Deck 30: Insolvency and Debt Recovery

Question 1

What are the three main aims of the Bankruptcy Act 1966 (Cth)?

Answer 1

Bankruptcy legislation is intended to provide a means by which persons acting bona fide,but in a hopeless financial position,are able to have their assets taken and distributed among their creditors equitably;eventually bankrupts are discharged from further liability for any part of their debts still outstanding.
The aim of bankruptcy proceedings is to:
•Ensure all the creditors are treated fairly and there is an equitable distribution of the bankrupt's assets;and
•Give the debtor the chance to have a new start.
It should be noted that it is not the aim of the legislation to punish the bankrupt.

Question 2

Bankruptcy is a remedy of secured creditors.

Answer 2

False

Question 3

Which of the following is the correct definition of a 'sequestration order'?

A)An order of the court directing a person who owes money to the debtor to pay the money into the court.
B)An order of the court directing the debtor to pay the debt in specified amounts on specified dates.
C)An order of the court authorising a court officer to seize the goods of the debtor and sell them.
D)An order of the court declaring the debtor bankrupt.

Answer 3

D

Question 4

A 'writ of execution' is:

A)an order of the court declaring the debtor bankrupt.
B)an order of the court authorising a court officer to seize the goods of the debtor and sell them.
C)an order of the court directing the debtor to pay the debt in specified amounts on specified dates.
D)an order of the court directing a person who owes money to the debtor to pay the money into the court.

Question 5

Which of the following is NOT one of the steps to be taken to obtain a default judgment?

A)Proceed to a hearing.
B)Serve a statement of claim on the debtor.
C)File a statement of claim with the court.
D)File an application for default judgment.

Question 6

A recovery action cannot be undertaken until a court judgment has been obtained.

Question 7

Which of the following is NOT one of the aims of bankruptcy legislation?

A)To give the debtor a chance to have a new start.
B)To distribute the debtor's assets equitably.
C)To ensure all of the debtor's creditors are treated fairly.
D)To punish the debtor.

Question 8

Who are the most common petitioners in respect to the commencement of bankruptcy proceedings against debtors?

Question 9

Which of the following is NOT a step to commence bankruptcy proceedings?

A)Creditor serves a bankruptcy notice.
B)Meeting of creditors.
C)Creditor files a petition with court.
D)Debtor commits an act of bankruptcy.

Question 10

Prepare a comparative analysis of the advantages and disadvantages of bankruptcy.

Question 11

Which of the following is the correct definition of an 'instalment order'?

A)An order of the court declaring the debtor bankrupt.
B)An order of the court authorising a court officer to seize the goods of the debtor and sell them.
C)An order of the court directing the debtor to pay the debt in specified amounts on specified dates.
D)An order of the court directing a person who owes money to the debtor to pay the money into the court.

Question 12

Judgment is an order of the court stating that a person is insolvent.

Question 13

A bankrupt may be examined by the court upon the application of the trustee or a creditor.

Question 14

A 'garnishee order' is:

A)an order of the court declaring the debtor bankrupt.
B)an order of the court authorising a court officer to seize the goods of the debtor and sell them.
C)an order of the court directing the debtor to pay the debt in specified amounts on specified dates.
D)an order of the court directing a person who owes money to the debtor to pay the money into the court.

Question 15

Which of the following is NOT an option for a debtor who has been served with a statement of claim?

A)Pay the debt.
B)Make arrangements to pay or secure the debt.
C)File a defence.
D)Apply for a garnishee order.

Question 16

In the context of debt recovery proceedings,which of the following is NOT a consideration when establishing a cause of action?

A)The balance of legal costs against the amount of the debt.
B)Evidence of breach of the contract.
C)The existence of a contract.
D)Calculation of the loss suffered.

Question 17

Which of the following is NOT a consequence of a sequestration order?

A)The bankrupt must disclose the fact of their bankruptcy before obtaining credit above a specified amount.
B)The bankrupt can no longer be a director of a company.
C)Secured creditors are no longer able to deal with the security.
D)All of the property of the bankrupt immediately vests in the trustee for the benefit of creditors.

Question 18

On what grounds may an Official Receiver reject a debtor's petition for bankruptcy?

A)If the debtor has previously been bankrupt on their own petition at least once in the past five years.
B)If it appears the debtor will be able to pay their debts.
C)If the statement of affairs is not properly completed.
D)All of the above.

Question 19

An insolvent is a person who is unable to pay debts as and when they fall due out of the debtor's own funds.

Question 20

The time limit for commencement of legal action to recover a debt is 2 years.

Question 21

An Official Receiver must reject a debtor's petition for bankruptcy;if the debtor has been bankrupt on their own petition at least three times.

Question 22

The court will reject the creditor's petition unless the creditor can prove the debtor owes a minimum of $10,000.

Question 23

In what way is a Part IX arrangement a preferable course of action for a person facing bankruptcy?

Question 24

Which of the following comes first in the order of payment of debts by the trustee in bankruptcy?

A)The bankrupt's child support payments.
B)The bankrupt's employees' worker's compensation payments.
C)Administration costs including the trustee's fees.
D)The bankrupt's employees' wages.

Question 25

Property available for distribution to the creditors includes all property owned by the bankrupt at the date of commencement,or acquired after that date and at any time up to discharge.

Question 26

A bankrupt must pay administration costs before paying unsecured creditors.

Question 27

A common act of bankruptcy is failure to comply with a bankruptcy notice.

Question 28

The court will reject the creditor's petition unless they can prove that in the preceding six months the debtor committed an act of sequestration.

