Big rise in bankruptcy penalty

 Insolvency practices, Offences, Personal Bankruptcy, White collar crime  Comments Off on Big rise in bankruptcy penalty
May 192011
 

A crucial instrument of insolvency administration is a properly prepared and sworn statement of affairs made out by the proprietors of the insolvent business enterprise. 

This fact was recently granted further recognition in Australia’s  bankruptcy (personal insolvency) laws when the Federal Government ramped up the penalty for bankrupts who fail to make out a statement of affairs. [S.54(1) of the Bankruptcy Act 1966]  

 The penalty was increased fivefold or 500%. 

In recommending the Bankruptcy Legislation Amendment Bill 2010 – which was supported by  the Government and the Opposition –  the Attorney-General, Mr McClelland, said:

“Importantly, the bill also provides trustees with stronger powers to obtain a statement of affairs from a bankrupt who fails to file this as required. The statement of affairs is the most important information required by a trustee to commence administering the bankrupt’s estate. Failure to comply with the requirement to file a statement of affairs significantly frustrates the trustee’s ability to administer the estate in a timely way. Failure to provide a statement of affairs often results in a trustee expending additional time and expenses to identify a debtor’s assets, income and liability. This in turn can diminish a bankrupt’s estate and returns to creditors.” [Second reading speech]

Simultaneously the government  introduced a new power for the Official Receiver in Bankruptcy to compel a bankrupt to provide a statement of affairs [Section 77CA].  If the bankrupt fails again to comply after having had the obligation under Section 54 (1) brought to his or her attention by the Official Receiver, the bankrupt will have committed a further and more serious offence, the penalty for which is imprisonment for 12 months [Section 267B].

These laws  became effective on 1 December 2010.  To see the Official Receiver’s Practice Statement 10 titled “Filing of a Statement and issue of 77CA notices by the Official Receiver” CLICK HERE.

Budget 2011: Tax Office director penalty notices (DPN) extended and tightened

 Insolvency practices, Tax debts, Taxation Issues, White collar crime  Comments Off on Budget 2011: Tax Office director penalty notices (DPN) extended and tightened
May 112011
 

Under the heading “countering fraudulent phoenix activities by company directors”, the Australian Government has announced in the Budget that with effect from 1 July 2011:

  • the director penalty regime will be extended to superannuation guarantee amounts, making directors personally liable for their company’s failure to pay employee superannuation;
  • the Australian Taxation Office (ATO) will be given the power to commence recovery against directors under the director penalty regime, without providing a 21 day grace period, for certain unpaid company liabilities that remain unreported after three months of becoming due; and
  • in certain circumstances directors and associates of directors will be prevented from obtaining credits for withheld amounts in their individual tax returns where the company has failed to pay withheld amounts to the ATO.

The Budget paper describes fraudulent  phoenix activity as:

“… which involves a company intentionally accumulating debts to improve cash flow or wealth and then liquidating to avoid paying the debt. The business is then continued as another corporate entity, controlled by the same person or group and free of their previous debts and liabilities.”

This measure is estimated to result in an additional $260 million in revenue in fiscal balance terms over the forward estimates period. There is a related increase in ATO departmental expenses of $22.1 million over the same period. In underlying cash terms, the estimated increase in receipts is $245 million over the forward estimates period.

See http://www.budget.gov.au/2011-12/content/bp2/html/bp2_revenue-07.htm