Inspector-General Practice Direction 7

IGPD 7 – Objections to discharge from bankruptcy
Date of release: 
November 2018
Last updated: 
November 2018

1. Introduction

1.1 This document outlines the expectations of the Inspector-General in Bankruptcy (Inspector-General) relating to the use by bankruptcy trustees of the objection to discharge provisions[1] under the Bankruptcy Act 1966 (Act).

1.2 The purpose of this practice direction is to ensure that trustees exercise powers appropriately and consistently, and that all necessary relevant information is provided to a bankrupt at the time an objection is lodged.

2. Legislative framework

2.1 The Act provides for the extension of a bankruptcy, generally to five or eight years from the date the bankrupt’s statement of affairs (SOA) is accepted by the Official Receiver (OR), if the trustee lodges an objection to discharge.

2.2 All trustees have the same power to lodge an objection in order to prompt a bankrupt to comply with certain obligations under the Act that, in turn, will assist the trustee in the administration of the estate.

2.3 The relevant provisions of the Act are:

· section 149A – Bankruptcy extended when objection made

· section 149B – Objection to discharge

· section 149C – Form of notice of objection

· section 149D – Grounds of objection

· section 149F – Copy of notice of objection to be given to bankrupt

· section 149G – Date of effect of objection

· section 149H – Trustee ceasing to object on some grounds

· section 149J – Withdrawal of objection

· section 149K – Internal review of objection

· section 149M – Inspector-General may request further information

· section 149N – Decision on review

· section 149P – Inspector-General to notify bankrupt and trustee of decision

· section 149Q – Review of decisions.

2.4 Schedule 8 to the Bankruptcy Regulations 1996 (Regulations) requires objections to discharge to be recorded on the National Personal Insolvency Index (NPII).

Grounds of objection

2.5 In order to object to a bankrupt’s discharge, one of the grounds specified in subsection 149D(1) of the Act must apply. The relevant ground(s) that applies will determine the period of extension of the bankruptcy.

2.6 The grounds in subsection 149D(1) are referred to in Appendix A.

2.7 Those grounds with 8 year bankruptcy periods referred to in paragraphs149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) and (ma) are referred to as “special grounds” [2].

2.8 In circumstances where an objection is lodged under more than one ground contained in subsection 149D(1), the longer period provided for under subsection 149A(2) will apply (unless the objection on that ground is later withdrawn).

2.9 It is a fundamental principle of bankruptcy law that bankrupts have a presumption of automatic discharge by operation of the law. When a trustee exercises the discretion to object, ' this presumption in favour of the bankrupt is foremost in the mind of the decision maker to be carefully weighed against any reasons for objecting to discharge '[3].

2.10 Therefore, a trustee (and, where relevant on a review, the Inspector-General) must give due consideration to the purpose, utility and relevance an objection has in the bankruptcy context.

3. When is an objection appropriate?

3.1 Section 149B of the Act states that a trustee may lodge an objection at any time prior to a bankrupt’s discharge, and that the trustee must lodge an objection when the trustee believes:

a) that doing so will help make the bankrupt discharge a duty that the bankrupt has not yet discharged; and

b) that there is no other way for the trustee to induce the bankrupt to discharge that duty.

3.2 The trustee must also determine that at least one of the grounds of objection in subsection 149D(1) of the Act applies.

3.3 In the Nelson[4] case, the Court stated that:

[I]n order to “keep a person bankrupt” beyond the ordinary period, a trustee would need to have reasons directed to achievement of a purpose of the law of bankruptcy. The existence of a permissible ground supported by sufficient evidence is a threshold; there must also be reasons justifying the making of the objection in the particular case. (emphasis added)

3.4 When determining whether an objection should be lodged in an estate, the trustee must give consideration to whether the bankrupt has been provided with a reasonable opportunity to comply.

3.5 A trustee is expected to carry out their duties in a timely manner. The power to object to a bankrupt’s discharge is not to be used as a means of managing the consequences of a trustee’s failure to proactively administer a bankrupt estate. This is to avoid the objections regime prejudicing the interests of cooperative bankrupts. For example, it would be inappropriate for the objections process to be used to elicit outstanding contribution payments from the bankrupt when there was no impediment to the trustee taking all necessary action at a much earlier stage.

3.6 Where the trustee seeks to obtain information and/or documentation from a bankrupt, only one request need be made provided that it outlines the fact that an objection to discharge may be lodged if the bankrupt does not comply with the request by a nominated date.

