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Insolvency

FED

This publication guides practitioners advising businesses and individuals in debt.

2 Matter Plans

Overview

The commentaries assist practitioners with representing individual and company clients, including insolvency alternatives, debt respite schemes, individual and company voluntary arrangements, bankruptcy, administration, receivership liquidation, and winding up.

The Reference materials folder includes guidance on electronic signing and witnessing, and the comprehensive Getting the matter underway folder includes compliance and client care documents. Using the extensive Retainer Instructions when gathering information ensures nothing is missed.

Precedents in this publication include:

  • Initial letter to debtor client with explanation of bankruptcy;
  • Example content for:
    • application for winding up;
    • affidavit in support of application for winding up;
    • application to set aside a statutory demand;
    • affidavit in support of setting aside a statutory demand.
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2 Matter Plans Included

  • Item icon ALERTS - Nil
  • Item icon Full Commentary - Insolvency - Bankruptcy of Individuals
  • Folder icon Reference materials
    • Item icon AI Prompts
      An AI prompt defines a specific task for AI to perform, like drafting a particular document, and provides clear instructions on how to execute that task. The goal is for the AI to quickly create a useful first draft of a document, which the user verifies and refines into a final version, ultimately ...

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    • Item icon Looking to the Future
    • Item icon Electronic Signing and Witnessing
    • Item icon 101 Costs Answers
    • Folder icon Papers and articles - Insolvency
      • Item icon Bankruptcy and other options
      • Item icon Directors beware
      • Item icon Directors beware – Piercing the corporate veil – The ATO and DPNs
      • Item icon If the ATO doesn't get you, then the OSR might
      • Item icon Income contributions and accumulated savings in bankruptcy
      • Item icon Plain language – A paper by the Hon. Michael Kirby AC CMG
      • Item icon Practical signs of insolvency for small business
      • Item icon Pre-packs – Do they have a place in Australian insolvency practice?
      • Item icon Recent case law developments may have significance for directors and creditors
      • Item icon Saviours or scavengers - A review of debt advisory
      • Item icon Technical guide: Voluntary administration
      • Item icon Technical guide: Voting at meetings of creditors of insolvent companies
      • Item icon The ATO rises, and ups the ante - ATO granted new powers to pursue directors
      • Item icon Trading whilst insolvent
      • Item icon Why would anyone want to be a director
      • Item icon Winding up a corporate trustee
    • Item icon Further information
  • Item icon Overview
    Insolvency means the inability to pay all debts as and when they fall due. A person who is insolvent may go bankrupt. A company which is insolvent may go into liquidation or, as is commonly said, be ‘wound up’. The test of insolvency is a cash flow test, although a balance sheet may be relevant.

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  • Folder icon A. Getting the matter underway
    • Item icon File cover sheet - Bankruptcy of individuals
    • Item icon To do list - Bankruptcy of individuals - Acting for the debtor
    • Item icon To do list - Bankruptcy of individuals - Acting for the creditor
    • Item icon First steps
    • Item icon Client details and verifying identity
    • Item icon Retainer instructions - Insolvency
    • Item icon Conflict of interest check
    • Item icon Initial letter to creditor client with costs agreement bankruptcy
    • Folder icon Library of costs agreements
      • Folder icon Australian Capital Territory
        • Item icon Costs agreement - ACT
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
      • Folder icon New South Wales
        • Item icon Costs agreement - NSW
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
      • Folder icon Northern Territory
        • Item icon Costs agreement - NT
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
      • Folder icon Queensland
        • Item icon Initial letter to client enclosing costs agreement
        • Item icon Costs agreement - QLD
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
        • Item icon Abbreviated costs disclosure - Costs under $3000
      • Folder icon South Australia
        • Item icon Costs agreement - SA
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
      • Folder icon Tasmania
        • Item icon Costs agreement - TAS
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
      • Folder icon Victoria
        • Item icon Costs agreement - VIC
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
      • Folder icon Western Australia
        • Item icon Costs agreement - WA
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the creditor
        • Item icon Scope of work - Bankruptcy of individuals - Acting for the debtor
        • Item icon Standard costs disclosure form for clients - Fees under $3000
    • Item icon Time and costs estimates
    • Folder icon If required - Updating costs disclosure
      • Item icon Letter to client updating costs disclosure
      • Item icon Charge securing costs
      • Item icon Guarantee securing costs
      • Folder icon Costs disclosure before settlement in litigation matters
        • Item icon Letter to client - Costs disclosure before settlement - NSW, VIC, and WA
        • Item icon Letter to client - Costs disclosure before settlement - QLD, SA, TAS, ACT, and NT
    • Item icon The relevant legislation
      Separate legislation deals with personal insolvency and corporate insolvency. Personal insolvency is the subject of the:

