I recently provided an advice about section 153A of the Bankruptcy Act 1966 (Cth). For those of you who can’t recall that section off the top of your head (and I don’t blame you), it relates to annulment of bankruptcy on payment of debts.
Whilst the section is relatively straight forward, sometimes certain circumstances present interesting issues to be considered.
In this case, the bankrupt was the primary appointor of a family trust, and his wife the secondary appointor, and a corporate trustee, which he was a director of, went into liquidation a few years earlier. It is unclear who is the trustee of the trust.
Interestingly, the ATO lodged a proof of debt, for a greater amount then what was disclosed in the bankrupt’s SOA because the ATO are of the view that the bankrupt has outstanding taxation obligations personally, and on behalf of the trust, because the bankrupt filed for an ABN and during that process, disclosed that the bankrupt and his partner were the trustees of the trust.
It is helpful to set out the relevant provision in full.
BANKRUPTCY ACT 1966 – SECT 153A
Annulment of bankruptcy on payment of debts
- If the trustee is satisfied that all the bankrupt’s debts have been paid in full, the bankruptcy is annulled, by force of this subsection, on the date on which the last such payment was made.
(1A) In determining whether there has been full payment of a debt that bears interest, the interest must be reckoned up to and including the date on which the debt (including interest) is paid.
- The trustee must, before the end of the period of 2 days beginning on that date, give to the Official Receiver a written certificate setting out the former bankrupt’s name and bankruptcy number and the date of the annulment.
Penalty: 5 penalty units.
Note: See also section 277B (about infringement notices).
- Subsection (2) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code.
- For the purposes of this section, if a debt has been proved by a creditor but the creditor cannot be found or cannot be identified, the debt may be paid to the Official Receiver and, if so paid, is taken for the purposes of this section to have been paid in full to the creditor.
(4A) Money received by the Official Receiver under subsection (4) is received on behalf of the Commonwealth.
- If money is paid to the Official Receiver under subsection (4), the provisions of subsections 254(3) and (4) apply in relation to that money as if it had been paid to the Commonwealth by a trustee under subsection 254(2).
- In this section:
“bankrupt’s debts” means all debts that have been proved in the bankruptcy and includes interest payable on such of those debts as bear interest, and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee.
Annulment by Operation of Law
The trustee cannot be satisfied that all the Bankrupt’s debts have been paid in full until a final decision has been made on proofs of debt lodged, including the determination of any application by a creditor who challenges the rejection of their proof of debt.
The trustee must either admit the proof of debt in whole, admit it in part and reject it in part, reject it in whole or require further evidence in support of it.
In Re Douglas Wong Ex Parte; Douglas Wong v Max Christopher Donnelly; Babsari Pty Limited and Raymond Yee Ping Tsui  FCA 1466 at , Sackville J interpreted the s153A of the Act as follows:
In short, it is consistent with the language of s.153A to conclude that the trustee is entitled to address the question of whether the bankrupt’s debts (as defined) have been paid in full on the basis that creditors have an appropriate opportunity to prove their debts in accordance with the statutory procedures for proving debts in a bankruptcy. On this approach, it is open to the trustee to defer considering whether all debts have been proved in the bankruptcy have been paid until he or she has had an opportunity to determine what proofs of debt will be lodged by creditors of the bankrupt.
And at :
In my opinion, it is implicit in s.153A(1) that the trustee, in determining whether he or she is satisfied of the matter specified in the sub-section, can take into account not only proofs of debt likely to be lodged, but those that have been lodged but that have not yet finally been determined in accordance with the procedures laid down by the Act itself. Accordingly, whether the trustee can or should be satisfied that all the bankrupt’s debts have been paid for the purposes of s.153A(1) depends on the circumstances the trustee is required to assess. The trustee is entitled, at the least, to consider whether a creditor’s proof of debt will be admitted through the processes provided for in the Act. A trustee is also entitled not to be satisfied that all the bankrupt’s debts have been paid if, for example, he or she is aware that a proof of debt has been lodged but not yet determined as required by s.102(1). Indeed, it is difficult to see how the trustee could be so satisfied when it is known that a proof of debt is awaiting determination which, if accepted, will constitute one of the “debts that have been proved in the bankruptcy”.
And at :
Similarly, in my opinion, it is open to a trustee not to be satisfied that all the bankrupt’s debts have been paid in full if a proof of debt has been rejected but the creditor’s rights of review have not yet been exhausted. The Court, on an application for review, may confirm, reverse or vary the trustee’s decision: s.104(2). If the trustee considers that the application to the Court for review has more than minimal prospects of success, in my view, the trustee is entitled to await the outcome before addressing the question of whether all the debts of the bankrupt have been paid in full. On the other hand, depending upon the circumstances, it may be open to a trustee to be satisfied that all the bankrupt’s debts had been paid in full even if the review process for a rejected proof has not been exhausted. This could be the case, for example, if the trustee is satisfied that the appeal is frivolous and that there is no genuine prospect of the proof being admitted in whole or in part
Is the trustee satisfied about the bankrupt’s debts?
A trustee cannot be satisfied that all the Bankrupt’s debts have been paid in full until a final decision has been made on proofs of debt lodged, including the determination of any application by a creditor who challenges the rejection of their proof of debt unless of course, the trustee believes the challenge is frivolous and that there is no genuine prospect of the proof being admitted in whole or in part.
 Re Wong (1995) 63 FCR 426.
About Mark Harley | Principal
Mark has practiced in commercial law, commercial litigation and insolvency law for almost 10 years. He established the firm in 2014. With degrees in law and information technology, as well as being a director of several companies, Mark speaks the language of business owners and has a first hand understanding of the issues facing his clients.