This is an extract of our Personal Bankruptcy document, which we sell as part of our Insolvency Law Notes collection written by the top tier of University Of Otago students.
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Personal Insolvency: Bankruptcy. Moving away from punishment, more about "wiping the slate clean". For personal insolvency you get a new start, companies don't though, they just die. Current Policy of Bankruptcy: Not to be seen as a punitive process. The focus is on doing the best collectively for creditors, and this is why last minute selfhelp transactions are reversed. Court retains overall control:
- Through requiring leave to withdraw application: s15 "A creditor may only withdraw an application for adjudication with the permission of the court"
- Through substitution of creditors: s44 "The court may substitute another creditor for the creditor making the application for adjudication if (a) creditor 1 has not proceeded with due dilligence, and (b) owes creditor 2 $1000 or more. In that case Creditor 2 must file another application for adjudication, but can rely on the act of bankruptcy to which Creditor 1's application is related."
- Through discretion to adjudicate: s37 "The court may, at its discretion, refuse to adjudicate the debtor bankrupt if (a) The creditor has not established the requirements in s13, or the debtor is able to pay his or her debts, or it is just and equitable that the court not make an order, or for any other reason an order of adjudication should not be made. Ronaldson v Dominion Freeholds:The court noted the special nature of bankruptcy proceedings, they are for the benefit of the community, not the application creditor. The courts have indicated there is an element of public interest, alongside giving bankrupts an opportunity to continue their lives free of debt. Debtors with Special Status: Minors, people with disabilities, people absent from NZ can all be bankrupted. Diplomatic officials and Mps have special rules that apply. Insolvency Act 2006: Provides a code for bankruptcy. Covers the following main topics:
1. Entry to bankruptcy (process for an individual getting the status of bankruptcy.)
2. Vesting of property (through a statutory vesting of what the bankrupt owns in the official assignee.)
3. Reversal of certain transactions (what's fairly within the bankruptcy, and what's outside it.)
4. Powers and duties (bankrupt has lots of duties, some offences, official assignee has a number of duties and fairly draconian powers.)
5. Creditor's claims (process for creditors to make their claims in the bankruptcy.)
6. Rules for distributions Introduced the "no assets procedure" and "cross border reforms". The no assets procedure provides protection from bankruptcy if your debt is less than $40,000. You don't get the full stigma of bankruptcy, and your assets don't vest in the official assignee. Insolvency Regulations 2007: Regulate the OA, Rules regarding creditor's meetings, what goes on in public registers, Provides prescribed "out of court" forms. Entry to Bankruptcy: Two forms:
1. Debtors Initiative, ss4549 "A debtor may file an application... to have himself adjudicated
bankrupt if the debtor has combined debts of $1000 or more.. but s46 must first file a statement of the debtors affairs with the Assignee. S47 A debtor who files an application with the Assignee to have himself declared bankrupt is automatically adjudicated bankrupt when the application is filed - the adjudication has the same consequences as if the debtor had been adjudicated bankrupt through the court. S48 Two or more debtors who are in a business partnership may file a joint application.
2. Creditor's move via the court, where the creditor is seeking to bankrupt the debtor. Based on "acts of bankruptcy" from s13 - can apply if: the debtor owes the creditor more than $1000, or if the debtor has committed an act of bankruptcy (s1628) within 3 months before the filing of the application, and the debt is a certain amount, and the debt is payable either immediately or at a date in the future that is certain. The one most used is 'failure to comply with bankruptcy notice' in s17. This is not a process for secured creditors. A creditor's move via the court is not just for the benefit of the creditor - they are initiating a state of events that is going to apply to all creditors involved. There may be no property that the creditor can execute against, or there may be transactions that the OA can reverse, in which case the creditor should pursue bankruptcy. If the debtor has a huge number of creditors that need to be paid, each creditor will get almost nothing, and priorities of distribution apply. Acts of Bankruptcy: s17: Bankruptcy notice - requires a court judgement. If the creditor has obtained a judgement against a debtor for a final amount, and the execution of that judgement has not been halted, and the debtor has been served with a bankruptcy notice, and the debtor has not complied with the requirements of the notice, then that debtor commits an act of bankruptcy. S19: Fraud or intent to prefer a creditor. A debtor commits an act of bankruptcy if they take any of the following steps fradulently or with an intent to give any creditor an advantage over other creditors: Disposes of his or her property, or part of it. Creates a charge or gives any security in it. Makes any payment. Incurs any obligation. S22: Notice of suspension of debts: If the debtor notifies any of the creditors that the debtor has suspended or is about to suspend payment of the debts, then it is an act of bankruptcy. S23: Admission to creditors of insolvency: If the debtor admits at a meeting of creditors that he or she is insolvent, and a majority of the creditors present at the meeting requires the debtor to file an application for adjudication, then this is an act of bankruptcy. S20: Departure from NZ, or remaining outside of NZ with the intent of defeating or delaying creditors is an act of bankruptcy. S25: Writ of sale: A debtor commits an act of bankruptcy if a writ of sale directed against any land of the debtor or any interest in that land has been delivered to a sheriff. S27: Removal or concealment of property: If the debtor removes or attempts to remove any of the debtors property from any place, or conceals or attempts to conceal any property, this is an act of bankruptcy. Three Broad Categories:
1. Debtor deliberately sets out to put property beyond reach
2. Creditor allowed to use a procedure (or results of procedure) via the court.
3. Something that evidences inability to pay debts. A bankruptcy notice is almost always used. Easy and straightforward, statute based, irregularities that are not substantive can be remedied by the court, but anything of substance will render the bankruptcy notice ineffective.
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