Question 29

How much of a bankrupt's income is required to be given to the trustee in bankruptcy?

A)Half of the amount in excess of a specified threshold.
B)All of it.
C)Half of it.
D)The amount in excess of a specified threshold.

Question 30

The entry of a Part IX debt agreement in the National Personal Insolvency Index:

A)prevents secured creditors from dealing with their security.
B)releases the debtor from all provable debts as if they had been discharged from bankruptcy.
C)releases all guarantors of the debtor's debts from liability.
D)releases persons who owe debts jointly with the debtor from liability.

Question 31

A deed under Part X transferring all the debtor's property for the benefit of the creditors is called a deed of gift.

Question 32

What kind of property is available to the trustee for the benefit of creditors?

A)Contributions to an eligible superannuation plan.
B)Property used as security for a debt.
C)Property seized by a creditor under a writ of execution within 6 months of the bankruptcy.
D)Damages or compensation for injury.

Question 33

The date of commencement of a bankruptcy on a creditor's petition is calculated by going back six months from the date of the sequestration order.

Question 34

Arrangements under Part X of the Bankruptcy Act 1966 (Cth):

A)are not enforceable by the creditors.
B)are made under the supervision of the Official Trustee in Bankruptcy.
C)are made without the intervention of the court.
D)are made as part of the bankruptcy process.

Question 35

Which of the following transactions will be void against the trustee?

A)Five years before commencement,the debtor,while solvent,gave property to a relative.
B)Six months before presentation of the petition,the debtor,while insolvent,sold property for market value in the ordinary course of business.
C)Seven years before commencement,the debtor sold property at less than market value,with the intention of defeating their creditors.
D)All of the above.

Question 36

An act of bankruptcy is in effect a public demonstration of insolvency committed by the debtor in the previous:

A)year.
B)six months.
C)three months.
D)month.

Question 37

Which of the following is NOT an act of bankruptcy?

A)Property of the debtor is sold pursuant to a court order.
B)The debtor changes their place of residence.
C)The debtor fails to comply with a bankruptcy notice.
D)A writ of execution is issued but returned unsatisfied.

Question 38

Part X agreements are private arrangements without official involvement or scrutiny.

Question 39

What are the ways in which a person can become bankrupt?

Question 40

A creditor's petition sets the date of commencement of a bankruptcy as:

A)the date the creditor's petition is filed with the court.
B)the date the debtor is notified of the sequestration order.
C)the date of the earliest act of bankruptcy by the debtor in the six months preceding the date of the creditor's petition.
D)the date of the latest act of bankruptcy by the debtor in the six months preceding the date of the creditor's petition.

Question 41

Which of the following is NOT a method of liquidation of an insolvent company?

A)Administrator's voluntary winding up.
B)Creditors voluntary winding up.
C)Compulsory winding up due to insolvency.
D)Members voluntary winding up.

Question 42

A bankrupt will be automatically discharged:

A)five years from the date of commencement.
B)three years from the date of lodgement of the statement of affairs.
C)three years from the date of the sequestration order.
D)five years from the date of examination of the bankrupt.

Question 43

If a company experiences severe financial difficulties,an administrator:

A)May force it into bankruptcy.
B)May terminate the business.
C)Cannot dispose of part of the company's property.
D)Cannot perform the duties of a corporate officer.

Question 44

A bankrupt who fraudulently conceals property with the intent to defraud creditors may be imprisoned for up to three years.

Question 45

Discharge absolves a bankrupt of any financial obligation to pay a secured creditor who has not surrendered their security.

Question 46

A voluntary administration is one option available to debtors seeking an alternative to bankruptcy.

Question 47

Which of the following is NOT an option for a company in financial difficulty?

A)Liquidation.
B)Bankruptcy.
C)The appointment of a receiver.
D)The appointment of a liquidator.

Question 48

In what circumstances may a director be personally liable for the debts of an insolvent company?

A)The director reasonably expected that the company was solvent.
B)The director was entirely ignorant of the operations of the insolvent company.
C)The director reasonably relied on information from another that the company was solvent.
D)The director did not take part in the management of the company due to illness.

Question 49

Which of the following circumstances will NOT result in the annulment of a bankruptcy?

A)The acceptance by a meeting of the creditors of a deed of composition or arrangement.
B)An order of the court.
C)The death of the bankrupt.
D)The payment of the bankrupt's debts in full.

Question 50

If a bankrupt leaves Australia and fails to return,their bankruptcy may be extended for eight years from the date of their departure.

Question 51

Which of the following persons is entitled to lodge an objection to the automatic discharge of the bankrupt?

A)The trustee in bankruptcy.
B)The bankrupt's unsecured creditors.
C)The bankrupt.
D)The bankrupt's secured creditors.

Question 52

In which of the following circumstances would a bankruptcy NOT be extended from 3 to 5 years?

A)The bankrupt failed to disclose that she had travelled to New Zealand for a week on the business of her employer.
B)The bankrupt failed to attend a creditors' meeting.
C)The bankrupt refused to sign a document after being lawfully asked to do so by the trustee.
D)The bankrupt failed to inform the trustee of a change of address.

Question 53

The case of: Morley v Statewide Tobacco Service Ltd (1992)10 ACLC 1233 is authority for the principle that:

A)ignorance of the company's position is no excuse.
B)the test for director's liability under s 588G is objective rather than subjective.
C)liability for a company's debts is determined by what the director ought to have known rather than what they actually knew.
D)all of the above.