Declarations of Intention to Present Debtor’s Petition – Are They Worth It?

Date: May 21, 2015
Document Type: Article

For debtors who need a little breathing space to consider their options – voluntary bankruptcy? payment arrangements? defended proceedings? - section 54A of the Bankruptcy Act 1966 (Cth) (the Act)gives certain debtors the opportunity essentially to freeze unsecured debts for 21 days. But are the potential benefits worth it? Or does filing a declaration of intention simply prolong the inevitable?

What Does It Mean?

When seeking to file a declaration of intention to present a debtor’s petition, debtors must also prepare a statement of affairs, which summarises their financial position and lists all known creditors. Before accepting the declaration, the Official Receiver is obliged to provide the debtor with information about the consequences of, and alternatives to bankruptcy. Once the declaration is accepted, the Official Trustee contacts the creditors listed in the statement of affairs, informing them of the filing of the declaration.

Pros and Cons

During the stay period (the period following the filing of the declaration), the debtor is afforded some reprieve from the strains of financial difficulty, as:

  • Unsecured creditors cannot take enforcement action in respect of court judgments (eg by garnisheeing money from the debtor’s bank account or wages); and 
  • Sheriffs cannot proceed with the seizure and sale of property (provided a copy of the declaration is produced).

However, this reprieve is not absolute, because:

  • Secured creditors (such as mortgagees, registered on title), can still take action to enforce their securities; and 
  • Creditors (secured and unsecured) can commence or continue legal proceedings, including the commencement of bankruptcy proceedings.

In fact, pursuant to section 40(1)(da) of the Act, the presentation of a declaration is itself an act of bankruptcy, that can be relied upon to commence bankruptcy proceedings against the debtor.

The stay period cannot extend beyond 21 days, and may finish sooner, for instance if the debtor appoints a trustee to his or her affairs, or a creditor commences winding up proceedings by filing a creditor’s petition.

Implications

Debtors considering filing a declaration should carefully consider their options before taking any definitive steps. Legal advice should be sought regarding the alternatives and consequences of bankruptcy.

For creditors who have received notification of a declaration, legal advice should be sought in respect of the implications of the declaration and the rights of creditors in respect of the pending bankruptcy of the debtor.

The law may have changed by the time you read this article, which is based on the law as at May 2015. For more information declarations of intention to present a debtor’s petition, or bankruptcy generally, please contact our office.

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