3.7 Consideration must also be given to the reasons a bankrupt provides for not complying. For example, if a trustee requests that a bankrupt provide bank statements by a particular date but does not receive them, the bankrupt may be able to provide evidence to show that a request was lodged with the bank for copies of documents and that the bank has not yet actioned the request.

Time given to bankrupt to comply

3.8 In the Wharton [5] case, the following was said about the power of objection under section 149A of the Act:

[…] It provides a strong incentive to bankrupts to co-operate with their trustees during the administration of their estates. In some circumstances, an incentive of that type is plainly necessary. However, unless the section is construed in a sensible manner, it is capable of operating oppressively. It is reasonable to assume that trustees who make requests for information from bankrupts, including those concerning their income, will make due allowance for what might be regarded as the ordinary exigencies of life. Requests for information are often not met in as timely a manner as they ought to be. Some delays may be regarded as excusable while others will properly give rise to the filing of notices of objection. A bankrupt cannot ignore requests from his or her trustee. A particularly lengthy delay in responding to a request may trigger a notice of objection to discharge which is entirely justifiable. A relatively short delay in answering a request may be a different matter. Section 149D(1)(d) must be construed in the light of the requirement in s 149B(2)(b) that the trustee must believe that the filing of a notice of objection is the only way to induce the bankrupt to discharge his duties under the Act. It is plainly a course of last resort. (emphasis added)

3.9 The Administrative Appeals Tribunal (AAT) has held that referral of a request from the trustee to an agent in possession of certain documents is sufficient action on the part of the bankrupt [6]. In this situation, an objection would not be appropriate because the bankrupt has made a reasonable attempt to comply. However, it might be if the bankrupt does not follow up with the bank after several months, as doing so may induce the bankrupt to comply with the trustee’s request.

Amendments which introduced special grounds

3.10 The Bankruptcy Legislation Amendment Act 2002 (BLAA) introduced ‘special grounds’ of objection into the Act. The Explanatory Memorandum [7] to the BLAA stated that:

[…] Special grounds are directed to deliberate actions by the bankrupt to defeat creditors or hinder the trustee’s administration. The bankrupt’s pre-objection conduct, rather than the trustee’s capacity to show that an objection will advance the conduct of an administration, will determine whether any notice of objection will have to state the reasons(s) why it has been lodged. […] (emphasis added)

3.11 The above extract makes clear that the bankrupt’s conduct alone – and not the trustee’s ability to show that an objection might rectify that conduct – is critical to whether an objection on special grounds is appropriate.

3.12 The BLAA amendments were introduced to strengthen the objection provisions in the Act, making it easier for trustees to file objections and harder for bankrupts to sustain challenges to them.

Objections filed under special grounds that may be seen as punitive

3.13 There are 11 special grounds, some of which relate to matters that would clearly further the administration of the estate. However, there are others that, if not invoked with sufficient justification, could be viewed as punitive in nature. For example, an objection lodged under paragraph 149D(1)(ab) of the Act in which a bankrupt has engaged in an undervalued transaction or a transfer to defeat creditors.

3.14 In this example, no actions by the bankrupt after bankruptcy can undo the previous conduct which resulted in the transaction or transfer. However, filing of the objection may be appropriate to encourage the bankrupt to discharge duties relevant to the trustee’s investigation (such as providing information and documentation sought by the trustee) and acting as a deterrent to others from engaging in similar conduct.

3.15 Review of an objection is addressed in section 149N of the Act, which includes the review of an objection lodged under a special ground in subsection 149N(1A). Section 149N, which supports the above position, states in part:

Decision on review

(1) On a review of a decision, if the Inspector-General is satisfied that:

(a) the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or

(b) there is insufficient evidence to support the existence of the ground or grounds of objection; or

(c) the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or

(d) a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;

the Inspector-General must cancel the objection.

(1A) An objection must not be cancelled under subsection (1) if:

(a) the objection specifies at least one special ground; and

(b) there is sufficient evidence to support the existence of at least one special ground specified in the objection; and

(c) the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground.

For this purpose, special ground means a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma).

(1B) In applying subsection (1A), no notice is to be taken of any conduct of the bankrupt after the time when the ground concerned first commenced to exist.

3.16 The effect of subsection 149N(1A) is to limit the review by the Inspector-General of an objection based on a special ground to consider only evidence of the special ground and failure of the bankrupt to establish a reasonable excuse.

4. How an objection is prepared and filed

4.1 The requirements as to what an objection to discharge must contain are outlined in section 149C of the Act.

4.2 There is no approved form for a notice of objection to discharge. However, the Official Receivers do encourage trustees to file objections using the AFSA Online Services portal (shown in Appendix B) that may be accessed via the AFSA website at https://www.afsa.gov.au/online-services/or-notices-online .

