The Bankruptcy Act creates criminal offences that can arise from the behaviour of the bankrupt before and during bankruptcy. In some cases this behaviour would not have been considered an offence if the debtor had not bankrupted (e.g. gambling). Prosecution for bankruptcy offences can lead to a prison sentence or a fine.
The Bankruptcy Act defines a number of offences, generally relating to acts of fraud or recklessness, which have led up to the bankruptcy, or which are committed during the bankruptcy. There are generally few prosecutions compared with the number of bankruptcies.
The Bankruptcy Legislation Amendment Act 2010 (Cth) made a number of changes to offence provisions under the Bankruptcy Act, including introducing stronger penalties for some offences.
Offences under the Bankruptcy Act include:
• materially contributing to, or increasing the extent of, insolvency by gambling or rash and hazardous speculation (s 271);
• obtaining, after the date of bankruptcy, credit of $5602 (indexed) or more without disclosure of the bankruptcy (ss 269(1)(a), 304A(1)(j));
• leaving Australia with intent to defeat creditors, or without obtaining a court order where required;
• incurring, within two years before the date of bankruptcy, a debt without any reasonable expectation of repayment (s 265(8));
• obtaining credit or property by fraud after bankruptcy;
• failing to disclose to a trustee particulars of any disposition of property made in the two years before the date of bankruptcy;
• disposing of property before bankruptcy with intent to defraud creditors;
• disposing of property after bankruptcy;
• concealing property with intent to defraud creditors;
• failing to deliver property divisible among creditors;
• failing to attend before the Official Receiver when requested;
• obstructing a person with intent to defeat the seizure of property;
• failing to deliver up books of account and other records;
• failing to comply with a supervised account notice; and
• failing to deposit income into a super-vised account.
A debtor who has committed an act that is an offence under the Bankruptcy Act and who is considering bankruptcy should check both the maximum penalty for the offence and the probable penalty.
The Annual Report by the Inspector-General in Bankruptcy, “Operation of the Bankruptcy Act”, contains details of prior prosecutions and the penalties imposed. AFSA publishes these annual reports on its website.
Whether a bankrupt is prosecuted for an offence, and the type of penalty imposed, will depend on a variety of factors, including the seriousness of the offence and the extent of the bankrupt’s indebtedness.
A debtor need not reject the option of bankruptcy because a potential offence has been committed. Even if convicted, it might be worth paying the penalty in order to be released from the demands of creditors.