The Gold Coast is currently Australia’s leading tourism destination with approximately 10 million visitors every year and is the fastest growing large city with a five year population growth rate of 3.5 per cent. Despite a strong and developing economy, the Gold Coast had one of the highest rates of insolvency in Australia.
What is Insolvency and Bankruptcy?
Insolvency occurs when a person cannot repay their respective creditors. Bankruptcy is a legal state relating to an individual, permitting the orderly repayment and release of their debts. A person may become bankrupt in two ways: first, by filing their own debtor’s petition; or second by a sequential order made by the court on a petition of the creditors. For a creditor to apply to have the debtor declared bankrupt, a creditor must prove that the debtor has committed ‘an act of bankruptcy’.
How does the Gold Coast compare?
For the first time, the Insolvency and Trustee Service of Australia (‘ITSA’), Australia’s personal insolvency and bankruptcy system, has broken down the number of personal bankruptcies across Australia according to postcode. Recent figures released by the ITSA, indicate that more than 1900 people living in the Gold Coast region were declared bankrupt last financial year, which is an increase from the previous financial year. The most stress was felt in the northern end of the Coast, where at least 181 people were declared bankrupt at Nerang, followed by Southport (167), Upper Coomera (149), Beenleigh (147) and Surfers Paradise (137). The Gold Coast appears to be unfavourably represented across Queensland, attributable for about 20 per cent of the state’s 8 483 personal bankruptcies. While Queensland has the third highest population in Australia, it has the second highest number of bankruptcies.
In 2007, Australia’s company bankruptcy rose to a record high with more than 25,964 recorded bankruptcies, but evidence produced by the ITSA reveals that there was a substantial increase in 2009 with over 28,665 bankruptcies.
More recently, statistics indicate that between January and November 2011 a total of 9,178 companies went into insolvency administration, which was up to 22 per cent over the average of the last years and 10 per cent compared to the year before.
While the Gold Coast seems to have has a high rate of insolvencies in recent years, the statistics indicate that bankruptcies around Australia are also increasing. Gold Coast is not out of the woods, but it doesn’t stand alone.
Reasons for bankruptcy
Key findings by the ITSA reveal that ‘unemployment’ or ‘loss of income’ was the largest cause of bankruptcy in non-related business. For businesses, the largest cause of bankruptcy was related to as ‘economic conditions affecting industry’.
Options before you become bankrupt
If you have an unmanageable debt with a creditor, there are some options available before the creditor files for a sequential order to have you declared bankrupt.
First, a debt agreement provides a relatively simple, low-cost and flexible alternative to bankruptcy, allowing debtors to reach a legally binding agreement with their creditors for the settlement of a debt. A debtor can only enter into an agreement with the creditor if the debtor’s income, unsecured debts and assets are below the threshold amount pursuant to the Bankruptcy Act 1966 (Cth).
A debt agreement is viable option as the debtor will not be considered bankrupt, all unsecured creditors will be bound by the debt agreement, creditors cannot take any action against the debtor or property and the debtor will be released from most unsecured debts once all obligations are complied with. However, a debtor who lodges a debt agreement with the government will be considered committing an act of bankruptcy. Consequently, if unsatisfied, a creditor could use this act to apply to the court to make the debtor bankrupt. Another consequence is that the debtor’s name and address will appear on the National Personal Insolvency Index (‘NPI’), a public record, which may affect the ability of a debtor to obtain further credit. Further secured creditors have the option to seize and sell any assets which the debtor has offered as security.
Personal Insolvency Agreement (‘PIA’)
Second, the debtor can propose a personal insolvency agreement (‘PIA’). A PIA provides a process for debtors to make a formal proposal which is then voted by the creditors in a meeting. PIA’s are generally administered by an appointed and registered trustee. Once the proposal is accepted by the special resolution, the debtor and creditors are bound by the agreement. While advantageous for all parties involved, the cost of setting up and administering such as agreement generally requires significant property to be available to creditors.
Declaration to present a debtor’s petition
Third, the debtor can make a declaration to present a debtor’s petition. While this may not be considered a viable option at first instance, a declaration to present a debtor’s petition will stop creditors from taking the debtor’s wages for a period of 21 days. While, the declaration may not prevent a secured creditor from repossessing as asset, a debtor is not bound to become bankrupt upon the 21 days elapsing.
Fourth, where an arrangement cannot be made voluntary bankruptcy may be an option for consideration. The consequences of becoming bankrupt are serious and should only be considered where a debtor absolutely cannot repay their debts. Upon becoming bankrupt, an appointed trustee will sell the debtor’s assets that are not exempt from the Bankruptcy Act 1966 (Cth) to pay the debtor’s creditors to an extent possible. After that period the debtor will be discharged from most of their debts.
Choosing the right option to avoid bankruptcy will vary in every circumstance. But if you have an unmanageable debt, Ramsden Lawyers can assist you with re-organising your affairs and help you overcome or prevent financial difficulty in the future.
“For more information and advice about this topic, please call our office to speak with one of our experts in this area”.
By John Ramsden, Lawyer and Managing Partner of Ramsden Lawyers.
31 Jul 2012