Grounds

4.3 The objection to discharge must outline the ground or grounds under which it was lodged (that is, the basis of the objection in subsection 149D(1) of the Act as shown in Appendix A below).

4.4 Subsection 149C(2) of the Act states that an objection to discharge is not invalid merely because it does not state the ground(s) of the objection, provided it/they can be reasonably identified from the content of the objection. However, the Inspector-General expects that trustees will not lodge an objection unless it clearly outlines the relevant ground(s).

Evidence

4.5 The trustee is required by paragraph 149C(1)(b) of the Act to outline the evidence on which the decision to lodge the objection was based.

4.6 The trustee will need to provide sufficient evidence to establish that the bankrupt was given an opportunity to comply with an obligation under the Act and failed to do so without a reasonable excuse.

4.7 The objection should enable a bankrupt to identify, and if needed search out, the evidence or other material relied on to support it [8]. If the objection is reviewed by the Inspector-General, it is expected that the evidence will be set out precisely, be relevant to and clearly identify the ground(s) of objection to which it relates.

4.8 The specific information that will be included as evidence to support an objection will vary depending on the ground or grounds of the objection. The evidence may comprise:

· details of documents and/or information requested by the trustee

· the dates on which documents were requested and how the requests were made (post, email, telephone conversation)

· the dates on which the documents and/or information were due to be provided to the trustee

· details of any communications with the bankrupt about the trustee’s requests for documents and/or information

· details, dates and amounts of income contribution assessments

· amounts and dates of income contribution instalments paid as at the time the objection is lodged and details of arrears

· information about the nature, location and value of property that is the subject of the trustee’s investigations, including property being investigated under the antecedent transaction provisions of the Act

· details of overseas travel undertaken by the bankrupt, including dates, destinations and any discussions between the bankrupt and the trustee about travel

· details of the bankrupt’s beneficial interest in property and information about the relevant trust or deceased estate

· the names of creditors and the dates debts were incurred in relation to liabilities that were not disclosed to the trustee

· dates of meetings or examinations scheduled by the trustee and information regarding the methods by which the bankrupt was notified of the dates and requirements to attend.

Reasons

4.9 Paragraph 149C(1)(c) of the Act requires the trustee to outline their reasons for an objection if it is lodged under a non-special ground in subsection 149D(1), highlighted yellow in Appendix A.

4.10 Objections based on non-special grounds will therefore need to specify the ground(s), evidence and reasons that apply. While the ground(s) and evidence will outline the obligation that was not satisfied and the compliance opportunities afforded to the bankrupt, the reasons must go beyond this.

4.11 Cases decided by the Courts have held that the reasons must be:

· more than a recitation of the ground in subsection 149D(1) [9]

· be directly linked to the relevant ground and not merely outline the consequences of an objection being lodged [10]

· enable the bankrupt to know the answer to the question ‘why are you objecting on this ground to my discharge?’ [11].

4.12 The reasons for lodging an objection may include but are not limited to:

· the bankrupt’s fundamental obligations under section 77 of the Act

· specific obligations under certain other provisions of the Act

· further information linking the conduct establishing the connection between the ground(s) and the breach(es) of the duties referred to above

· the trustee’s duty under paragraph 19(1)(g) to take whatever action is practicable to try to ensure that the bankrupt discharges all of his or her duties under the Act

· how the bankrupt’s actions have hindered the trustee’s investigations and, consequently, the trustee’s obligations under paragraphs 19(1)(b) and (f) of the Act

· the inappropriate entitlement to the benefit of ordinary discharge under the Act, in light of the bankrupt’s interference with the trustee’s compliance with his or her duties

· the benefit that the extended bankruptcy period will afford the trustee in light of the bankrupt’s failure to assist the trustee

· the potential outcomes of ongoing investigations

· the protection that will be afforded to credit providers and members of the general public from the actions of the bankrupt by extending the bankruptcy.

4.13 The Inspector-General expects trustees to clearly set out how the ground of objection is meant to achieve the relevant purpose on which they are relying.

 

Model Example

 

A trustee files a notice of objection due to the bankrupt’s failure to execute an instrument (e.g. transfer document) when directed to under paragraph 77(1)(e) of the Act.

The objection contains a heading titled ‘Evidence’, which outlines the attempts to obtain compliance and the fact that the bankrupt was specifically warned in a second letter that the bankruptcy may be extended for failure to comply with the trustee’s instructions.

The trustee’s reasons set out why the instrument needed to be executed by the bankrupt and explained how that would facilitate the administration of the estate and achieve a purpose of bankruptcy.

