Act of bankruptcy An action or declaration which, if not carried through, can be used by a creditor to apply to the Court to make a person bankrupt.

Administrator An eligible person nominated by a debtor to handle a Debt Agreement on their behalf.

Antecedent Transaction A transaction that has taken place prior to a Personal Insolvency Agreement or bankruptcy. They include transactions where less than market price has been paid for an asset in consideration of a transfer in ownership or a transfer has been made to defeat the right of access by creditors or preferential payments are made to a specific creditor. A trustee has the ability to recover the asset or difference in purchase price paid.

Asset Anything a person owns before going bankrupt, or buys or receives during bankruptcy. Assets can be divided into two types - Divisible Assets and Exempt Assets.

Bankruptcy An insolvency procedure that applies to a natural person, not to a company. Where people, who cannot pay their debts become bankrupt to receive the protection of the Bankruptcy Act and their estate is administered by a trustee. It allows for the fair distribution of property among creditors and the prosecution of dishonest debtors.

Bankruptcy Notice A formal, final demand for payment of a debt by a creditor owed at least $5,000 on one or more final judgments or final orders. This notice is issued by ITSA through the Official Receiver. Failure to pay within 21 days is an act of bankruptcy.

Bankruptcy Offence An act by a person under the Bankruptcy Act that can lead to a person being prosecuted, fined, imprisoned, or made to make restitution.

Bankruptcy Act 1966 The Commonwealth legislation which covers bankruptcy, Part IX (Debt Agreements), and Part X arrangements. It deals with individuals not corporate entities which is covered by the Corporations Law administered by the Australian Securities and Investment Commission.

Benefit A bankrupt may derive a benefit from a number of sources. It could be a loan or a fringe benefit or monies paid to a third person as a result of exertion by a bankrupt. These types of benefits can be included as a part of a bankrupts contribution assessment to determine what contribution must be paid from a bankrupt's income.

Charge A form of security for a debt taken by a creditor over company assets. A mortgage is a type of charge.

Committee of creditors A small group of creditors, or their representatives, often appointed by the creditors of a company at the first meeting in a voluntary administration. The committee’s role is to consult with the voluntary administrator and to receive and consider reports by the voluntary administrator. The committee may be called upon to approve the voluntary administrator's fees. The voluntary administrator must report to the committee when it reasonably requires.

Committee of inspection A small group of creditors and shareholders, or their representatives, often appointed by the creditors and shareholders of a company in liquidation to assist the liquidator. The committee is often called on to approve the liquidator’s fees and sometimes to approve the compromise of debts or the entry into contracts extending beyond three months by the liquidator.

Composition Is one of the options that a debtor offered to their creditors under Part X of the Bankruptcy Act to resolve their financial difficulties pre 1/12/04.

Compromise Agree to accept a lesser sum in full payment of a debt.

Contingent asset An asset that might arise if a certain event occurs (e.g. a current legal action being taken by a company might result in an asset if the company wins the case).

Contingent liability A liability that might arise if a certain event occurs (e.g. a current legal action against a company might result in a liability if the company loses the case).

Contribution A sum of money that a bankrupt person is required to regularly pay to their trustee from their income. It is normally called a compulsory contribution and is based on a statute based formula.

Contributory A shareholder who may be liable to contribute towards a company’s debts in a liquidation if their shares are not fully paid.

Controlling Trustee Is a person who is a private bankruptcy trustee, ITSA or an eligible solicitor who investigates a debtor's financial affairs and calls a meeting of the debtor's creditors under Part X of the Bankruptcy Act.

Controller A person appointed by a secured creditor to deal with assets subject to a charge. Includes a receiver, and receiver and manager.

Court In the context of bankruptcy, the Court usually refers to the Federal Court of Australia or the Federal Magistrates Service. Both of these Courts can hear matters associated with personal insolvency

Court liquidation A liquidation that starts as a result of a court order, made after an application to the court, usually by a creditor of the company.

Creditor A person who is owed money.

Creditor's Petition Is a means by which a creditor makes an application to the Court to make a debtor bankrupt

Creditors' trust A separate legal arrangement set up to deal with creditor claims. Creditor claims can be transferred to a creditors' trust as part of a deed of company arrangement.

Creditors’ voluntary liquidation A liquidation for insolvent companies, initiated by the company. Creditors may replace the liquidator appointed by the company in this type of liquidation.

