bankruptcy, but also for their accountants and advisors act to honestly and avoid wrongdoing.
Failure to disclose bankruptcy when seeking credit – incl. school fees
There are also offences that can arise such as failing to disclose a bankruptcy when seeking credit.
In May 2021, a Victorian man was charged with this offence after failing to disclose his undischarged bankruptcy to a private school when enrolling his son and committing to the school’s fees.
The man was first declared bankrupt in 1997, had not submitted his SOA and, accordingly, he remained bankrupt. He was also declared bankrupt in 2015 [bankruptcies can occur concurrently], where at that point he owed the private school approximately $30,000.
On both occasions, the bankrupt was aware of his obligation to disclose his bankruptcy when seeking credit above the prescribed threshold [currently $6,065].
The bankrupt was fined $2,500 and ordered to pay restitution to the school.
Summary of bankruptcy-related offences
There are a number of State and Commonwealth Acts that set out offences in relation to bankruptcy.
For example, sections 206A and 206B of the Corporations Act set out an offence for a person who manages a corporation while bankrupt or while subject to a personal insolvency agreement (“PIA”) under Part X of the Bankruptcy Act, where the terms of the PIA have not been fully complied with.
But the Bankruptcy Act sets out a comprehensive series of offences, including:
|54(1)||Fail to file statement of affairs with Official Receiver||50 “penalty units” *|
|54(2)||Fail to file statement of joint affairs with Official Receiver||50 penalty units|
|56(F)||Fail by non-petitioning Partner to file Statement of Affairs||50 penalty units|
|80(1)||Fail to notify trustee of change of name or address||6 months imprisonment|
|139U(1)||Fail to provide evidence of income||6 months imprisonment|
|139ZIE(6)||Fail to comply with requirements of supervised account notice||6 months imprisonment|
|139ZIF(4)||Fail to deposit all monetary income into a supervised account||12 months imprisonment|
|139ZII(7)||Receive income in the form of cash if supervised account regime applies||12 months imprisonment|
|152||Fail to give assistance by discharged bankrupt||6 months imprisonment|
|265(1)||Fail to disclose information and/or property||12 months imprisonment|
|265(3)||Make a false representation or commit any fraud||5 years imprisonment|
|265(4)||Conceal property or debt, omit, alter, or falsify records||12 months imprisonment|
|265(5)(a)||Obtain property by fraud after bankruptcy||5 years imprisonment|
|265(5)(b)||Incur any debt or liability by fraud||5 years imprisonment|
|265(7)||Conceal, falsify, alter, obtain property or credit by fraud, before bankruptcy||Relating to:|
(4)(a-f) – 1 year
265(5)(a-b) – 5 years
|265(8)||Incur debts while insolvent within 2 years prior to bankruptcy||12 months imprisonment|
|266(1)||Dispose of, or charge property after bankruptcy||5 years imprisonment|
|266(3)||Dispose of property with intent to defraud prior to bankruptcy||5 years imprisonment|
|267(2)||Make false declaration by debtor or bankrupt||12 months imprisonment|
|269(1)(a),(aa)||Obtain credit or issue cheques or bill of exchange alone or jointly without disclosing bankruptcy or being a party to a debt agreement, above threshold||3 years imprisonment|
|269(1)(ab)(ac)||Obtain goods or services or enter into a hire purchase/lease agreement alone or jointly without disclosing bankruptcy or being a party to a debt agreement, above threshold||3 years imprisonment|
|269(1)(ad)||Promise either alone or jointly to supply goods or services (above threshold) without disclosing bankruptcy or being a party to a debt agreement by Bankrupt or debtor under Part IX||3 years imprisonment|
|269(1)(b)||Carry on business under an assumed name, partnership, business name, without disclosing to everyone the bankruptcy or being a party to a debt agreement (above threshold) by Bankrupt or debtor under Part IX||3 years imprisonment|
|270||Fail to keep proper books of account||1 year; or 3 years (for previous bankrupt or debtor)|
|271||Gamble or make hazardous speculations||12 months imprisonment|
|272(1)(a)&(b)||Leave Australia with intent to defeat creditors etc||5 years imprisonment|
|272(1)(c)||Leave Australia without consent in writing of trustee||3 years imprisonment|
|272(3)||Contravene any conditions imposed by trustee in leaving Australia||12 months imprisonment|
|277A(4)||Fail to keep books in respect of period of bankruptcy||6 months imprisonment|
* note: one “penalty unit” is currently $222: s. 4AA of the Crimes Act 1914 (Cth).