Advising the bankrupt that an objection may be lodged

4.14 When reviewing an objection filed on special grounds, the Inspector-General will consider whether the bankrupt has a reasonable excuse[12].

4.15 When requesting (or reminding) bankrupts to comply with the directions of a trustee, the Inspector-General expects trustees to provide them with a written warning of the consequences of any failure to do so. In particular, that their bankruptcy may be extended to either 5 or 8 years (as the case may be).

4.16 This approach places the bankrupt on notice and is consistent with an objection being used as a last resort. When filing an objection on special grounds, it is helpful if there is a reference in the notice to any warning(s) given to the bankrupt. The lack of any warning may, depending on the circumstances, amount to a reasonable excuse by the bankrupt and a basis for the Inspector-General to cancel the objection [13].

Review rights

4.17 The Inspector-General expects that every objection include a statement that the bankrupt may request a review of the trustee’s decision to file the objection, and, as required by the Act [14], must set out that a request for review must be in writing, be made within 60 days after being notified of the trustee’s objection and be accompanied by a copy of the notice of objection and any documents on which the bankrupt relies in support of the request. More information about reviews of objections is contained in part 11 below.

When an objection becomes effective

4.18 An objection to discharge must be filed with the OR so that it can be registered on the NPII. Section 149G of the Act provides that an objection takes effect on the beginning of the day when the details of the notice are entered on the NPII.

4.19 An objection sent to the OR shortly before the bankrupt’s discharge date may not be entered in the NPII in time and will be ineffective. Therefore, trustees should allow sufficient time before discharge (at least one week) for details of the notice to be processed. Trustees may consider checking the NPII after filing the objection to ensure it accurately reflects the details of the objection filed.

Notifying the bankrupt of the objection

4.20 Section 149F of the Act requires the trustee to give a copy of the objection to the bankrupt “as soon as practicable” after it is filed with the OR. The Inspector-General expects this to be done within seven days of the objection being lodged with the OR [15].

4.21 The trustee may give a copy of the objection to the bankrupt by any one of various methods[16], including:

· sending it by post or courier service to the bankrupt’s last-known address

· leaving it in an envelope or similar package marked with the bankrupt’s name (and any relevant document exchange number) at the place where the bankrupt maintains a document exchange facility

· leaving it in an envelope (or similar package) marked with the bankrupt’s name at his or her last-known address

· personally delivering it to the bankrupt

· sending by it facsimile or another mode of electronic transmission:

§ to a facility maintained by the bankrupt to receive electronically transmitted documents, or

§ in such a manner (such as email) that the document should, in the ordinary course of events, be received by the bankrupt.

4.22 Where a bankrupt has a history of disputing receipt of the trustee’s correspondence, it would be prudent to use Registered Post if sending a copy of the objection by post, with the delivery confirmation placed on the administration file.

Trustee’s record

4.23 A copy of the objection must be placed on the trustee’s file for review and inspection purposes [17].

5. Income contributions when an objection is lodged

5.1 If the trustee lodges an objection to discharge and the bankrupt earns above the income threshold throughout the bankruptcy, he or she will be liable to pay income contributions for the entire period of the extended bankruptcy.

6. Other considerations

When the bankrupt’s address is unknown

6.1 In some administrations, the bankrupt’s postal and email addresses are both unknown, and there is no up-to-date telephone number on file to contact the bankrupt. Lodging an objection to discharge may still be appropriate in this situation because, when the bankrupt is notified of the objection, he or she may be induced to comply with his or her obligations.

6.2 Although subsection 149F(3) of the Act states that a trustee’s failure to notify the bankrupt of an objection as soon as practicable does not invalidate the objection, the Inspector-General expects the trustee to notify the bankrupt as soon as a postal or email address becomes known.

6.3 Further, the bankrupt’s review rights are not affected by the objection not being provided to him or her immediately, as the 60-day review period (see further detail in part 11 below) commences when the bankrupt is notified of the objection.

When a statement of affairs has not been filed

6.4 It is the Inspector-General’s view that the Act does not contemplate lodging an objection to discharge where a sequestration order has been made and the bankrupt has not yet filed a SOA [18]. As a result, the Inspector-General expects that trustees will not file an objection until after the bankrupt has filed a SOA.

6.5 Consequently, trustees should instead consider other powers available under the Act to induce the bankrupt to comply with the obligation under section 54 to file a SOA.

Grounds that were the basis of a previous objection

6.6 When setting out the ground(s) of objection, section 149C of the Act requires that a trustee only include a ground or grounds not previously cancelled by the Inspector-General on review. This means that a ground(s) for objection based on the bankrupt’s failure to comply with a duty under the Act cannot be used if the Inspector-General has already cancelled the same grounds during an earlier review.

