Objections to discharge from bankruptcy

1. Introduction

   1. This practice document outlines the expectations of the Inspector-General in Bankruptcy regarding use of the objection to discharge provisions in sections 149B to 149Q of the Bankruptcy Act 1966 (“the Bankruptcy Act”).  Trustees are expected to exercise objection to discharge powers appropriately and consistently and to ensure that all necessary relevant information is provided to the relevant bankrupt at the time an objection is filed.
   2. The Inspector-General in Bankruptcy or their delegates, AFSA officers, exercise powers under the Bankruptcy Act and the Bankruptcy Regulations 2021 (“the Regulations”).  References in this document to AFSA are generally references to delegates of the Inspector-General unless stated or the context indicates otherwise.

2. Legislative Framework

   1. A bankrupt is ordinarily discharged from bankruptcy 3 years and one day after:
      • their debtor’s petition is accepted by the Official Receiver or,
      • for a sequestration order, when they filed a SOA ^[1] that is accepted by the Official Receiver. However, this period can be extended, generally to 5 or 8 years from the date of acceptance of the SOA, if the trustee files an objection to discharge.
   2. All trustees have the same powers to file objections in order to prompt bankrupts to comply with certain obligations under the Bankruptcy Act that, in turn, will assist the trustees in the administration of bankrupt estates.
   3. The relevant provisions of the Bankruptcy 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 149Q   –  Review of decisions.

   4. When lodgment of an objection is appropriate

   5. Section 149B of the Bankruptcy Act states that a trustee may file an objection at any time prior to a bankrupt’s discharge and that the trustee must file an objection when the trustee believes that:
      
      1. doing so will help make the bankrupt discharge a duty that the bankrupt has not yet discharged
      2. there is no other way for the trustee to induce the bankrupt to discharge that duty.
   6. In Nelson,^[2] 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)
   7. 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]  Therefore, a trustee must properly consider the purpose, utility and relevance of objecting to a bankrupt’s discharge.

   8. Grounds of objection

   9. To object to a bankrupt’s discharge, the trustee must be satisfied that one (or more) of the grounds specified in subsection 149D(1) of the Bankruptcy Act applies.  The ground(s) that applies will determine the period of extension of the bankruptcy.
   10. The grounds in subsection 149D(1) are listed in annexure A.
   11. In circumstances where an objection is filed under more than one ground in subsection 149D(1), the longer period provided for under subsection 149A(2) will apply (unless the objection on that ground is later withdrawn).

   12. Special grounds of objection

   13. Those grounds with 8-year bankruptcy periods referred to in paragraphs 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) and (ma) are referred to as “special grounds”.  (Note that paragraphs 149D(1)(ac) and (ad) also extend the bankruptcy to 8 years but are not special grounds, as they are not mentioned in subsection 149D(1A).)
   14. The Bankruptcy Legislation Amendment Act 2002 (“BLAA”) introduced the special grounds of objection into the Bankruptcy Act.  Paragraph 51 of the Explanatory Memorandum to the BLAA stated:
       “[…] 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)
   15. 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.
   16. Despite the content of the Explanatory Memorandum noted above, there are some special grounds that, if not invoked with sufficient justification, could be viewed as punitive in nature.  An example is an objection filed under paragraph 149D(1)(ab) of the Bankruptcy Act where a bankrupt has engaged in an undervalued transaction or a transfer to defeat creditors, where no actions by the bankrupt after the date of bankruptcy can undo the previous conduct that resulted in the transaction or transfer; however, filing an 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.  It can also act as a deterrent to others from engaging in similar conduct.

3. How an objection is prepared and filed

   1. The requirements as to what an objection to discharge must contain are outlined in section 149C of the Bankruptcy Act.  There is no approved form for a notice of objection to discharge.
   2. The Official Receiver encourages trustees to file objections using AFSA’s Online Services portal.  See annexure B for some information about using the portal.

