What are the objections to discharge a person from bankruptcy?

Normally a bankruptcy automatically ends after three years. The end of a bankruptcy is called a ‘discharge from bankruptcy’. However, a bankruptcy trustee can extend the bankruptcy period by lodging an ‘objection to discharge’.

An objection to discharge can be used as a penalty for a bankrupt’s actions before or during bankruptcy, or to encourage them to cooperate with their bankruptcy trustee. Often it is in creditors’ interests—or the public interest—that a bankrupt is not discharged at the three-year mark if they have committed an offence under the Bankruptcy Act 1966

An objection can be lodged at any point during the bankruptcy, but before discharge, and must be within the Bankruptcy Act’s statutory grounds.

A bankruptcy trustee lodges the objection notice with the Australian Financial Security Authority (AFSA) and sends a copy to the bankrupt. Once AFSA records the notice on the National Personal Insolvency Index (NPII)—the statutory register—the objection becomes legal.

A bankruptcy can be extended for two or five years, making the total bankruptcy period five or eight years. The extension period depends on the type of statutory ground for objection. The usual discharge provisions then apply, with automatic discharge at the end of the extended period.

The extension period is determined by the statutory ground used for the objection. A ‘non-special ground’ will result in a two-year extension, and a ‘special ground’ will result in a five-year extension. The objection must address a specific statutory ground. More than one objection can be lodged in a bankruptcy. Under section 149D of the Bankruptcy Act, the grounds for a bankruptcy trustee to object to a bankrupt’s discharge are outlined below.

Special grounds (five-year extension)

If the bankrupt:

1. Fails to provide written information about their property or income.
2. Fails to disclose particulars of income or expected income.
3. Fails to pay a contribution amount to the trustee.
4. Fails to dispose of assets or spend monies within five years before bankruptcy without adequate explanation.
5. Fails to return to Australia when requested.
6. Fails to sign a document as required by a trustee under the Bankruptcy Act provisions.
7. Fails to make assets available to creditors (i.e. void transactions under sections 121, 128B or 128C of the Bankruptcy Act).
8. Fails to provide true and full information to a trustee (i.e. intentionally providing false or misleading information to a trustee.
9. Fails to disclose a liability (intentionally) that existed at the time of bankruptcy.
10. Fails to disclose a beneficial interest in a property.

Other grounds (two-year extension)

If the bankrupt:

1. Fails to cease managing a corporation in contravention of the Corporations Act 2001 and without leave being granted.
2. Fails to return to Australia.
3. Fails to make assets available to creditors (i.e. void transactions under section 120 or 122 of the Bankruptcy Act).
4. Fails to act honestly in regarding amounts that exceed $3,000 (i.e. the bankrupt’s conduct is misleading involving transactions of $3,000 or more).
5. Fails to disclose a liability that existed at the time of bankruptcy.
6. Fails to comply with section 77(1) or section 80 of the Bankruptcy Act.
7. Fails to attend a creditors’ meeting under certain circumstances, or an interview, or an examination, without reasonable excuse.

If more than one ground applies, the extension period is based on the ground with the longest period only, i.e. these periods are not cumulative. If this ground is later removed (i.e. the bankrupt complies with their obligations), the extension period applies to the next longest period attached to any remaining ground. The extension period may not change if two special, or two non-special grounds apply, and only one is lifted.

Special grounds do not require the reasons to be outlined on the notice to object, due to the nature of these grounds. Whereas, a non-special ground requires the reasons to be outlined on the notice to object.

A bankruptcy trustee can withdraw an objection at any time. Bankruptcy trustees normally withdraw the objection if the grounds are satisfied. But there is no requirement to withdraw it, especially concerning a special ground. If all grounds have been satisfied, the notice of objection can be completely withdrawn. The objection lodgement and the withdrawal are recorded on the NPII.

If the normal three-year bankruptcy passed while the objection was in force, withdrawing the objection will automatically discharge the bankrupt as at the objection withdrawal date—not the original bankruptcy discharge date. If the objection is withdrawn during the normal three-year bankruptcy period, the bankruptcy will end by automatic discharge at the end of that three-year period.

However, the objection can be removed by a higher authority. A bankrupt can apply to the Inspector-General in Bankruptcy to review the trustee’s decision to object to a bankrupt’s discharge. The application for review must be made within 60 days of the bankrupt receiving the notice of objection. If the Inspector-General agrees to review the objection, a decision must be made within 60 days of receiving the application.

The Inspector-General must review the objection on the following basis:

1. Whether the ground exists under the Bankruptcy Act.
2. Whether sufficient evidence supports that ground.
3. The bankrupt’s conduct before the objection was lodged.

However, as special grounds do not require reasons to be outlined in a bankruptcy trustee’s notice to object, the Inspector-General cannot consider the evidence, or the bankrupt’s conduct, therefore obtaining a decision to cancel these objections is difficult. Even if the bankrupt subsequently complies with the bankruptcy trustee’s requests, the bankrupt’s conduct will not automatically mean an objection is removed or withdrawn. To get an objection based on a special ground removed, a bankrupt may have to show that the circumstances do not justify the objection in the first instance.