6.7 However, a trustee may file an objection on the same ground(s) where the bankrupt’s failure to comply with duties under the Act are based on different facts. For example, where a bankrupt does not return a statement of income for contribution assessment periods (CAPs) 1 and 2 respectively. Even though the Inspector-General might cancel an earlier ground of objection filed for CAP1, the trustee could still file a separate objection for CAP2 because it relates to different facts regarding a different event.

Possible offences

6.8 Trustees who are filing a notice of objection should turn their mind to whether offences may have been committed by the bankrupt and take appropriate referral action. Some of the grounds of objection, particularly those relating to intentional failures by the bankrupt may indicate that an offence has been committed.

7. Guidance on specific grounds with examples

Transfers void against the trustee

7.1 For an objection based on paragraph 149D(1)(aa) of the Act, the trustee must show that section 120 or 122 of the Act applies.

7.2 The Inspector-General also expects trustees to outline (in the case of an objection lodged in relation to a section 120 transaction) whether the benefits of voiding the transfer would exceed the costs of doing so [19] and to have at least begun recovery action in some form.

7.3 For an objection based on paragraph 149D(1)(ab) of the Act, the trustee must show that section 121 of the Act applies. The Inspector-General expects the trustee to show, among other things, that the bankrupt’s main purpose of the transfer was to prevent the property becoming divisible [20] and that the trustee has at least begun recovery action in some form.

Misleading conduct

7.4 For an objection based on paragraph 149D(1)(c) of the Act, the trustee must show that the bankrupt has engaged in one or more forms of misleading conduct set out in section 148 of the Act and that the amount involved exceeded the indexed paragraph 149D(1)(c) amount (see the indexed amounts on the AFSA website).

Failure to provide information

7.5 For an objection based on paragraph 149D(1)(d) of the Act, a bankrupt is taken to have failed to comply with a request to provide information if the bankrupt has provided information that is incomplete or inaccurate [21]. It is directed at deliberate actions by the bankrupt to defeat creditors or hinder the trustee’s administration of the estate [22].

7.6 For the ground under paragraph 149D(1)(d) to apply there are five distinct elements which must be fulfilled:

1. the request must be to the bankrupt (element 1);

2. the request must be in writing (element 2);

3. the request must be by the trustee (element 3);

4. the request must be to provide written information (element 4); and

5. the information requested must be about the bankrupt’s property, income or expected income (element 5)

7.7 For the ground to exist not only must the request be to the bankrupt, and be in writing but it must come from the trustee (not a member of the trustee’s staff) and it must explicitly request information to be provided in writing and must be about the bankrupt’s property, income or expected income.

7.8 In Jones and Inspector-General in Bankruptcy [23], the AAT considered paragraph 149D(1)(d) and required strict compliance as opposed to ‘substantial compliance’ with each of its five constituent elements, because of the serious consequences for a bankrupt person who is found to have failed to provide information. Indeed, the Tribunal stated that a request under s 149D(1)(d) is “not dissimilar in seriousness to a failure to comply with a bankruptcy notice” ([73]), and just as the law requires strict compliance with the statutory requirements for a bankruptcy notice (see Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34 ; (1988) 165 CLR 71), similar strict standards should be applied “with respect to form and content of other notices where the consequences of non-compliance are serious” ([73]).

Model Example

 

A bankrupt disclosed the sale of a property two years prior bankruptcy in their statement of affairs form. The appointed trustee wrote to the bankrupt requesting that a copy of the settlement statement and banking records be supplied within 14 days, showing how the surplus was applied.

No reply was received within 14 days and the bankrupt was again contacted and reminded to submit the required information. The bankrupt advised that the information would be supplied in the next few days.

As no response was received after seven days, the trustee issued a letter to the bankrupt advising that if the information was not provided within the next seven days an objection to discharge would be filed, resulting in an extension to the bankruptcy from three to eight years from when the bankrupts SOA was lodged.

The bankrupt did not comply with the request and the trustee entered an objection to discharge relying on the ground at paragraph 149D(1)(d):

The bankrupt , when requested in writing by the trustee to provide written information about the bankrupt 's property , income or expected income , failed to comply with the request.

The notice of objection clearly outlined the ground for objection and the attempts to obtain the information from the bankrupt, including the specific warning to the bankrupt about the extension of bankruptcy.