   3. Grounds

   4. The objection to discharge must outline the subsection 149D(1) ground or grounds under which it was filed.
   5. While subsection 149C(2) of the Bankruptcy Act states that an objection to discharge is not invalid merely because it does not state the ground(s) of the objection, provided that the ground(s) can be reasonably identified from the content of the objection, AFSA expects that a trustee will not file an objection that does not clearly outline the relevant ground(s).

   6. Evidence

   7. The trustee is required by paragraph 149C(1)(b) of the Bankruptcy Act to outline the evidence on which the decision to file the objection was based.
   8. The trustee will need to provide sufficient evidence to establish that the bankrupt was given an opportunity to comply with an obligation under the Bankruptcy Act and failed to do so without a reasonable excuse or, in the case of a special ground relating to past conduct, that the conduct did occur and that it supports lodgment of an objection on the relevant ground(s).
   9. The objection should enable a bankrupt to identify and, if needed, search out the evidence or other material relied on to support it.^[4]
   10. The evidence must also be set out precisely, be relevant to and clearly identify the ground(s) of objection.  These requirements will be considered by AFSA if the objection to discharge is subject to review.
   11. When filing an objection on special grounds, it is helpful if the trustee references in the objection any warning(s) given to the bankrupt.
   12. The specific evidence that needs to be referenced to support lodgment of an objection will vary depending on the ground or grounds of the objection.  The evidence may comprise:
       
       1. details of documents and/or information requested by the trustee
       2. dates that documents and/or information were requested and how the requests were made
       3. the due dates on which the documents and/or information were to be provided to the trustee
       4. details of any communications with the bankrupt about the trustee’s requests for documents and/or information
       5. details, dates and amounts of income contribution assessments
       6. amounts, dates and details of income contribution instalments paid as at the time an objection is filed
       7. 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 Bankruptcy Act
       8. details of overseas travel undertaken by the bankrupt, including dates of travel, destinations and any discussions between the bankrupt and the trustee about travel
       9. details of the bankrupt’s beneficial interest in property and information about relevant trusts or a deceased estate
       10. the names of creditors and the dates debts were incurred in relation to liabilities that were not disclosed to the trustee
       11. 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.

   13. Reasons

   14. Where an objection is filed on a non-special ground, paragraph 149C(1)(c) of the Bankruptcy Act requires the trustee to outline their reasons for an objection.
   15. 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 either the obligation(s) that was not satisfied and the compliance opportunities afforded to the bankrupt or the previous conduct that supports the ground(s) of objection, the reasons must go beyond this.
   16. Cases decided by the courts have held that the reasons must be:
       • more than a recitation of the ground in subsection 149D(1)^[5]
       • directly linked to the relevant ground(s) and not merely outline the consequences of an objection being filed^[6]
       • enable the bankrupt to know the answer to the question “why are you objecting on this ground to my discharge?”.^[7]
   17. AFSA expects the trustee to clearly set out in the reasons how the ground(s) of objection is meant to achieve the relevant purpose for which the trustee is objecting (i.e. the utility of lodging the objection).
   18. The reasons for lodging an objection may include but are not limited to the following:
       
       1. the bankrupt’s fundamental obligations under section 77 of the Bankruptcy Act
       2. specific obligations under certain other provisions of the Bankruptcy Act
       3. details of further information linking the conduct establishing the connection between the ground(s) and the breach(es) of the duties referred to above
       4. the trustee’s duty under paragraph 19(1)(g) of the Bankruptcy Act to take whatever action is practicable to try to ensure that the bankrupt discharges all of his or her duties under the Bankruptcy Act
       5. 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 Bankruptcy Act regarding property
       6. the inappropriate entitlement to the benefit of automatic discharge under the Bankruptcy Act, considering the bankrupt’s interference with the trustee’s compliance with their duties
       7. the benefit the extended bankruptcy period will afford the trustee, considering the bankrupt’s failure to assist the trustee
       8. the potential outcomes of ongoing investigations
       9. to provide the bankrupt the opportunity to cooperate more fully with the trustee in the administration of their estate
       10. to enable the bankrupt to comprehensively meet their obligations to be forthcoming and frank in the information provided to the trustee, particularly when their obligation of full disclosure and duty to assist the trustee to the utmost of their power would be significantly reduced if they were to be discharged from bankruptcy
       11. the protection that will be afforded to credit providers from the actions of the bankrupt by extending the bankruptcy
       12. as a matter of public interest by ensuring that a bankrupt meets their requirements of transparency and candour under the Bankruptcy Act, so as to assist the trustee to the utmost of their power.