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    • Item icon A brief history and philosophy
      The word bankrupt has its origins in middle ages Italian banco rotto, meaning broken bench and referring to the practice of breaking a trader’s table to prevent further trading. In biblical times bankrupts were harshly treated, with their wives and children forced into slavery, property seized and ...

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    • Item icon Jurisdiction
      The Federal Court of Australia and the Federal Circuit and Family Court of Australia (Division 2) have concurrent jurisdiction: s 27 Bankruptcy Act. This is exclusive except for the jurisdiction of the High Court and the Federal Circuit and Family Court of Australia (Division 1). ...

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    • Folder icon Debtor client
      • Item icon Initial letter to debtor client with explanation of bankruptcy
      • Item icon Enclosure - The consequences of bankruptcy
      • Item icon Enclosure - Personal insolvency agreements
      • Item icon Enclosure - Debt agreements
    • Item icon AFSA - Debtors - I can't pay my debts
    • Item icon Acts of bankruptcy
      Acts of bankruptcy are found in s 40 Bankruptcy Act. An act of bankruptcy is evidence that a debtor is insolvent. There are 21 such acts, including filing a debtor's petition and noncompliance with a bankruptcy notice. Failures to execute a personal insolvency agreement or a breach or termination ...

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    • Item icon A bankrupt
      A bankrupt is either a person against whose estate a sequestration order has been made, known as an involuntary bankruptcy; or a person who is insolvent and has presented a debtor’s petition which is accepted by the Official Receiver, known as a voluntary bankruptcy. Approximately 90% of ...

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    • Item icon Relation back, time for commencing bankruptcy proceedings and the commencement of the bankruptcy
      A creditor’s petition must be presented within six months of the act of bankruptcy upon which it is based and the bankruptcy commences on the day of that act of bankruptcy. This time period cannot be changed. Bankruptcy is not a debt collection procedure and before a petition is brought there ...

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    • Item icon What effect does bankruptcy have on the individual?
      For the ordinary person with few divisible assets and an average income bankruptcy will have a limited impact. Most people would prefer to avoid the stigma and embarrassment associated with being a bankrupt; however, being freed of the often overwhelming worry of being unable to pay debts can be a ...

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    • Item icon Past transactions voidable by the trustee in bankruptcy
      Transactions that may be void against the trustee are:

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    • Item icon The position of third parties and secured creditors
      A transferee who acquires property in good faith at market value has no concerns. Further even if the transferee has to return the property the trustee must refund the consideration paid for the transfer: see s 120(4). The position of spouses needs to be considered. Assets in the name of the ...

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    • Item icon Proceedings for recovery
      A trustee is the only party able to institute proceedings and is subject to a limitation period of six years from the date of bankruptcy except in the case of transfers to defeat creditors under s 121, which may be commenced at any time: s 127. It is not relevant to the proceedings that ...

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    • Item icon Family law
      The Bankruptcy Act provides that the vesting of property under the Act, including Part X agreements, is subject to an order of the Family Court in relation to property, spousal maintenance and maintenance agreements under Parts VIII or VIIIAB of the Family Law Act but not financial agreements ...

