Second or Subsequent Bankruptcies

When someone who is undischarged from a bankruptcy becomes bankrupt again, a variety of questions may arise as to what happens with property, income contributions, and travel, to mention a few.

Property

Section 59 of the Bankruptcy Act 1966 explains what property vests in the later trustee and should be read carefully to understand what happens to property in the respective bankrupt estates:

  • The property that was vested in the earlier trustee at the date of the earlier bankruptcy remains vested in the earlier trustee. This isn’t expressly stated in section 59, but the section explains what property vests in the later trustee and confines it to after-acquired property.

  • The later trustee is left to deal with after-acquired property in the earlier bankruptcy that has not been distributed to creditors and any property acquired by or devolved on the bankrupt on or after the date of the later bankruptcy (paragraphs 59(1)(a) and (b).

  • Transactions that are void against the earlier trustee remain void as against the earlier trustee (paragraph 59(1)(e)).

  • The earlier trustee has the right to prove in the later bankruptcy for the amounts described at sub-paragraph 59(1)(c)(i).

Income Contributions

Although not stated in section 59, any amount due by the bankrupt to the earlier trustee for income contributions would also be a debt provable in the later bankruptcy (s.139ZG(3)).

The later trustee would assess the bankrupt for any income contributions from the date of the later bankruptcy and the earlier trustee would cease recovery of contributions apart from lodgement of a proof of debt in the later bankruptcy.

Travel

If a bankrupt wanted to travel overseas they would need the written approval of both trustees to travel. The earlier trustee may have good reason not to allow travel, particularly if the bankrupt’s imminent cooperation is required, for example, in the investigation of antecedent transactions or dealing with property.

Consenting to become trustee of a second or subsequent bankruptcy

It is expected that if a trustee is approached to consent to be the trustee of a second or subsequent bankruptcy, that before consenting, and with the agreement of the debtor, they consult the earlier trustee. There have been cases in which bankrupts have not cooperated with their earlier trustee, have failed to make income contributions and have sought to avoid their obligations by lodging a debtors petition to become bankrupt again. 

Mark Findlay
Director Regulation