   19. Advising the bankrupt of their right of review

   20. AFSA expects that every objection will include a statement that the bankrupt may request a review of the trustee’s decision to file the objection.  As required by subsection 149K(3) of the Bankruptcy Act, this statement must also advise the bankrupt that a request for review must be:
       • made in writing to AFSA
       • made within 60 calendar days after being notified of the trustee’s objection
       • accompanied with a copy of the notice of objection and any documents on which the bankrupt relies in support of the request for review.
   21. Words to the effect shown below should be included in each objection to discharge filed by trustees:
       “You may request that the Inspector-General in Bankruptcy (AFSA) review the trustee’s decision to object to your discharge.  Your request must be in writing and must be filed with AFSA not later than 60 calendar 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 AFSA on 1300 364 785 or at www.afsa.gov.au.”

   22. When an objection becomes effective

   23. An objection to discharge must be filed with the Official Receiver so that it can be registered on the National Personal Insolvency Index (“NPII”).
   24. Section 149G of the Bankruptcy Act provides for an objection taking effect on the beginning of the day that the details of the notice are entered on the NPII.
   25. An objection can be recorded on the NPII provided that the notice was filed by the trustee with the Official Receiver before the debtor became discharged.
   26. Trustees may consider checking the NPII after filing the objection to ensure it accurately reflects the objection details.

   27. Notifying the bankrupt of the objection

   28. Section 149F of the Bankruptcy Act requires the trustee to give a copy of the objection to the bankrupt “as soon as practicable” after it is filed with the Official Receiver.  AFSA expects this to be done within 7 days of the objection being filed with the Official Receiver.
   29. The trustee may give a copy of the objection to the bankrupt by many methods (see section 102 of the Regulations), including:
       
       1. sending it by post or courier service to the bankrupt’s last-known address
       2. 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
       3. leaving it in an envelope (or similar package) marked with the bankrupt’s name at his or her last-known address
       4. delivering it personally to the bankrupt
       5. sending by it facsimile or another mode of electronic transmission:
       6. to a facility maintained by the bankrupt to receive electronically transmitted documents
       7. in such a manner (such as email) that the document should, in the ordinary course of events, be received by the bankrupt.
   30. Where a bankrupt has a history of disputing receipt of the trustee’s correspondence, Registered Post is recommended if sending a copy of the objection by post, with the delivery confirmation to be placed on the administration file.

   31. When the bankrupt’s address is unknown

   32. In some administrations, the bankrupt’s postal and email addresses are both unknown, and there is no current telephone number on file to facilitate contacting the bankrupt.  Lodging an objection to discharge may still be appropriate in this situation because, when the bankrupt is later notified of the objection, they may be induced to comply with their obligations.
   33. Although subsection 149F(3) of the Bankruptcy Act states that a trustee’s failure to notify the bankrupt of an objection as soon as practicable does not invalidate the objection, AFSA expects the trustee to notify the bankrupt as soon as a postal or email address becomes known.
   34. 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 commences when the bankrupt is notified of the objection.

   35. Trustee’s record

   36. A copy of the objection must be placed on the trustee’s file for review and inspection purposes.^[8]

   37. National Personal Insolvency Index record

   38. Division 2 of the Bankruptcy Regulations 2021 (“the Regulations”) requires objections to discharge to be recorded on the National Personal Insolvency Index (“the NPII”).

4. Guidance about specific grounds with examples

   1. Advising the bankrupt that an objection may be filed

   2. When requesting, or reminding, bankrupts to comply with the directions of a trustee, AFSA expects trustees to provide 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).
   3. This approach places the bankrupt on notice and is consistent with an objection being used as a last resort. 