Provision of false or misleading information

7.9 For an objection under paragraph 149D(1)(da) of the Act, the trustee must show that the bankrupt acted intentionally. Intention is a state of mind which may be established by direct evidence or inferred from the surrounding circumstances [24].

7.10 Providing false or misleading information can occur by action or omission.

Failure to disclose income

7.11 For an objection under paragraph 149D(1)(e) of the Act, the trustee should ask the bankrupt to complete an income questionnaire within 21 days after the end of the CAP and warn him or her that failure to comply may result in an objection being filed.

 

Model Example

 

Within two weeks before the end of CAP1, the trustee sent the bankrupt an income questionnaire to complete. The questionnaire included a warning that failure to return it within 21 days after the end of the CAP may result in a notice of objection to discharge being filed.

One month into CAP2, the trustee had not received the completed income questionnaire. The trustee’s staff contacted the bankrupt by phone and advised that section 139U of the Act requires the bankrupt to complete the questionnaire with evidence of income. The bankrupt was provided seven days to return the questionnaire and advised that if the information was not received, an objection to discharge would be filed. A letter was also issued to the bankrupt confirming details of the discussion.

The bankrupt did not complete the questionnaire within the required timeframe and the trustee filed a notice of objection. The bankrupt was advised that if the required information could be provided in a timely manner in the future, the notice of objection may be withdrawn.

Failure to pay income contributions

7.12 For an objection under paragraph 149D(1)(f) of the Act, the trustee should give a bankrupt at least 14 days clear notice [25] for the first payment to be made. No deadline or a deadline of less than 14 days will result in the ground being cancelled by the Inspector-General on review.

 

Model Example

 

A trustee determined a bankrupt’s liability for income contributions and sent a notice of assessment in accordance with section 139ZI of the Act, giving the bankrupt 14 days from notification to pay the first instalment.

The notice explained the basis on which the amount of contributions liability was calculated and notified the bankrupt of the effect of section 139ZA of the Act (about internal review of assessment) as well as hardship provisions. The letter also contained a warning that failure to pay the liable amount may result in the bankruptcy being extended to eight years.

The bankrupt failed to pay the first instalment on time. The trustee’s staff contacted the bankrupt about the missed instalment and were advised to set up a periodic payment from the bankrupt’s bank account. A letter was issued to the bankrupt advising that the first payment was missed and failure to pay the following month may result in an objection to discharge being filed.

No contributions were paid the following month and the trustee filed a notice of objection advising the bankrupt that the notice would be withdrawn once contributions were brought up-to-date.

 

Failure to disclose a liability

7.13 For an objection based on paragraph 149D(1)(ha) of the Act, the trustee must show that the bankrupt acted intentionally. Intention is a state of mind which may be established by direct evidence or inferred from the surrounding circumstances.

7.14 In Arundell [26], a bankrupt failed to disclose a particular debt to the trustee. The bankrupt argued that it was not intentional as he regarded the debt as a ‘gentleman’s agreement’ and believed that, by not disclosing it, the creditor could claim the full amount from him personally. The AAT found that the bankrupt’s desire to keep the debt unaffected by the bankruptcy was a conscious decision not to disclose a debt and therefore affirmed the ground of objection.

7.15 For an objection based on paragraph 149D(1)(i), reasons are required. There is a clear onus on the bankrupt to disclose all liabilities, even if the trustee may have obtained knowledge of the liability from some other source.

8. Withdrawal of objection

8.1 A trustee has the power to withdraw an objection and should do so once it has served its purpose. That is, where the bankrupt has complied with the required duty or there is no further benefit to be gained. For example, if an objection was filed because the bankrupt failed to provide the trustee with particular information requested, and this information is later provided, it may be appropriate to withdraw the objection.

8.2 Subsection 149J(3) of the Act states that the withdrawal of objection takes effect at the beginning of the day when details of a notice under subsection (1) are entered in the NPII.

8.3 Subsection 149J(1) of the Act requires the trustee to give a copy of the objection withdrawal to the bankrupt. The trustee may give a copy of the objection withdrawal by various methods which are set out in part 4 above[27].

8.4 When an objection withdrawal is forwarded to the OR and processed, reference to the objection will no longer appear on the NPII.

8.5 Withdrawing an objection may result in a bankrupt’s immediate discharge due to the effect of subsection 149A(3) of the Act, which states:

Bankruptcy extended when objection made

[…]

(3) If the objection is withdrawn or cancelled:

(a) the objection is taken never to have been made; and

(b) if:

(i) the period specified in whichever of subsections 149(2), (3) and (4) applies in relation to the bankrupt has ended; and

(ii) no other objection against the discharge of the bankrupt is in effect;

the bankrupt is taken to be discharged under section 149 immediately the objection is withdrawn or cancelled.

