What to do with objections to discharge from Bankruptcy

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Owen Hodge Bankruptcy Lawyers assist many entrepreneurs and small business proprietors in getting out of bankruptcy.

If you are struggling to know how to manage an opinionated and difficult bankruptcy trustee who has just objected to your discharge from bankruptcy, then read on.

The bottom line of all the stories is: get advice early!

Charlie fell on hard times and his estate was sequestrated three years ago. He was due to come out of bankruptcy last week. Three days before his bankruptcy was due to end, his bankruptcy trustee filed and served on him a notice of objection to discharge, reciting his grounds in support of the notice as Charlie’s failure to provide written information about Charlie’s income over the 12 month period just passed, in alleged breach of section 149D(1)(d) of the Bankruptcy Act.

We had an urgent meeting with Charlie. Charlie said that he had just forgotten about the notice because he had been taking a much needed holiday with his partner on the Central Coast.

Unfortunately for Charlie, “mere inadvertence” is not a sufficient reason to not comply with the section – Woodman’s case talks about that.

The previous week, Philip had come to see us. He had received a request from his own bankruptcy trustee for completion of a statement of income form. He had completed it as best he could, but he had left out the benefit he had obtained which he had derived from his former solicitor’s unpaid work and his child’s school fees which were paid by his mother, which both constituted “income” under section 139L. Section 139L provides the definition of “income” as that word is used in section 149D(1)(d) according to the case of Re Wharton (a bankrupt): Official Receiver v Gillies.

If only Philip had seen Owen Hodge Bankruptcy Lawyers before he had completed the form.

Then Peter rang us up. He had received a form from his bankruptcy trustee entitled “Statement of Income – for completion”. Peter knew that if he did not give his trustee in bankruptcy complete details of his income, then the Official Receiver (who was his bankruptcy trustee) would oppose his discharge from Bankruptcy. The Official Receiver had written to him to that effect.

But Peter had had no income to declare. So two days before the due date for supply of the information, he rang the office of the Official Receiver and said he had no income to report and therefore could not see the benefit of completing and filing the form which would say nothing.

However, we pointed out that the Administrative Appeals Tribunal in the Rimanic case held that by not returning the Statement of Income within time and certainly before the Official Receiver filed his Notice of Objection, Mr Rimanic had failed to comply with the request within the meaning of s 149D(1)(d).

In that case, the AAT said that it does not matter whether his answers were that he was not receiving any income of the kind specified in the Statement of Income; he had failed to provide “written information” to that effect as required by the subsection.

We informed Peter of this case and he was a happy man. He completed the form and lodged it, and he was discharged from bankruptcy the following day.

Then Sally came to see us. Her trustee had filed a notice of objection to discharge, the supporting grounds being her failure to provide information to her trustee as require pursuant to s 149D(1)(d) of the Bankruptcy Act.

Sally had applied to the Inspector-General under s 149K(1)(b) of the Act for a review of the trustee’s decision to file a notice of objection.

Sally had been slack. The Bankruptcy Trustee had written to her and her solicitor a total of 5 times over a nine month period. She finally produced all the material just before the due date.

But that was not enough to save her as far as the Inspector-General was concerned! The Explanatory Memorandum to the Bankruptcy Act explains that “special grounds (as referred to in s 149D) are directed at deliberate actions by the bankrupt to defeat creditors or to hinder the trustee’s administration”.

The Inspector-General had concluded that the above facts supported the existence of the ground under section 149D(1)(d) and whilst Sally had offered all sorts of excuses for the numerous delays, the Inspector–General had concluded that she wanted to keep the documents for her own purposes and not disclose them: she failed before the Inspector-General. She then decided to appeal to the AAT.

The issue before the AAT was whether there was evidence to support a special ground (which included the ground under s 149D(1)(d)) and whether Sally had a reasonable excuse. The AAT agreed with the Inspector-General on both counts.

Sally then came to us and said that she wanted to seek an order in the Federal court seeking to set aside the decision of the Administrative Appeals Tribunal.

The “question of law” that Sally wanted to argue was whether the AAT had taken into account the Bankruptcy Trustee’s duties under section 19 to not incur any unnecessary costs for the bankrupt’s estate. She wanted to argue that the Bankruptcy Trustee had incurred unnecessary costs because all the enquiries that he had undertaken throughout her bankruptcy and all the information she had supplied him had not advanced the bankrupt estate at all. What she had supplied at the very beginning of his enquiry was the same as what she had supplied at the end and the paperwork had been a waste of time for all concerned.

We informed Sally of the Combe case where the Federal Court said that this question that she wanted to argue was not a question of law but really addressed the conduct of the Trustee and we informed Sally that the AAT had no power generally to review the conduct of the trustee and therefore the appeal must fail.

We saved Sally a lot of money. She was able to use the money that she would have spent in the hopeless legal case in the Federal Court, to undertake a composition with her creditors under section 73 and the bankruptcy was annulled within 3 months. Sally now lives in Queensland and runs a bed and breakfast motel.

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