   4. Transfers void against the trustee

   5. For an objection based on paragraph 149D(1)(aa) of the Bankruptcy Act, the trustee must show that section 120 or 122 applies.  In the case of an objection filed in relation to an undervalued transaction (section 120), AFSA expects the trustee to outline whether the benefits of voiding the transfer would exceed the costs of doing so (see section 31 of the Regulations) and to have at least begun some form of recovery action.
   6. For an objection based on paragraph 149D(1)(ab) of the Bankruptcy Act, the trustee must show that there has been a transfer to defeat creditors (under section 121).  AFSA expects the trustee to show, among other things, that:
      • the bankrupt’s main purpose of the transfer was to prevent the property becoming divisible (noting that the bankrupt’s main purpose is taken to be this purpose if they were insolvent or were about to become insolvent at the time of the transfer)
      • the trustee has at least begun recovery action in some form (although not essential).

   7. Misleading conduct

   8. For an objection based on paragraph 149D(1)(c) of the Bankruptcy Act, the trustee must show that the bankrupt has engaged in one or more forms of misleading conduct set out in section 148 and that the amount involved exceeded the applicable indexed amount.  Providing false or misleading information can occur by action or omission.

   9. Providing false or misleading information

   10. For an objection under paragraph 149D(1)(da) of the Bankruptcy 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.^[9]  Providing false or misleading information can occur by action or omission.

   11. Failure to provide information

   12. For an objection based on paragraph 149D(1)(d) of the Bankruptcy Act, 5 distinct elements 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)
       5. the information requested must be about the bankrupt’s property, income or expected income (element 5).
   13. In Jones^[10], the AAT considered paragraph 149D(1)(d) and required strict compliance as opposed to “substantial compliance” with each of its 5 constituent elements.  This is due to the serious consequences for a bankrupt person who is found to have failed to provide information.  The AAT stated that a request under paragraph 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]).
   14. For the paragraph 149D(1)(d) 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.  In the case of the Official Trustee, the request must have come from an officer with appropriate delegation and authorisation.
   15. Only one request need be made where the trustee seeks to obtain information from a bankrupt, provided the request outlines the fact that an objection to discharge may be filed if the bankrupt does not comply with the request by a specified date.
   16. The trustee must consider whether the bankrupt has been provided with a reasonable opportunity to comply.  In Wharton,^[11] the following was said about the power of objection under section 149A:
       “[…] 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)
   17. The Administrative Appeals Tribunal (“AAT”) has held that a bankrupt referring a request from the trustee to an agent in possession of certain documents is sufficient action on the part of the bankrupt.^[12]  In this situation, an objection would not be appropriate because the bankrupt has made a reasonable attempt to comply; however, where the bankrupt does not follow up with the agent after several months, lodging an objection may induce the bankrupt to take further action to comply with the trustee’s request.

   18. 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 (see section 45 of the Regulations).  It is directed at deliberate actions by the bankrupt to defeat creditors or hinder the trustee’s administration of the estate.^[13]

       Example 1

       Melissa disclosed the sale of a property 2 years prior to bankruptcy on her statement of affairs.  Melissa’s trustee wrote to her and requested that a copy of the settlement statement and banking records showing how the surplus was spent be supplied within 14 days.  The letter advised that a written response was required and advised Melissa that, if she did not respond within 14 days, the trustee would file an objection to discharge that would extend her bankruptcy from 3 to 8 years from when her SOA was accepted.

       No reply was received within 14 days.  On the 15th day, Melissa was contacted via telephone and reminded to submit the required information.  Melissa said that the information would be supplied in the next few days and the trustee agreed to allow her an extra 5 days to comply with the request.

       When no response was received after a further 5 days, the trustee filed 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.”

       While the trustee was not required to afford Melissa the additional 5 days to comply with the original request, the trustee agreeing to this meant that it would not be appropriate to lodge an objection before the expiration of this time frame.

   19. Failure to disclose income

   20. For an objection under paragraph 149D(1)(e) of the Bankruptcy Act, the trustee may ask the bankrupt to complete an income questionnaire.  The due date for this information should not be before 21 days after the end of the CAP, as specified in section 139U, and it is expected that the bankrupt will be warned that failure to comply may result in an objection being filed.

