Section 139U – providing evidence of income

AFSA receives a considerable number of offence referrals relating to non-compliance of section 139U of the Bankruptcy Act 1966. The intent[1] behind the s 139U provisions is to require a bankrupt individual who is earning an income to provide the trustee with information[2] about their earnings. This is required so that a fair and reasonable income contribution assessment can be made to determine whether the bankrupt individual must contribute towards their bankrupt estate.

Non-compliance with s 139U is an offence punishable by 6 months in prison. However, this is a complex area where several legislative nuances must be considered in relation to enforcement action for non-compliance. Failure to do so has resulted in the significant rejection rate of s 139U offence referrals, as demonstrated in this chart

Common errors

Contribution Assessment Period (CAP): 21-day legislated compliance timeframe

Section 139U legislates that a bankrupt individual must give the trustee a statement setting out their particulars[3] and books to confirm the income earned during that CAP as well as expected income in the next CAP. They must do so as soon as possible and no later than 21 days after their CAP.

The most common error relating to s 139U is where a trustee purports to stipulate a bankrupt individual give a statement and the necessary books within a compliance timeframe which is not in accordance with the legislation.

CAP is calculated on the day of bankruptcy or on the anniversary of that day during bankruptcy.[4] For example, where the date of bankruptcy occurred on 18 October 2018, then the CAPs would be:

  • CAP 1 – 18 October 2018 to 17 October 2019
  • CAP 2 – 18 October 2019 to 17 October 2020
  • CAP 3 – 18 October 2020 to 17 October 2021

In terms of a compliance timeframe a bankrupt individual has 21 days after the end of the CAP to comply with their s 139U obligations and non-compliance would occur on day 22. Using the above example, compliance and non-compliance is outlined below:

CAP

Dates

21-day compliance due

Non-compliance

1

18 October 2018 to 17 October 2019

7 November 2019

8 November 2019

2

18 October 2019 to 17 October 2020

7 November 2020

8 November 2020

3

18 October 2020 to 17 October 2021

7 November 2021

8 November 2021

In any requirement, notice, reminder, or notification made to the bankrupt individual about s 139U compliance, trustees must provide the correct compliance time frame as per the legislation. Any time frame outside of that requirement, either shorter or longer, is not compliant with the legislation and is unenforceable.

Proof of service: knowledge of s 139U obligations

As with most offences in the Act, there must be sufficient evidence to prove beyond a reasonable doubt that the bankrupt individual knew about their s 139U obligations for the relevant CAP. In particular, enforcement action cannot occur without proof of service that the bankrupt individual is aware of their s 139U obligations. Most importantly, the evidence relied upon must relate to a date before the end of that specific CAP.

The best evidence is an acknowledgement by the bankrupt individual that they have received the trustee’s communications explaining their s 139U obligations to provide a statement, the particulars and books, and the correct timeframe in which to comply. The Inspector-General Practice Statement 14 ( IGPS14 ) provides examples of what proof of service can include.

It is highly recommended that trustees engage with the bankrupt individual a few months before the end of the CAP.

Trustee correspondence: Mixing section 139U and other matters

Any correspondence related to a s 139U obligation must not be mixed with any other estate administration requirements or directions. This reasoning has come from court decisions and is centred on the specific authority of the s 139U provisions.

It can be confusing for bankrupt individuals when s 139U obligations are mixed with other requirements such as s 77(1) (ba) where compliance timeframes may be different. It is important to remember that s 139U is specific to income contributions and must be separate from all other requirements. Any correspondence that contains a mix of s 139U requirements and other matters cannot be enforced. This includes reminders and/or attachments to other or previous correspondence related to other matters.

It is best practice to issue separate requests to the bankrupt individual.

Trustee correspondence: requirement v request

Any correspondence related to a s 139U obligation must be clear. The legislation indicates that a bankrupt individual must provide certain material to the trustee. Correspondence must outline this legal requirement rather than making a request. The use of the word ‘request’ suggests that the need to comply is non-binding rather than a compulsory requirement in accordance with the law. The language used in correspondence can lead to a reasonable defence being raised against the obligations and enforcement cannot then occur.

Section 139U Non-compliance: alternative actions

Offence referral rejected

As shown in the table above, s 139U offence referrals have an extremely high rejection rate. When this occurs, trustees will be informed of the reason for rejection so these may be addressed before the next CAP obligations.

The trustee can use their s 77(1) (ba) authority to seek information related to the examinable affairs of a bankrupt individual. This authority can help when seeking the required information in relation to expired CAPs. When using this provision, requests for financial information can be made but must not imply that it is based on s 139U or will be used to assess an income contribution. Specifically, this can be done where any such a request:

· is expressly based upon the trustee's power in section s 77(1) (ba)

· specifically requests financial information for a tax year (not a CAP)

· makes express reference to the offence in s 265(1) (ca)

· any combination of the above three dot points.

This is also a valid mechanism to seek financial information that can help trustees make a determination at the start of a bankruptcy or during that first CAP.

Objection to discharge

In accordance with IGPS14 , an objection to discharge [5] may be a far more suitable and more efficient way to maximise the likelihood that a bankrupt individual will comply with their s 139U obligations.

Limitation period for prosecution

Commencing prosecution action for s 139U non-compliance is subject to a statutory limitation period. This is because the offence has a maximum penalty of imprisonment for 6 months. Paragraph 15B(1) (b) of the Crimes Act 1914 states that for matters where the penalty is less than 12 months imprisonment, a prosecution must start within one year from the commission date of that offence. Using the examples above, if non-compliance occurred on 8 November 2021, a prosecution must commence by 7 November 2022. If not, no enforcement action can occur. In accordance with IGPS14 , AFSA is unable to accept a referral when statutory limitation period will expire within 4 months.

Section 139U tips for best practice

  1. Send out the s 139U requirement 1 to 2 months before end of the CAP
  2. Follow up to confirm receipt before the end of the CAP
  3. The bankrupt individual must be given 21 days after the end of the CAP to comply
  4. Never combine s 139U with other requests for information
  5. Section 265(1) (ca) does not equate to s 139U and notices are unenforceable if mixed. If you are seeking CAP, do so clearly under s 139U
 

[1] See s139J

[2] See s139U (3)

[3] See s139U (2)

[4] See s139K

[5] See s149D(1)(e)