Concurrent Bankruptcy

It is a creditor’s worst nightmare, supplying goods or services to a person and not having them pay you in return. Bankruptcy is one such tool creditors use in order to recover the debt against them.

A problem arises for the creditor when upon inspection of the National Personal Insolvency Index they discover the person they are trying to bankrupt is already an undischarged bankrupt.

It is a little known fact that although a person is an undischarged bankrupt, a creditor may apply to the Federal Court to have a fresh bankruptcy brought over that person. That is to say have two bankruptcies at the same time.

Federal Magistrate Rimmer in Scottish Pacific Business Finance Pty Ltd v Matheson clearly explains that there is no hindrance on a creditor bankrupting someone who is already bankrupt in order to secure a debt owed to them. His honour remarked:

Clearly under the provisions of the Bankruptcy Act itself it is contemplated and anticipated that the Court can made a sequestration order in appropriate circumstances against a debtor who is at the time an undischarged bankrupt. It is clearly one of those appropriate matters as the debtor [in that case] incurred further debt while an undischarged bankrupt and has committed an act of bankruptcy such as to found this creditors petition.

The facts of this Queensland case involve a creditor company who leased equipment to the debtor for an amount of $87,000.00. The debtor failed to pay that amount and proceedings were brought before the District Court. The creditor successfully obtained judgment and issued a bankruptcy notice. Rimmer FM held that although there was no doubt that the debtor was an undischarged bankrupt there were no reasons brought before him which compelled him to set aside the bankruptcy notice. That is to say the fact that the debtor was also and undischarged bankrupt did not stop him from ordering that he be bankrupt second time.

While there is no specific provision which a creditor may rely on to bring bankruptcy proceedings against an undischarged bankrupt, the Court has determined that it is a combination of the provisions of the Bankruptcy Act which allow it.

The cases explain that a creditor need simply treat the concurrent bankruptcy proceedings as if it were the only one on foot. That is to say the normal process for bankrupting a person applies to bankrupting an undischarged bankrupt. The Federal Court case of Camm v Linke Nominees provides a useful summary of the process a creditor must follow.

Firstly, pursuant to section 58 of the Bankruptcy Act any property acquired after the date a person is made bankrupt immediately vests in the trustee in bankruptcy.

Secondly, pursuant to section 59 of the Bankruptcy Act all property acquired by the bankrupt after the date of their bankruptcy which has not been distributed amongst the creditors, vests in the trustee in bankruptcy to the subsequent bankruptcy. In addition section 59 also provides that the trustee in the earlier bankruptcy shall be deemed to be a creditor in the later bankruptcy for all debts proved in that earlier bankruptcy.

In the light of these cases which interpret the provisions of the Bankruptcy Act creditors can rest assured that, even though the person from whom they are seeking the recovery of a debt is a bankrupt bankruptcy proceedings may still be brought against them.