   21. Where the trustee requests that evidence of the bankrupt’s income be provided earlier than 21 days after the end of the CAP, it is not appropriate for a trustee to file an objection until the 21-day period has passed and where the evidence has still not been provided at that date.  If an objection is filed prior to the 21-day period coming to an end, the ground will be cancelled by AFSA on review.

       Example 2

       Ella became bankrupt on 1 April 2020.  Contribution assessment period 1 therefore ran from 1 April 2020 to 31 March 2021.

       On 1 February 2021, the trustee wrote to Ella and instructed her to provide evidence of her income for CAP1 by 22 February 2021.  Ella did not provide the information at this time.

       As section 139U of the Bankruptcy Act provides Ella until 21 April 2021 to provide evidence of her income, it is not appropriate for the trustee to file an objection on
       23 February 2021 when it was confirmed that Ella had not complied with the letter of
       1 February.  Rather, if evidence of Ella’s income has still not been provided by
       21 April, this would be the earliest date on which the trustee could have filed an objection.

   22. Failure to pay income contributions

   23. For an objection under paragraph 149D(1)(f) of the Bankruptcy Act to be defensible, the trustee must have given the bankrupt at least 14 days’ clear notice to make the first payment, as required by section 139ZI of the Bankruptcy Act.

   24. Not providing a period of at least 14 days to pay the contribution liability, or to pay the first instalment if the trustee has permitted the bankrupt to pay by instalments, will result in the ground being cancelled by AFSA on review.

       Example 3

       Kane’s trustee assessed him as liable to pay income contributions of $10,000 for contribution assessment period 2 in accordance with section 139ZI of the Bankruptcy Act.  A notice of this assessment was sent to Kane by both email and post on Monday 11 October 2021, advising him that the first instalment of $1000 was due on or before Friday 22 October 2021.

       Kane failed to pay the first instalment by 22 October.  The trustee’s staff contacted the bankrupt by phone about the missed instalment and a letter was also sent that advised Kane that he was in arrears and that he had a further 14 days to rectify this.

       When Kane did not pay the arrears by the extended due date, the trustee filed an objection to discharge.  Kane applied to AFSA for review of the objection and AFSA was obligated to cancel the objection, as the notice of assessment that required payment was not issued in accordance with section 139ZI and was therefore invalid.

   25. Failure to disclose a liability

   26. For an objection based on paragraph 149D(1)(ha) of the Bankruptcy Act, the trustee must show that the bankrupt acted intentionally.  As noted above, intention is a state of mind which may be established by direct evidence or inferred from the surrounding circumstances.
   27. In Arundell,^[14] 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.
   28. For an objection based on paragraph 149D(1)(i), reasons are required.  Trustees may wish to consider that there is a clear responsibility placed on the bankrupt to disclose all liabilities, even if the trustee may have obtained knowledge of the liability from some other source.

5. When a statement of affairs has not been filed

   1. Where a person is made bankrupt by sequestration order, they have an obligation under section 54 of the Bankruptcy Act to file a SOA with the Official Receiver.
   2. It is AFSA’s view that the Bankruptcy Act does not specifically contemplate lodging an objection to discharge where a sequestration order has been made and the bankrupt has not yet filed a SOA.  As a result, AFSA expects that a trustee will not file an objection for the failure to file a SOA until after the trustee has exercised other powers available under the Bankruptcy Act to induce compliance.

