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.