Current Amounts These are amounts that are periodically adjusted in accordance with the Consumer Price Index. Some are adjusted every quarter, others every six months. As an example they identify the value of assets that can be retained by a bankrupt or the income a bankrupt can retain before they are required by law to contribute towards their bankruptcy.

Debenture A document acknowledging that a company undertakes to repay a sum of money lent to the company by the holder of the document.

Debt An amount owed.

Debt Agreement An arrangement between people who cannot pay their debts. It is a formal arrangement under Part IX of the Bankruptcy Act.

Debtor A person who owes a debt.

Debtor's Petition An application made to ITSA to become a bankrupt. The form to use is Form 6

Declaration of indemnities A declaration that must be provided to creditors by a voluntary administrator informing them about any indemnities given to the voluntary administrator to cover fees or other debts incurred in acting as voluntary administrator of the company. The declaration provides information to enable creditors to make an informed decision about whether they wish to replace the administrator over concerns about independence.

Declaration of relevant relationships A declaration that must be provided by a voluntary administrator or a liquidator in a creditors’ voluntary liquidation informing creditors about certain relationships. The declaration provides information to enable creditors to make an informed decision about whether they wish to replace the administrator over concerns about independence.

Deed administrator The external administrator appointed to oversee a deed of company arrangement.

Deed of company arrangement A binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with, which may be agreed to as a result of the company entering voluntary administration. Aims to maximise the chances of the company, or as much as possible of its business, continuing, or to provide a better return for creditors than an immediate winding up of the company, or both.

Director A natural person appointed as a director of a company who is then responsible for directing and managing the affairs of a company. Also includes a shadow director.

Discharge The end of bankruptcy. The date of discharge is the day after bankruptcy ends. The statutory period of bankruptcy is three years and one day from when a person files their Statement of Affairs at ITSA through the Official Receiver.

Dividend A share of the profit of a solvent company paid to shareholders. Also used to describe a sum paid to creditors out of the assets of an insolvent company. In a Bankruptcy context, this is a distribution that is made to creditors from any asset or income realisations in an administration under the Bankruptcy Act.

Divisible Assets Assets/property which can legally be sold in bankruptcy by the trustee.

Eligible employee creditor A creditor (including the Australian Taxation Office in respect of the superannuation guarantee charge) who, in a winding up of a company, would normally be paid their employment-related entitlements in priority to other unsecured debts. These creditors are given a special right to vote on a deed of company arrangement proposal that seeks to modify their priority.

Eligible unsecured creditor A creditor who is entitled to have a say in a pooling determination made by a liquidator. The term generally covers the external unsecured creditors of the group, but excludes debts owing between companies in the pooled group. A pooling determination relates to a decision to treat the affairs of a group of companies as if it were a single external administration.

Examinable Affairs In relation to a person means the person's dealings, transactions, property and affairs and the financial affairs of an associated entity of the person in so far as they are or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs.

Excluded employee An employee who has also been a director of the company, or a relative of a director, at any time in the 12 months before the appointment of an external administrator. Excluded employees are entitled to only limited priority for repayment of their outstanding entitlements.

Exempt Assets Assets/property which cannot be sold in bankruptcy by the trustee. These are identified in s116 of the Bankruptcy Act.

Extension of Bankruptcy If a bankrupt fails to co-operate with their trustee, or fails to meet the requirements of the Bankruptcy Act, their bankruptcy can be extended to a 5 or 8 year period from the date they file their Statement of Affairs with ITSA through the Official Receiver. In certain circumstances, the period of bankruptcy does not commence until a bankrupt returns to Australia.

External administrator A general term for an external person formally appointed to a company or its property. Includes provisional liquidator, liquidator, voluntary administrator, deed administrator, controller, receiver, and receiver and manager. Other than a liquidator for a members’ voluntary liquidation and a controller who is not a receiver or receiver and manager, an external administrator is required to be registered by ASIC. An external administrator is sometimes also referred to as an insolvency practitioner.

Fixed charge A charge taken by a lender over particular assets of a company. The company may not dispose of these assets without the consent of the lender.

Floating charge A charge taken by a lender over general assets of a company. The company is usually able to use and dispose of these assets (e.g. stock, debtors) in the ordinary course of business without the secured creditor’s consent. A floating charge converts to a fixed charge over those assets if certain events listed in the charge document occur. These usually include the appointment of a liquidator or other external administrator.