   3. Deliberate or intentional failure to file SOA

   4. Some trustees have relied on the special ground in paragraph 149D(1)(d) of the Bankruptcy Act to support an objection filed for the bankrupt’s failure or ongoing refusal to file a SOA.  However, for this to be a valid, a trustee would need to show the bankrupt’s conduct was deliberate, as opposed to just lacking knowledge, lacking awareness of their bankrupt status, inadvertence etc.^[15]  Regardless, the objection regime is not intended to be used by trustees for this purpose.
   5. Since the Bankruptcy Act amendments in 2002, the bankrupt’s pre-objection conduct alone, as described in the special grounds, can determine whether an objection should be filed, without any reason for the objection having to be stated.  A trustee needs to be satisfied by relevant evidence of deliberate attempts by the bankrupt to defeat creditors or to hinder the administration by failing or refusing to file a SOA.
   6. A bankrupt is obliged to aid, to their utmost power, the trustee’s administration of their estate.^[16]  This imposes an ongoing responsibility on bankrupts to cooperate with their trustee.  In the event of non-compliance, the law is ultimately enforced by criminal investigation, followed by potential prosecution action and court sanctions.
   7. A bankrupt may convince AFSA on review that, despite apparent evidence to the contrary, there was a reasonable excuse for the failure constituting the special ground.^[17]

   8. Offence referral and penalty regime

   9. The Bankruptcy Act provides a mechanism to enforce compliance by penalty notice for a bankrupt failing to file a SOA.  The current penalty for non-compliance with section 54 of the Bankruptcy Act is 50 penalty units which is at least $11,100.
   10. With reference to trustees’ duties in paragraphs 19(1)(h) and (i) of the Bankruptcy Act to refer offences to AFSA, circumstances in which a trustee is expected to refer a bankrupt’s non-lodgment of a SOA are detailed in Referring offences against the Bankruptcy Act 1966 to the Inspector-General.

   11. Section 305 funding applications

   12. A trustee who is unable to locate a bankrupt to obtain a completed SOA may consider applying to the Commonwealth for funding.  Legal and Governance Guideline: The provision of funding for trustees under section 305 of the Bankruptcy Act 1966 and the application form are available on the AFSA website.

   13. Sections 77CA, 77C and 81

   14. A trustee may seek to utilise section 77CA, 77C and/or 81 of the Bankruptcy Act to obtain a completed statement of affairs.
   15. AFSA acknowledges that section 77C notices and section 81 examinations involve added cost and require the trustee to exercise discretionary powers, professional judgment and experience in the most efficient and effective manner.  Further, while section 77CA notices do not incur an application fee, there may be circumstances preventing the issue of the notice.  As such, these options may not be able to be pursued but it is expected that they will be considered before an objection is filed for non-filing of a SOA.

   16. Examples

   17. The following examples are to provide guidance regarding when an objection to discharge is and is not appropriate in relation to the non-filing of a SOA.

       Example 4: Inappropriate objection to discharge

       Julian was made bankrupt by sequestration order.  The trustee is unable to locate him and, as such, he may not be aware of his bankrupt status.  In accordance with section 54 of the Bankruptcy Act, the trustee sent a letter to Julian’s last known address, requesting that he complete and file a SOA within 14 days.  On the 15th day after getting no response, the trustee filed an objection with the Official Receiver.

       The trustee had not considered the alternative courses of action above (a section 305 application, a section 77C notice and an offence referral) to obtain a completed SOA from Julian.

       As the trustee has not acted within the scheme and purpose of the Bankruptcy Act as outlined above, lodgment of an objection is not appropriate at this time.

       1. Example 5: The bankrupt deliberately does not file a SOA

          Soraya’s present location is known and the trustee has the following evidence on file:

          • an affidavit from a process server, verifying that Soraya was served a letter when she lived at a previous address that advised her of her bankruptcy and her obligation to file a SOA
          • file notes detailing several discussions with Soraya, in which she confirmed that she was aware of the bankruptcy and her obligation to file a SOA.

          Soraya continually ignores the trustee’s phone calls and has still not filed her SOA.

          The trustee has pursued alternative courses of action listed above (an offence referral, a section 305 application and a section 77C notice), but these have proven unsuccessful.  After taking these steps, the trustee files an objection.

          In this case, the trustee has acted in accordance with the scheme and purpose of the Bankruptcy Act.  This example also gives rise to the expectation that the trustee would additionally refer any such non-compliance to AFSA, alleging a breach of section 54 of the Bankruptcy Act, in order to the trustee to satisfy his obligations under paragraphs 19(1)(h) and (i) of the Bankruptcy Act.