8.6 The Inspector-General expects trustees to inform bankrupts of their ongoing duties after discharge under the Act to assist with the administration of their estate and pay any outstanding income contributions. Further, bankrupts should be advised at the commencement of the administration, and as appropriate at the time of discharge, that assets forming part of their estate do not revert back to them upon discharge and that the trustee maintains the right to realise or otherwise dispose of them.

9. Notifying creditors of objection lodgements and withdrawals

9.1 The lodgement and withdrawal of objections to discharge are significant events in the administration of a bankruptcy. Although not strictly required by the Act, the Inspector-General expects that trustees will inform creditors of the lodgement or withdrawal of objections when reporting to them about the status of the administration.

10. When finalising the administration of an estate

10.1 When deciding to finalise the administration of an estate in which an objection to discharge has been lodged, the Inspector-General expects the trustee to consider whether it is still appropriate for the objection to remain.

10.2 Trustees should consider whether finalising the administration would reasonably lead to the conclusion that the bankrupt’s cooperation is no longer required. That is, if the trustee requires the bankrupt to discharge a particular obligation, it may be inappropriate to finalise the matter. However, the filing of an objection should not be the reason for prolonging the administration indefinitely, if it does not have the desired effect.

10.3 Where the administration of an estate has been finalised while an objection remains, the trustee needs to be seen to take action to encourage the bankrupt’s compliance with obligations under the Act. As an officer of the court, it is prudent for the trustees to consider the interests of the bankrupt, creditors and the community generally [28], which includes taking reasonable steps to assist all bankrupts to discharge their obligations, especially when a return to creditors may result.

10.4 Where the bankrupt is a contributor and an objection has been filed due to arrears in CAP1, 2 or 3, it may be appropriate for the trustee to withdraw the objection when the bankrupt has paid the entire amount owed for each period and is up to date with payments in the current CAP, particularly if the trustee is confident that the assessment is accurate and the bankrupt has not under-estimated his or her income.

11. Rights of review

11.1 The Inspector-General expects trustees to explain a bankrupt’s rights and the process to request a review when an objection to discharge has been filed (see paragraph 4.17).

11.2 The Inspector-General’s application for review of objection form can be found on the AFSA website. The review will be conducted by the Inspector-General, and section 149K of the Act requires the request for review to be lodged with the Inspector-General:

Internal review of objection

(1) The Inspector-General may review a decision of the trustee to file a notice of objection

[…]

(3) A request by the bankrupt to the Inspector-General for the review of such a decision must:

(a) be in writing and given to the Inspector-General not later than 60 days after the day on which the bankrupt is notified of the trustee’s objection …

11.3 More information about reviews of trustees’ decisions can be found on the AFSA website[29].

11.4 Words to the effect shown below should be included in each objection to discharge filed by trustees:

You may request the Inspector-General in Bankruptcy to review the trustee’s decision to object to your discharge. Your request must be in writing and must be lodged with the Inspector-General in Bankruptcy, not later than 60 days after the day on which you are notified of the trustee’s objection to your discharge. Your request must be accompanied by a copy of the notice of objection and any documents on which you rely in support of your request. Further information about how to request a review is available from the Australian Financial Security Authority on 1300 364 785 or www.afsa.gov.au.

11.5 Where appropriate, the Inspector-General will encourage bankrupts to raise queries or issues about an objection to discharge with the trustee of their administration before seeking a review by the Inspector-General.

11.6 It is important for the trustee to ensure that the bankrupt is advised that the 60-day period in which he or she may request a review of objection is set under paragraph 149K(3)(a) of the Act and the Inspector-General does not have the power to extend this period.

11.7 A decision made by the Inspector-General to review an objection to discharge may be reviewed by the AAT.

Appendix A

Grounds of objection – non-special grounds which require reasons are identified in yellow

149D(1)

reference

Ground of objection

Comments

Period of extension of bankruptcy

Assets

(aa)

any transfer is void against the trustee in the bankruptcy because of section 120 or 122

Relates to the undervalued transactions (section 120) and preference payments (section 122)

5 years from the date SOA filed

(ab)

any transfer is void against the trustee in the bankruptcy because of section 121

Relates to transfers of property to defeat creditors

8 years from the date SOA filed

(ac)

any transfer is void against the trustee in the bankruptcy because of section 128B

Relates to superannuation contributions made to defeat creditors

8 years from the date SOA filed

(ad)

any transfer is void against the trustee in the bankruptcy because of section 128C

