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Bankruptcy law in Australia is regulated by
the Bankruptcy Act 1966 (Cth). Bankruptcy
involves a legal declaration that a person
(including a corporation) is insolvent and
removes that person from control over their
financial affairs. Such control is given
to a trustee who may be the Official Trustee in
Bankruptcy or a private trustee appointed by a
meeting of creditors. The purpose of the
Bankruptcy Act is to provide an orderly method
of distributing the assets of the bankrupt
person among creditors.
Bankruptcy has a number of advantages for
creditors. The process of administering
the bankrupt's assets gives creditors access to
assets not otherwise available to satisfy
ordinary debts. Creditors also share
proportionately in the bankrupt's assets and
the trustee must ensure that claims are dealt
with according to the preferences established
under the Act. Bankruptcy also involves
an investigation of the bankrupt's conduct
before bankruptcy that may show hidden
assets. Another benefit for creditors is
that the bankrupt's affairs are administered by
a trustee experienced in financial matters.
Bankruptcy also has some disadvantages for
creditors. The costs associated with
making someone bankrupt can be high. The
trustee is entitled to take their fee before
the creditors. If the bankrupt is
uncooperative or behaves fraudulently, it may
take a long time to trace the bankrupt's
assets. Further, bankruptcy may diminish
the success of previous litigation against the
bankrupt. For example, if a creditor sued
the debtor, obtained judgment and then enforced
the judgment by seizing the debtor's assets for
sale, the moneys received may have to be paid
back into the bankrupt estate and shared among
all creditors. Finally, since creditors
are paid in a strict statutory order, there may
be little left by the time their class of debt
is reached.
Bankruptcy has advantages for the bankrupt
as well. A bankrupt has no further
pressure from creditors and creditors must deal
directly with the trustee. The Act
precludes creditors from taking any further
action against the debtor after judgment has
been obtained and therefore prevents creditors
from levying execution on the debtor's goods
under a writ or garnisheeing wages or bank
accounts. Ultimately the bankrupt will
obtain a discharge from bankruptcy and will be
released from further liability for past
debts. Unfortunately, bankruptcy has its
disadvantages. The bankrupt is placed
under a legal disability for the period of the
bankruptcy which limits their actions.
Furthermore, the stigma of bankruptcy may
remain for many years following bankruptcy.
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