6. Withdrawal of an objection

   1. A trustee has the power to withdraw an objection.  Unless there is further utility in the objection to discharge remaining in place, it should be withdrawn when compliance with the action or inaction that led to its lodgment has been achieved.
   2. Subsection 149J(3) of the Bankruptcy Act states that the withdrawal of an objection takes effect at the beginning of the day when details of a notice under subsection (1) are entered in the NPII.
   3. Subsection 149J(1) of the Bankruptcy 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 paragraph 3.23.
   4. Withdrawing an objection may result in a bankrupt’s immediate discharge due to the effect of subsection 149A(3) of the Bankruptcy Act, which states in part:

   5. 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.

   6. AFSA expects trustees to inform bankrupts of their ongoing duties after discharge under the Bankruptcy Act to assist with the administration of their estate and pay any outstanding income contributions.  AFSA also expects bankrupts 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
      • the trustee maintains the right to realise or otherwise dispose of them.

   7. Finalising the administration of an estate when an objection is in place

   8. When deciding to finalise the administration of an estate where an objection to discharge has been filed, AFSA expects the trustee to consider whether it is still appropriate for the objection to remain.
   9. Trustees should consider if finalising the administration would reasonably lead to the conclusion that the bankrupt’s cooperation is no longer required.  This means that, if the trustee still requires the bankrupt to discharge a particular obligation, it may be inappropriate to finalise the matter.  The filing of an objection should not be the reason for prolonging the administration indefinitely if it does not have the desired effect.
   10. 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 Bankruptcy Act.  As an officer of the court, it is prudent for the trustee to consider the interests of the bankrupt, creditors and the community generally.^[18]  This includes taking reasonable steps to assist all bankrupts to discharge their obligations, especially when returns to creditors may result.
   11. 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 underestimated their income.

   12. National Personal Insolvency Index record

   13. When an objection withdrawal has been recorded by the Official Receiver, the NPII will record the objection having been withdrawn.

7. Right of review

   1. Review by AFSA

   2. A bankrupt wishing to request review of a trustee’s decision to file an objection by AFSA is encouraged to use the online review of objection form.  The review will be conducted by AFSA, and section 149K of the Bankruptcy Act requires the request for review to be filed with AFSA:

   3. Internal review of objection 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

   4. When conducting a review, AFSA will review the decision to object and the notice of objection to ensure compliance with the requirements of the Bankruptcy Act.  AFSA can ask the bankrupt and/or the trustee for further information to assist with the review process.  In appropriate circumstances, AFSA may seek to facilitate a resolution of the issues in dispute between the trustee and the bankrupt.
   5. In accordance with paragraph 149N(1A)(c) of the Bankruptcy Act, AFSA will consider whether the bankrupt has a reasonable excuse when reviewing an objection filed on special grounds.  The lack of any warning may, depending on the circumstances, amount to a reasonable excuse by the bankrupt and a basis for AFSA to cancel the objection.^[19]
   6. Where additional evidence is provided that will be relied upon by AFSA in making a decision or where existing evidence has been challenged, the trustee and the bankrupt will be given the opportunity to respond to the fresh evidence or issues raised as a matter of natural justice.
   7. When conducting the objection review, AFSA will consider the following:
      
      1. Is the ground(s) of objection on which the objection was made a ground(s) specified in subsection 149D(1) of the Bankruptcy Act?
      2. Is there sufficient evidence to support the existence of the ground(s) of objection?
      3. Where the objection is based on a non-special ground, do the reasons given for objecting on that ground(s) justify the making of the objection?
   8. If AFSA is not satisfied as to one or all of the elements listed in the preceding paragraph, and where there is no special ground that has been upheld, the objection must be cancelled.

   9. Review of a special ground of objection

   10. Review of an objection is addressed in section 149N of the Bankruptcy Act.  This section states in part:

   11. 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.