Relates to superannuation contributions made to defeat creditors

8 years from the date SOA filed

(d)

the bankrupt, when requested in writing by the trustee to provide written information about the bankrupt's property, income or expected income, failed to comply with the request

 

8 years from the date SOA filed

(g)

(i) spent money but failed to explain adequately to the trustee the purpose for which the money was spent

(ii) disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal

 

8 years from the date SOA filed

(ma)

the bankrupt intentionally failed to disclose to the trustee the bankrupt's beneficial interest in any property

 

8 years from the date SOA filed

(n)

the bankrupt failed, whether intentionally or not, to disclose to the trustee the bankrupt's beneficial interest in any property

 

5 years from the date SOA file

 

Income contributions

(d)

the bankrupt, when requested in writing by the trustee to provide written information about the bankrupt's property, income or expected income, failed to comply with the request

 

8 years

(e)

the bankrupt failed to disclose any particulars of income or expected income as required by a provision of this Act referred to in subsection 6A(1) or by section 139U

 

8 years

(f)

the bankrupt failed to pay to the trustee an amount that the bankrupt was liable to pay under section 139ZG

 

8 years

Overseas travel

(a)

the bankrupt has, whether before, on or after the date of the bankruptcy, left Australia and has not returned to Australia

 

5 years from when the bankrupt returns to Australia

(h)

while the bankrupt was absent from Australia he or she was requested by the trustee to return to Australia by a particular date or within a particular period but the bankrupt failed to return by that date or within that period

 

8 years from when the bankrupt returns to Australia

(ia)

the bankrupt failed to comply with subparagraph 77(1)(a)(ii)

Relates to the requirement that a bankrupt give his or her passport to the trustee

8 years from the date SOA filed

Misleading conduct

(c)

after the date of the bankruptcy the bankrupt engaged in misleading conduct in relation to a person in respect of an amount that, or amounts the total of which, exceeded the indexed amount

“Misleading conduct” is defined in section 148

See the indexed amount on AFSA’s website

5 years from the date SOA filed

(da)

after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the trustee

 

8 years from the date SOA filed

(ha)

the bankrupt intentionally failed to disclose to the trustee a liability of the bankrupt that existed at the date of the bankruptcy

 

8 years from the date SOA filed

Failure to disclose creditors

(ha)

the bankrupt intentionally failed to disclose to the trustee a liability of the bankrupt that existed at the date of the bankruptcy

 

8 years from the date SOA filed

(i)

the bankrupt has failed, whether intentionally or not, to disclose to the trustee a liability of the bankrupt that existed at the date of the bankruptcy

 

5 years from the date SOA filed

Failure to attend a meeting or an interview/examination

(l)

the bankrupt failed to attend a meeting of his or her creditors without having first obtained written approval of the trustee not to attend or without having given to the trustee a reasonable explanation for the failure

 

5 years from the date SOA filed

(m)

the bankrupt failed to attend an interview or examination for the purposes of this Act without having given a reasonable explanation to the trustee for the failure

 

5 years from the date SOA filed

Other

(b)

after the date of the bankruptcy, the bankrupt contravened section 206A of the Corporations Act 2001 (disqualification from managing corporations)

 

5 years from the date SOA filed

(j)

the bankrupt failed to comply with paragraph 77(1)(bb) or (bc) or subsection 80(1)

Relates to advising the trustee of material changes to the bankrupt’s affairs and notifying the trustee of a change in any of the bankrupt’s contact details (address, telephone number etc.)

5 years from the date SOA filed

(k)

the bankrupt refused or failed to sign a document after being lawfully required by the trustee to sign that document

 

8 years from the date SOA filed

 

Appendix B

 

 

[1] Sections 149B to 149Q of the Act.

[2] Grounds under paragraphs 149D(1)(ac) and (ad) are 8 years grounds but are not special grounds.

[11] Ibid.

[12] Paragraph 149N(1A)(c) of the Act.

[14] S.149K(3)

[16] Subregulation 16.01(1) of the Regulations.

[19] See regulation 6.09 of the Regulations.

[20] The bankrupt’s main purpose is taken to be this purpose if he or she was insolvent at the time of the transfer.

[21] See regulation 7.01A of the Regulations.

[22] Broadley v Inspector-General in Bankruptcy [2007] FMCA 1714.

[23] Jones and Inspector-General in Bankruptcy [ 2018] AATA 3260 (5 September 2018)

[24] D'Souza and Inspector-General in Bankruptcy [2010] AATA 708.

[25] Required by section 139ZI of the Act.

[26] Arundell and Inspector-General in Bankruptcy [2006] AATA 88.

[27] See para 4.14.