insolvency
This assignment must be submitted and will either be competent or not competent.
|
Assignment Brief: |
|
You are required to do the tasks expected of a trustee in bankruptcy for an average individual addressing client’s needs and the statutory requirements. See assignment
This assessment will address the student’s competency to:
(i) Evaluate options for insolvency (ii) Establish timelines & objectives (iii) Monitor progress
|
Introduction
How a bankruptcy trustee deals with the assets owned, or income earned by someone that goes bankrupt, is confusing- as every situation is unique. This case study should provide clarity on exactly how a trustee deals with the more common assets of a bankrupt.
Background:
At the commencement of a bankruptcy, a bankrupt will complete a Statement of Affairs within 2 weeks of the sequestration order , that discloses their assets, income, creditors, and other information. The following is a summary of a typical bankruptcy. The bankrupt is Mike, who is married with one dependant child, who ran a business as a consultancy/loans broker. Mike’s wife does not work at all.
ASSETS
Real property (the bankrupt’s home) jointly owned with spouse for 10 years[mortgage $400K] 450,000
Lexus IS250 (under finance; payout $59K) but not leased 55,000
Ford Falcon XR6 10,000
Business assets (laptop and office equipment) 2,500
Superannuation 103,000
INCOME FROM CONSULTING BUSINESS, there are no expenses 95,000
LIABILITIES
ATO income tax 15,000
ATO- GST 90,000
Credit cards 25,000
Lexus IS250 car loan 59,000
House Loan 400,000
What does the bankruptcy trustee do:
The trustee reviews the Statement of Affairs disclosing the assets as set out above.
The trustee then explores the possible recoveries in a certain manner.
a) The real property has been valued, the mortgage amount has to be confirmed by the trustee and the ownership status determined (you are told that Mike and his wife have joint and several ownership of the property).Outline the various steps the bankruptcy trustee must take to secure proceeds from the bankrupt’s interest in that property. You could also mention stamp duty implications of this.
b) Motor vehicles: Lexus IS250 Calculate any equity in the car, then take into account the motor vehicle threshold, to see what, if any is left for the trust estate. State any further implications to the bankrupt, trustee or the finance company.
c) Ford Falcon Calculate any equity in the car, then take into account the motor vehicle threshold, to see what, if any is left for the trust estate. State any further implications to the bankrupt or the trustee.
d) Business assets: Does the trustee take possession of them and sell them, or are they protected? ie bankrupt keeps them. Explain whether it is classified as tools of trade or divisible property.
e) Superannuation: Is this a divisible asset, and is it retained by the bankrupt, or kept by the trustee.
f) Income Contributions: Calculate the bankrupt’s income contribution liability, remember to first deduct income tax & M/levy (at @2015/16 rates). Where does this contribution end up. Show full workings for the calculation
g) In the course of the investigation by the trustee a sale of 1,000shares “off-market” by Mike to his wife for $5 per share, which had a market value at that time of $50 per share. The date of sale was 15/2/16. The creditor’s petition that settled the bankruptcy was presented on 1/7/16. An act of bankruptcy was committed on the 1/2/16.
(i) Firstly explain what is meant by an act of bankruptcy (I’m looking for the most common one- that is, the non compliance with the requirements of a bankruptcy notice)
(ii) Secondly explain the role of the trustee in the above transaction, using the doctrine of relation back, and any other sections of the Bankruptcy Act.
