Recent amendment to section 121 of the Bankruptcy Act tips balance towards creditors.

Simplistically, section 121 deals with transfers that were enacted with the intention of protecting property from creditors. The transfer does not need to have happened within a particular time period to be subject to the section. It is the intention of the transfer that is important.

Proving intention can be done in many ways, but the most common would have to be showing that the now bankrupt was or was about to become insolvent. Showing insolvency at the time of the transfer was then a major part of investigations.

The amendment to this section is to provide a presumption of insolvency, albeit rebutttable. subsection 4A states:

For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:
(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or
(b) having kept such books, accounts and records, has not preserved them.

Now, if the transferor (the bankrupt) did not keep proper records, insolvency can be presumed, and the required intention can be deemed.

The other major amendment is the addition of a new circumstances that does not give rise to consideration in the transfer. That is set out in subsection (6):

(e) if the transferee is the spouse of the transferor the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .

This stops the transferor transferring their interest in their residential home to another person for consideration being the right to reside there.

*This article provided by Worrells

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