Fringe Benefit Is a benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986.

Garnishee This is an automatic deduction arranged without a person's consent from their income or bank account due to non payment of a debt. A trustee in bankruptcy can garnishee income or monies held by third parties on behalf of a bankrupt, where the bankrupt has been assessed as liable to pay a sum of money from their income in their bankruptcy and fail to make payments.

GEERS The General Employee Entitlements and Redundancy Scheme—a basic payment scheme to assist employees who have lost their jobs as a result of their employer’s liquidation or bankruptcy, and are owed certain employee entitlements.

Household Property Items that a bankrupt is able to retain when they become a bankrupt. A list of items can be found in Bankruptcy Regulation 6.03.

Indemnity An agreement between the external administrator and a third party to cover the fees and other debts incurred by the external administrator.

Insolvent Unable to pay all debts when they fall due for payment.

Intangible asset An asset with no identifiable physical form (e.g. a contractual right, copyrights, patents and goodwill).

ITSA Insolvency and Trustee Service, Australia. It is the Commonwealth Government agency that becomes the trustee when a private bankruptcy trustee is not appointed in a bankruptcy or other arrangement under the Bankruptcy Act.

Liability A legal obligation to pay a person.

Liquidation The orderly winding up of a company’s affairs. It involves realising the company’s assets, cessation or sale of its operations, distributing the proceeds of realisation among its creditors and distributing any surplus among its shareholders. The three types of liquidation are: court, creditors’ voluntary and members’ voluntary.

Liquidator A natural person appointed to administer the liquidation of a company.

Member (of a company) A shareholder.

Members’ voluntary liquidation A liquidation for solvent companies, initiated by the company.

NPII National Personal Insolvency Index. It is a computerised data base of all personal insolvencies in Australia, both past and present.

Objection The period of bankruptcy can be extended by a trustee. When this happens, the trustee lodges an Objection with the Official Receiver at ITSA. Once it is registered on the National Personal Insolvency System, it is an valid objection. A trustee can lodge an objection If a bankrupt fails to co-operate, or fails to meet the requirements of the Bankruptcy Act. In this instance, a bankruptcy can be extended to a 5 or 8 year period from the date the bankrupt files their Statement of Affairs with ITSA through the Official Receiver. In certain circumstances, the period of bankruptcy does not commence until a bankrupt returns to Australia.

Officer (of a company) A director, secretary or external administrator (in most cases) of the company.

Official Receiver Is a person who administers statutory functions under the Bankruptcy Act for the government/ITSA. The functions performed are different to a trustee.

Official Trustee in Bankruptcy Is the government equivalent of a registered trustee. This role is performed by employees at ITSA.

Ordinary Resolution A resolution passed by a majority in value of the creditors present personally, by telephone, by attorney or by proxy at a meeting of creditors and voting on the resolution.

Part IX This is commonly known as a Debt Agreement. It is a flexible formal agreement entered into with creditors under the Bankruptcy Act.

Person A natural person or a company.

Personal Insolvency Agreement (PIA) This is a formal arrangement under the Bankruptcy Act between a debtor and their creditors for finalising their debts. PIA's came into effect on 1/12/04.

Poll (of creditors) A voting procedure where both the number of creditors voting a particular way and the value of their debts is considered in deciding if a resolution is approved or not.

Pooling The practice of treating the affairs of a group of companies as if it were a single external administration.

Preference This arises where a bankrupt pre bankruptcy has paid one or more creditors money or transferred an asset to them in priority to other creditors. A trustee can claw back this transaction once they establish 5 criteria to enable all creditors to share.

Prescribed information This is information that MUST be read by a debtor before making an application for bankruptcy or submitting a proposal to ITSA for a debt agreement under the Bankruptcy Act.

Prescribed provisions Provisions that the Corporations Act 2001 takes to be included in a deed of company arrangement, unless the deed specifically excludes them.

Priorities The order set down by the Corporations Act 2001 for the payment of unsecured creditors of an insolvent company by an external administrator.

Priority creditor An unsecured creditor entitled to be paid ahead of other creditors (e.g. employees).

Proof of debt A prescribed form to be completed by creditors at the liquidator’s request, setting out details of their claim against the company, including how the debt arose and the amount claimed.

