Debt Recovery Update: Cooperation of Debtors Vital in Bankruptcy Proceedings
07 November 2017
For any creditor contemplating bankruptcy, there will be concerns about the uncooperative debtor. This is especially relevant now given that the period of bankruptcy has been reduced to one year. The cooperation of the debtor is essential if the process, and creditors, are to avoid being frustrated.
Upon adjudication, all assets of the debtor immediately vest in the Official Assignee. An Official Assignee is an officer of the court in whom all assets of the debtor will vest upon adjudication, and who ultimately distributes those assets to the creditors. As a result, the debtor has obligations to the official assignee. These include delivering up books of account, possession of his property and giving every reasonable assistance to the Official Assignee.
It is important to note that this obligation of cooperation also applies to anyone else who is in control or possession of property or relevant information of the debtor.
Powers of the official assignee
The Official Assignee enjoys considerable powers under the Bankruptcy Act 1988 to drive the required cooperation. This includes an automatic right to seize any property of the debtor, and a right to enter, and if necessary break open any house, building or other place belonging to the debtor, where any part of his property is believed to be. The Official Assignee may also apply to the court for a warrant to search the property of anyone believed to be in control or possession of property of the debtor.
Where this cooperation is not forthcoming or is deficient in the opinion of the Official Assignee, they may apply to the court to object to the discharge of the debtor from bankruptcy. In that application, they set out the grounds for believing that:
- there has been a failure of cooperation, and/or
- the debtor has hidden assets or income
If the court agrees, the bankruptcy may be extended up to a period of eight years. Most notably, as shown in recent cases, this power is not merely to facilitate further enquiries, but may also be used as a sanction.
In McFeely , the High Court had initially concluded that there was considerable detailed evidence of the debtor’s failure to cooperate and hiding of assets, and it applied the maximum extension possible. This decision was appealed but was upheld by the Court of Appeal. Most relevant to the discussion here was the Court of Appeal’s conclusion that the extension imposed was proportionate given the gravity of the behaviour of the debtor.
In Dunne , the Official Assignee had applied to postpone the release of the debtor from bankruptcy to enable further investigations into the debtor’s failure to disclose income and assets. The debtor sought to cross-examine the Official Assignee to test the basis of his opinion. The High Court stated it was the debtor’s behaviour that was under scrutiny, not the Official Assignee’s, and that its decision does not involve any weighing of the belief of the Official Assignee as set out in his affidavit. It is open to the debtor to enter a replying affidavit providing any contrary views. The Court would then satisfy itself on the basis of the full scope of the evidence, as to the cooperation or lack of cooperation on the part of the debtor.
Debtor cooperation is vital in bankruptcy proceedings to ensure that the process and the creditors are not frustrated. The courts recognise this and will impose extensions of the period of bankruptcy, not only to facilitate further enquiries, but also as a sanction. This emphasises that the burden is on the debtor to provide a contrary view for the consideration of the court.
What should also be reassuring to creditors, is that it is also clear that the inclination of the court is to facilitate the Official Assignee, and not uncooperative debtors.
For more information and advice on engaging in bankruptcy proceedings, contact a member of our Debt Recovery team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.