Are you facing a claim by a Bankruptcy Trustee to void a transaction or claw back a property transfer?
Contact our insolvency lawyers to understand your rights and protect your interests.
Understanding Claw-Back Provisions
When a person is declared bankrupt in Australia, a Bankruptcy Trustee is appointed to manage and administer their financial affairs. This may be a Registered Trustee (a private insolvency practitioner) or the Official Trustee (operated or engaged by the Australian Financial Security Authority).
The Trustee’s key responsibilities include:
When applying for, and during, bankruptcy, the debtor must declare any assets they have. This may include, but is not limited to, real estate, vehicles, bank balances, tools and lottery winnings.
A creditor has the right to lodge claims in the bankrupt estate and receive dividends, if one is paid. To ensure that all creditors are treated fairly, the Trustee can apply to the court to void certain transactions made before bankruptcy if they consider that assets were moved inappropriately. This is commonly referred to as “claw-back” provisions.
Not every transaction can be declared void by a Trustee. The Trustee must establish that the transaction meets one or more of the criteria under the Bankruptcy Act.
Key questions the Trustee will consider to determine cause of action include:
A transfer of property is voidable if it occurred within 5 years of the bankruptcy and the transferee gave no consideration for the transfer or less than market value. If an asset is transferred at less than market value, it will be considered ‘undervalued’.
Despite this, a transfer may not be void if it occurred over 2 years before bankruptcy and:
A transferee can defend the claim by proving good faith and market value consideration. The party must be completely unaware of the debtor’s financial position and intention. The time limit extends to 4 years if the parties were related.
Under section 120, any action related to a transfer is subject to a six-year limitation period starting from the date the individual is declared bankrupt. Once this period expires, it is extremely difficult to persuade the court to extend the limitation period. However, within the six-year window, the Bankruptcy Trustee may issue a notice to extend the revesting period by up to an additional three years to safeguard the interests of creditors. There is no statutory limit on the number of such extensions a trustee may grant, meaning that, in theory, the trustee can continue to extend the revesting period indefinitely.
A transaction is void if the main purpose was to prevent or delay the process of property becoming available to creditors. The trustee must prove that the property would likely have become part of the transferor’s estate or been available to creditors had the transfer not occurred. This can be demonstrated if it is reasonably inferred that the transferor was, or was about to become, insolvent at the time of transfer. There is no time limit for this type of claim.
If a person received a payment before someone was declared bankrupt, there’s a chance they may need to defend that payment in court. The good news is that there are several defences available. For instance, there may be a strong defence that the payment was accepted in good faith and they had no reason to suspect the payer was insolvent at the time.
To prove this, they will need to convince the trustee and/or court that they had no knowledge or warning signs of financial trouble. Some indicators that the trustee might view as red flags include:
Certain types of transactions are specifically protected and cannot be overturned. These include payments made to the tax office, transfers carried out under family law arrangements, and payments towards obligations under maintenance agreements or orders.
If you receive a claim from a Bankruptcy Trustee, there is often significant scope for early resolution, particularly through negotiation or mediation. Trustees may be open to settling claims without incurring the time and expense of court proceedings.
Engaging with the trustee early and providing relevant information and documentation can help clarify the issues and potentially resolve the matter on mutually acceptable terms. We can assist in presenting the position effectively and negotiating a resolution that avoids the issue proceeding to trial.
Whether you’re facing bankruptcy or responding to a claim from a Trustee, it is crucial to seek legal advice early. Improper asset transfer can result in costly recovery actions, and you may find yourself in court without a clear understanding of your rights and obligations.
Aitken Whyte Lawyers Brisbane are focused on results. Contact us on (07) 3229 4459 to speak with one of our experienced insolvency lawyers.
Brisbane
Aitken Whyte Lawyers Brisbane
2/414 Upper Roma Street
Brisbane QLD 4000