Protected Monies Monies that cannot be claimed by a trustee eg personal compensation money paid or payable for an injury, certain government grants.

Provable Debt This is an amount that a creditor is entitled to claim for in a bankruptcy to participate in any distribution that may arise by way of a dividend.

Provisional liquidator A liquidator appointed by the court to preserve a company’s assets until a winding-up application is decided.

Proxy A person appointed by another person to represent them at a meeting. A proxy is usually entitled to attend and vote on behalf of the person who appointed them. In an external administration, the appointer is usually a creditor or shareholder.

Proxy form A prescribed form that must be completed by creditors or shareholders to appoint a proxy for a creditors’ or shareholders’ meeting.

Public examination A liquidator, voluntary administrator, deed administrator, ASIC or a person authorised by ASIC to do so can apply to the court to question an externally administered company’s directors or any other person who may be able to give information about the affairs of the company.

Released from debt At the date of discharge a bankrupt is released from most debts. This means the bankrupt is no longer responsible for or have to pay those debts. A debtor subject to a Part X agreement is also released from their debts when they meet certain conditions within their agreement with creditors.

Realise Convert assets into cash, often by selling them.

Receiver An external administrator appointed by a secured creditor to realise enough of the assets subject to the charge to repay the secured debt. Less commonly, a receiver may also be appointed by a court to protect the company’s assets or to carry out specific tasks.

Receiver and manager A receiver who has, under the terms of their appointment, the power to manage the company’s affairs.

Receivership An insolvency procedure where a receiver, or receiver and manager, is appointed over some or all of the company’s assets.

Registered Trustee A person who is registered with ITSA to be a trustee of bankruptcies and Part X arrangements.

Report as to affairs A prescribed form required to be completed by the directors and secretary of a company in liquidation or receivership, giving details of the company’s assets and liabilities, and the identities of the creditors and debtors.

Resolution A resolution passed by a majority in value of the creditors present personally, by telephone, by attorney or by proxy at a meeting of creditors and voting on the resolution.

Salary Sacrifice For the purposes of assessing the amount a bankrupt will be required by law to contribute towards their bankruptcy, salary sacrifice arrangements with an employer are taken into account. This could be schools fees paid by an employer or additional superannuation paid instead of salary.

Secured creditor A creditor who has a security (e.g. charge or mortgage) over some or all of a company’s property.

Sequestration Order An order made before a Registrar of the Federal Court, a Federal Magistrate or a Judge in the Federal Court making a person bankrupt based on a Creditor's Petition or other application as outlined under the Bankruptcy Act.

Shadow director A natural person not on the public register as a director of a company but who directs and manages the company’s affairs and is taken by the Corporations Act 2001 to be a director.

Special Resolution A resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by telephone, by attorney or by proxy at a meeting of creditors and voting on the resolution.

Tangible asset An asset with a physical form (e.g. stock or real estate).

Trustee This is a person who administers a bankruptcy or Part X administration. It is either a private bankruptcy trustee or ITSA as the Official Trustee in Bankruptcy.

Uncommercial transaction A transaction that was unreasonable for a company to have entered into. It may be able to be set aside by the company’s liquidator provided it occurred within 2 years prior to the winding up, and when the company was insolvent or if the company became insolvent by entering into the transaction.

Undervalued Transaction Is a transaction where less than market price has been paid for an asset in consideration of a transfer in ownership or the asset. A trustee has the ability to recover the asset or difference in purchase price paid.

Unfair preference A payment made or other benefit given to a creditor by an insolvent company which causes that creditor to be in a more favourable position than other unsecured creditors in a liquidation. The company’s liquidator can seek to recover an unfair preference provided it occurred within 6 months prior to the liquidation, and when the company was insolvent or if the company became insolvent by making the payment or giving the benefit.

Unsecured creditor A creditor who does not hold a security over a company’s property.

Voluntary administration An insolvency procedure where the directors of a financially troubled company or a secured creditor with a charge over most of the company’s assets appoint an external administrator called a ‘voluntary administrator’. The role of the voluntary administrator is to investigate the company’s affairs, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.

Voluntary administrator An external administrator appointed to carry out the voluntary administration of a company.

Winding-up order A court order for the winding up of a company. The first step in a court liquidation. Usually made after an application by a creditor.

Working Day For a first meeting of creditors to consider a Personal Insolvency Agreement it is any day other than a Saturday, Sunday or public holiday.