On 31 May 2006 amendments to the Bankruptcy Act came into force to strengthen the ability of Trustees to claw-back property disposed of by a bankrupt prior to bankruptcy. Amendments are briefly summarised below:
* House in the Name of Spouse – A Trustee will be able to recover the increase in value of a property held in another person’s name where the bankrupt has diverted income to the benefit of the property. This will apply to a period up to five years before bankruptcy where the bankrupt derives a benefit from the property. For example, the bankrupt pays the mortgage on a property owned in his wife’s name where they both reside.
* Increase Clawback Period - The time period where a Trustee can claw back property that was transferred to a related entity for less than market value will be increased from 2 years to 4 years.
* Keeping Records – Where a bankrupt carried on a business there will be a rebuttable presumption of insolvency where the bankrupt failed to keep proper books & records or destroyed books & records.
* Wilful Blindness - A transfer will not be protected if it could be reasonably inferred that the main purpose of the transfer was to defeat creditors. In other words, a transferee cannot rely on wilful blindness.
* Directing Payments to Third Parties – A new provision will limit the ability of a purchaser of the bankrupt’s property to divert payment to a third party.