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    • Item icon Income contributions
      The Bankruptcy Act in Division 4B provides for the assessment of the income of a bankrupt and, if it exceeds the threshold, for payment of a contribution to the estate. This can be enforced by way of notice which in effect garnishees wages or a bank account. The contribution formula is designed to ...

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    • Folder icon General deeds, agreements, execution clauses, and statutory declarations
      • Item icon Deeds and Agreements
      • Folder icon Deeds
        • Item icon Deed for general use
        • Item icon Deed of guarantee
        • Item icon Deed of release
        • Item icon General deed of indemnity
        • Item icon Deed of assignment of agreement
        • Item icon Deed of gift
        • Folder icon Library of standard clauses for deeds
          • Item icon Amendment
          • Item icon Confidentiality for defined information - All parties
          • Item icon Confidentiality for defined information - One party
          • Item icon Confidentiality for terms of deed - All parties
          • Item icon Confidentiality for terms of deed - One party
          • Item icon Costs
          • Item icon Counterparts
          • Item icon Dispute resolution
          • Item icon Events beyond control
          • Item icon Governing law and jurisdiction
          • Item icon Interpretation
          • Item icon No assignment
          • Item icon Notices
          • Item icon Severance
          • Item icon Waiver
          • Item icon Whole agreement
      • Folder icon Agreements
        • Item icon Agreement for general use
        • Item icon Heads of agreement
        • Item icon Non-disclosure agreement - Formal
        • Item icon Non-disclosure agreement - Informal
        • Folder icon Library of standard clauses for agreements
          • Item icon Amendment
          • Item icon Confidentiality for defined information - All parties
          • Item icon Confidentiality for defined information - One party
          • Item icon Confidentiality for terms of agreement - All parties
          • Item icon Confidentiality for terms of agreement - One party
          • Item icon Costs
          • Item icon Counterparts
          • Item icon Dispute resolution
          • Item icon Events beyond control
          • Item icon Governing law and jurisdiction
          • Item icon Interpretation
          • Item icon No assignment
          • Item icon Notices
          • Item icon Severance
          • Item icon Waiver
          • Item icon Whole agreement
      • Folder icon Execution clauses
        • Folder icon Library of execution clauses for agreements
          • Item icon Attorney
          • Item icon Authorised officer
          • Item icon Company
          • Item icon Company - Sole director
          • Item icon Individual
          • Item icon Individual - No witness
        • Folder icon Library of execution clauses for deeds
          • Item icon Attorney
          • Item icon Authorised officer
          • Item icon Company
          • Item icon Company - Sole director
          • Item icon Individual
      • Folder icon Statutory declarations
        • Item icon Commonwealth statutory declaration
        • Item icon Statutory declaration - blank - ACT
        • Item icon Statutory declaration - blank - NSW
        • Item icon Statutory declaration - blank - VIC
        • Item icon Statutory declaration - blank - QLD
        • Item icon Statutory declaration - blank - TAS
        • Item icon Statutory declaration - blank - SA
        • Item icon Statutory declaration - blank - WA
        • Item icon Statutory declaration - blank - NT
        • Item icon Standard annexure note for documents
      • Item icon Standard annexure note for documents
  • Folder icon B. Acting for the debtor
    • Item icon Voluntary bankruptcy
      Firstly, there is a mechanism provided under Part IV Division 2A Bankruptcy Act by which a debtor can get a 21day breathing space from the pressure of their creditors in which to consider the alternatives to bankruptcy that might be available. This is obtained by the filing of a ...

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    • Item icon AFSA - Debtors - I can't pay my debts
    • Folder icon Voluntary bankruptcy
      • Item icon AFSA - Bankruptcy by debtor's petition
      • Item icon Declaration of intention to present a debtor's petition - Suspension of creditor enforcement
      • Item icon AFSA - Online services
    • Folder icon Involuntary bankruptcy
      • Item icon Initial letter to creditor's solicitor acting for debtor
    • Folder icon In reply to a bankruptcy notice
      • Item icon Application
    • Folder icon In reply to a creditor's petition
      • Item icon Bankruptcy - notice of appearance
      • Item icon Notice stating grounds of opposition to application, interim application or petition
      • Item icon Application
      • Item icon Interim application
  • Folder icon C. Acting for the creditor
    • Item icon Involuntary bankruptcy
      Documents in new proceedings should be filed electronically with the court. If this is not possible there is the facility for filing paper documents. A creditor may file a creditor’s petition in the Federal Circuit and Family Court of Australia (Division 2) or the Federal Court for sequestration of ...