   12. The effect of subsection 149N(1A) is to limit the review by AFSA of an objection based on a special ground.  The review is limited to considering only evidence of the special ground and failure of the bankrupt to establish a reasonable excuse.
   13. In the situation where an objection was filed on more than one ground and where one special ground is upheld by AFSA, the objection cannot be cancelled.  AFSA is not required to then consider any additional ground(s) of objection as part of its review.^[20]

   14. Review of an ordinary (non-special) ground of objection

   15. Where an objection is filed on an ordinary ground, the trustee must specify a reason for the making of the objection on that ground.  The objection must not be filed to punish the bankrupt but must set out what purpose it seeks to achieve.  It must state how the extension of the period of bankruptcy will provide a utility not otherwise available were the bankrupt to be discharged from bankruptcy.
   16. The courts have considered the following examples to be valid reasons demonstrating utility in certain circumstances:
       • to provide the bankrupt the opportunity to co-operate more fully with the trustee in the administration of their estate and to comprehensively meet their obligations to be forthcoming and frank in the information provided to the trustee, particularly when their obligation of full disclosure and duty to assist the trustee to the utmost of their power would be significantly reduced if they were to be discharged from bankruptcy
       • as a matter of public interest by ensuring that a bankrupt meets their requirements of transparency and candour under the Bankruptcy Act, so as to assist the trustee to the utmost of their power.

   17. Cancellation of an objection

   18. Where an objection is cancelled by AFSA, the cancellation does not take effect until either:
       • the end of 28 days from the date that the bankrupt and the trustee receive AFSA’s decision, being the period within which an application can be made for a review of that decision to the AAT, or
       • if such an application is made, the date the decision of the AAT is given.

   19. Review of AFSA’s decision

   20. Following the review of a decision by AFSA, the bankrupt or trustee can apply to the AAT for review if dissatisfied with the outcome.  If an application for review is made within time and AFSA refuses to perform a review, this decision is also able to be reviewed by application to the AAT.
   21. The AAT appeal process requires an application to be made in writing in accordance with the prescribed application form available from the AAT website.  The application must set out a statement of reasons for the application and be made within 28 days of receipt of AFSA Practitioner Surveillance decision.

   22. National Personal Insolvency Index record

   23. AFSA (the Inspector-General) will advise the Official Receiver when an objection has been cancelled so that the National Personal Insolvency Index can be updated.

8. Other considerations

   1. The trustee is required to act in a timely manner

   2. 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. Income contributions when an objection has been filed

   4. If the trustee files an objection to discharge and the bankrupt earns above the income threshold throughout the bankruptcy, the bankrupt will be liable to pay income contributions for the entire period of the extended bankruptcy.

      Example 6

      Sam becomes bankrupt by debtor’s petition.  Sam’s trustee makes several requests for copies of pay slips and payment summaries.  Sam fails to respond to these requests.  The trustee files an objection to discharge, so Sam will be bankrupt for 8 years.

      The trustee calculates that Sam will be liable to pay about $20,000 in contributions for each year of his bankruptcy, which will be a total of $160,000 over 8 years.

      However, if Sam provides the requested information and the objection is withdrawn, he may only be bankrupt for 3 years (or until the date the objection is withdrawn, whichever is longer) and his income contributions over that time may be as low as $60,000.

   5. Grounds that were the basis of a previous objection

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

   7. A trustee may file an objection on the same ground(s) where the bankrupt’s failure to comply with duties under the Bankruptcy Act are based on different facts or a different situation.

      Example 7

      Riley’s trustee filed an objection due to their failure to provide evidence of their income at the end of contribution assessment period (“CAP”) 1.  This objection was later cancelled by AFSA on review.

      Riley’s trustee is not prevented from filing an objection if Riley fails to provide evidence of their income for CAP2 and/or CAP3.

   8. Possible offences

   9. 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. Guidance in this regard is provided on the AFSA website.   See also Referring offences against the Bankruptcy Act 1966 to the Inspector-General for more information about when trustees are expected to refer alleged offences.

   10. Notifying creditors of objections and withdrawals

   11. The lodgment and withdrawal of objections to discharge are significant events in the administration of a bankruptcy.  Although not strictly required by the Bankruptcy Act, AFSA expects that trustees will inform creditors of the lodgment or withdrawal of objections when reporting to them about the status of the administration.

Annexure A - Grounds of Objection

Annexure B - Filing a Notice of Objection