Debtor's Welcome to their Brother
Debtor's Welcome to their Brother
The 61st meeting deals with amendments to chapter 15- Insolvency Practitioners Qualifications. From page 23 onward, you will find the draft chapter on the recovery of assets disposed of by the debtor. The chapter discusses fraudulent transactions, particularly gifts disposals, as well as favorable disposals to one creditor on the expense of other creditors.
The report suggests that preferential dispositions to one creditor should not be considered fraudulent where there is a lack of dishonestly on part of the debtor.
The report highlights the problem that the creditors assets are unavailable to creditors because they are held in his wife’s name. The committee rejects the solution of pooling the wife’s property within the husband’s, and instead proposes a category of ‘connected persons’ whereby all disposals made to the debtor by those connected persons would be available to their creditors.
The chapter then discusses the subject of fraudulent preferences on page 51. The committee suggests that to describe preferential payments to creditors as ‘fraudulent’ would be misleading. It also points out to the difficulty in discharging the burden of proof that the disposer had the prerequisite intention.
Yet the report concludes that the requirement of intention should be retained, but that the defense of pressure from the preferred creditor should be continue. Instead, the committee recommends that the burden of proof be shifted onto the preferred creditor, with a presumption of an intention to prefer as the starting point.
The committee recommends that proceedings to set aside a voidable preference should be brought by an Administrator or a receiver in order to increase the protection of unsecured creditors.
The committee makes three recommendations. First, that payments made to secure a guarantor or a surety should be regarded as preferences. Second, the creditor should have available to them any remedies as if the debtor had not made payment to the creditor. Third, the trustee and liquidator should be able to bring proceedings either directly against the guarantor, or jointly against the creditor and their guarantors.
The committee recommends changing the rule that no voidable preference shall be set aside if the deceased was not declared bankrupt before death.
The committee proposes that the court should not recover payments that, the recipient believed, were made in good faith. Court powers after the setting aside of the transaction should be alid out in the legislation. Finally, time limits and prescribed periods were also discussed. A summary of the recommendations is presented in the end.