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    • Item icon Minimum judgment debt to found bankruptcy notice
      The minimum debt is $10,000 and the date of the judgment must be within six years of the date of the bankruptcy notice: s 41.

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    • Item icon Initial letter to debtor when acting for creditor
    • Item icon Bankruptcy notice
      Prior to lodging an application for a bankruptcy notice, a search of the National Personal Insolvency Index (NPII) is necessary. This search will show whether the debtor is already bankrupt or a party to a debt agreement or a personal insolvency agreement. A bankruptcy notice is a formal notice of ...

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    • Item icon Online application through AFSA Online Services - Registration is required
    • Item icon Letter to process server
    • Item icon Affidavit of service of bankruptcy notice to be sworn by process server
    • Item icon Creditor's petition
      The creditor must file the petition form within six months of the act of bankruptcy, which in most cases is for non-compliance with the bankruptcy notice: s 44(1)(c). Service must be effected in accordance with r 102 and personal service is preferred. Substituted service is available ...

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    • Item icon Creditor's petition checklist
    • Item icon Creditor's petition
    • Item icon Affidavit verifying paragraph 4
    • Item icon Letter to process server - Petition
    • Item icon Affidavit of service of creditors petition to be sworn by process server
    • Item icon Affidavit of debt
    • Item icon Affidavit of search
    • Item icon Trustee consent to act declaration
    • Item icon Appearing in court
      A significant proportion of bankruptcy matters are case managed and determined by judicial registrars of the court, including creditors’ petitions, applications to set aside bankruptcy notices and examinations under s 81 of the Bankruptcy Act. The Federal Court publishes a Guide for ...

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  • Folder icon D. Voluntary agreements for individuals that avoid bankruptcy
    • Folder icon Debt agreements
      • Item icon Debt agreements under Part IX
        Part IX Bankruptcy Act is designed to provide a solution for insolvent debtors with only a few assets, a small debt and low incomes as an alternative to what is commonly called consumer bankruptcy. The insolvent debtor gives to the Official Receiver a proposal for a debt agreement in the approved ...

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    • Folder icon Insolvency agreements
      • Item icon Personal insolvency agreements under Part X
        An insolvent person may, rather than present a debtor’s petition or await a creditor’s petition, propose an agreement to creditors under Part X of the Bankruptcy Act. These agreements, when properly established bind all creditors, which can be contrasted with an agreement with a particular ...

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      • Item icon Trustee consent to act declaration
      • Item icon Controlling trustee authority
      • Item icon Notice of completion, variation, termination or setting aside of a personal insolvency agreement (Part X), composition or scheme of arrangement (Part IV)
  • Folder icon E. Finalising the matter
    • Item icon Letter to client finalising the matter
    • Folder icon Example invoices incorporating notification of rights
      • Item icon Example invoice incorporating notification of client's rights - NSW
      • Item icon Example invoice incorporating notification of client's rights - VIC
      • Item icon Example invoice incorporating notification of client's rights - QLD
      • Item icon Example invoice incorporating notification of client's rights - SA
      • Item icon Example invoice incorporating notification of client's rights - TAS
      • Item icon Example invoice incorporating notification of client's rights - ACT
      • Item icon Example invoice incorporating notification of client's rights - NT
      • Item icon Example invoice incorporating notification of client's rights - WA
    • Item icon Invoice recital - Insolvency
    • Item icon Closing the file
    • Item icon File closing checklist
  • Item icon Comments and suggestions for By Lawyers

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