Objections to Discharge
What is an objection to discharge?
Under normal circumstances a person's bankruptcy will end 3 years after the bankrupt's Statement of Affairs is filed with ITSA. This is called a discharge from bankruptcy. The bankrupt estate may continue for some time after the end of the person's bankruptcy, but the bankrupt him or herself will be released from the restrictions of bankruptcy. However a trustee may extend the period of a person's bankruptcy by lodging an objection to discharge that will stop the discharge for a certain period.
Why object to a bankrupt's discharge?
An objection to discharge may be use as a punishment for some action taken by the bankrupt, or a method of encouraging them to cooperate with the trustee. There are also times when it would be in the interest of the creditors or the general public that the bankrupt not be discharged at the usual time because the bankrupt has committed some offence.
When can a trustee object to a discharge?
A trustee may lodge an objection at any time during the bankruptcy if they have the necessary statutory grounds to do so. The objection must be lodged before the discharge to be effective. Once discharged the opportunity to object is gone.
How does a trustee object to a discharge?
The trustee only has to lodge the required notice of objection with ITSA for recording on the bankrupt's file, their NPII record. A copy of the notice must be forwarded to the bankrupt as notice of the objection, and that notice must state that the bankrupt may seek a review of the objection by the Inspector-General.
How long will the bankruptcy be extended?
Objections do not last forever. A bankruptcy may be extended for either 2 or 5 years, making the period of the bankruptcy either 5 or 8 years. This period will depend on the particular statutory ground(s) for the objection. The usual discharge provisions will then apply with the new extended periods, with automatic discharge occurring at the end of the extended period.
How is the length of the extension determined?
The extension period is determined by the statutory ground under which the objection was lodged. A "special ground" will result in a 5 year extension, and a non-special ground will result in a 2 year extension. The term "special ground" is only used in dealing with appeals, but refers to all grounds that bring about a 5 year extension.
If the objection is based on a number of grounds, the period of the extension will be the longest period associated with any one ground. The time periods are not cumulative. If the objection is based on one ground that is subsequently lifted by the trustee, the period of extension will relate to the next ground (if any). This period may still be the original extension period if two special or two non-special grounds apply and only one is lifted.
When does the extension take effect?
Once that notice is recorded by ITSA on the NPII (National Personal Insolvency Index) the objection will have legal effect.
What are the grounds for objecting?
The objection must be based on a statutory "ground". Those grounds are very specific and determine the length of the extension under the objection. These grounds are:
Special Grounds (5 year extension):
1. failure to provide written information about their property or income;
2. failure to disclose particulars of income or expected income;
3. failure to pay a contribution amount to the Trustee;
4. spent money or disposing of assets or spending monies with 5 years before bankruptcy without adequate explanation;
5. leaving and not returning to Australia when requested;
6. failure to sign a document as required by the Trustee under the provisions of the bankruptcy Act;
7. making a transfer that is void under section 121 of the Bankruptcy Act;
8. Intentionally providing false or misleading information to the Trustee;
9. Intentionally failing to disclose a liability that existed at the time of bankruptcy;
10. Failing to disclose a beneficial interest in any property.
Other Grounds (2 year extension):
1. continuing to manage a corporation in contravention of the Corporations Act and without leave being granted;
2. leaving Australia and not returning;
3. making a void transfer under section 120 or 122 of the Bankruptcy Act;
4. misleading conduct by the bankrupt involving an amount in excess of an indexed amount, currently $3,901;
5. failure to disclose a liability that existed at the time of bankruptcy;
6. failure to comply with section 77(1) or Section 80;
7. failure to attend a creditors' meeting under certain circumstances or an interview or examination without reasonable excuse;
8. failure to disclose a beneficial interest in property.
Is there a difference between objection notices on each ground?
The main difference is the amount of information required to lodge an objection. The trustee used to have to state a "reason" for lodging every objection. Reasons are now not required for objections based on special grounds - only the ground on which the objection is based and the evidence that the ground exists is required. Objections based on non-special grounds still require reasons to be provided.
When can an objection be withdrawn?
The trustee may withdraw an objection at any time and for any reason. If a special ground has been satisfied by the bankrupt, the objection on that ground may be withdrawn, but does not have to be withdrawn. If a non-special ground has been satisfied, the trustee will normally lift the objection. If all grounds have been satisfied, the notice of objection may be completely withdrawn.
What if there is more than one ground?
An objection may be based on more than one ground. Withdrawing an objection may only relate to one or some of the grounds. If that is the case, the remaining grounds will stay in force and the extension to the bankruptcy period will still apply for those remaining grounds. That is, the withdrawing of the objection on some grounds may not lessen the period of the extension, if another ground has the same period of extension.
Does withdrawing an objection end the bankruptcy?
Maybe. If the bankruptcy would normally have been discharged during the period that the objection was in force, the withdrawing of the objection will automatically discharge the bankrupt as at the date of the withdrawal - not on the original date that would have been the discharge date. If the objection is withdrawn during the normal 3 year bankruptcy period, the bankruptcy will end at the usual time that it would have ended by automatic discharge.
Can the objection be removed?
Yes. The Bankruptcy Act provides a review process when a bankrupt wishes to object to the notice of objection. They may apply to the Inspector-General to review the trustees' or the Official Receiver's decision to lodge the objection. The request for a review must be made within 60 days of the notification of the objection being received sent.
The time period for the review is set under the Bankruptcy Act. The Inspector-General must first decide whether he will review the objection, and then review the objection and make his decision within 60 days after the receipt of the request. The Inspector-General must decide the review on the following basis:
1. Whether the ground is a ground set out under the Act;
2. Whether there is sufficient evidence to support that ground; and
3. The conduct of the Bankrupt before the Objection was lodged.
It is difficult to have an objection based on a special ground removed as there are no reasons for the Inspector-General to review, and no consideration is taken of the conduct of the bankrupt after the lodgment of the objection. That is, even if the bankrupt finally complies with the trustee's requests, that conduct will not automatically give rise to a removal or withdrawal of the objection. To have an objection based on a special ground removed, the bankrupt may have to show that circumstances existed that do not justify the objection in the first instance.
For more detailed information:
Disclaimer
The enclosed information is of necessity a brief
overview and it is not intended that readers should rely
wholly on the information contained herein. No warranty
express or implied is given in respect of the information
provided and accordingly no responsibility is taken by
Worrells or any member of the firm for any loss resulting
from any error or omission contained within this
fact sheet.
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Last Updated: 22.2.2008