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Debt Glossary

A

Annual Meeting & Annual Report – Liquidators of Voluntary Windings Up (whether members or creditors voluntary wings up) are required under section 508 of the corporations Act to either
(i) hold an annual meeting of members and creditors of the company; or
(ii) lodge an annual report with ASIC detailing the position of the winding up.

ASIC – The Australian Securities and Investments Commission

Associated Entity – in relation to a person, means;

  1. an entity (other than a company) that is, or has been, associated with the person; or
  2. a company that is, or has been, associated with the person at a time when the company is, or was, as the case may be, a private company.

Asset Shifting – The fraudulent moving of assets onto or off an entity’s financial statements in order to manipulate the appearance of the financial health of the entity.

AFSA - Australian Financial Security Authority

B

Bankrupt – a person:

  1. Against whose estate a sequestration order has been made: or
  2. Who has become bankrupt by virtue of the presentation of a debtor’s petition and remains undischarged (an undischarged bankrupt).
  3. A discharged bankrupt is a bankrupt who has been discharged from bankruptcy under section 149 of the bankruptcy act.

Bankruptcy Notice – A notice issued by the official receiver to a debtor under section 41 of the bankruptcy act requiring the debtor to satisfy a judgment debt with a specific time period.

Blackmail – The offense of making an unwarranted demand with a threat of financial or person loss or harm to the person threatened, or for a personal gain to oneself.

Bribery – The offense relating to the improper influencing of a person in a position of trust.

C

Caveat – A notice, usually on a register, to place the public on notice that no action of a certain kind may be taken without first informing the person who gave notice. The most common use is placing a notice on the title of real property to protect an interest in that property.

Close Associate – (Corporations Act) of a director means;

  1. a relative or de facto spouse of the director; or
  2. a relative of a spouse, or of a de facto spouse of the director.

Committee of Creditors – A smaller body of creditors or its representatives (usually 3 to 7) that have been elected by the main body of creditors to represent them at meetings with the appointee to the insolvency estate. The committee has the same powers as the general body of creditors in making resolutions at meetings.

Composition – One of the two types of agreements that can be made between a bankrupt and their creditors (under section 73 of the bankruptcy Act) during bankruptcy. Acceptance of a proposal for a Composition will annul the bankruptcy.

Conflict of Interest – A position where an employee has an undisclosed interest in a transaction that adversely affects their employer (whether financial or otherwise).

Controller – in relation to property of a corporation;

  1. a receiver, or receiver & manager, of that property; or
  2. anyone else who )whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a charge (Mortgagee in Possession or their agents).

Corruption – An offense relating to the improper influencing of a person in a position of trust.

Creditor – an entity that is owed money by another.

Creditor’s Petition – an application (a petition) to the Courts to place a debtor into an insolvent estate (bankruptcy for a person or liquidation for a company) under an Order of the Court. The application is usually made by a creditor, or more than one creditor jointly, that has an unsatisfied Bankruptcy Notice or Statutory Demand. The application must be heard by the Courts.

Creditors’ Voluntary Winding Up – Is the winding up of an insolvent company under Part 5.5 of the Corporations Act. This type of winding up may be commenced through the Voluntary Administration provisions of the Corporations Act, or through a meeting of the company’s members through the voluntary winding up provisions.

D

Debt Agreement – means an agreement under section 185H of the Bankruptcy Act resulting from the acceptance of a debt agreement proposal under Part IX of the Bankruptcy Act.

Debt for Equity Swap – Where a company agrees to capitalize a debt, by setting off the amount payable by the company under the debt against an amount due by the creditor for an issue of shares.

Debtor – An entity that owes money to another (a creditor).

Debtor’s Petition – means a petition presented by a debtor against himself or herself and includes a petition presented against a partnership in pursuance of section 56 of the bankruptcy Act and a petition presented by joint debtors against themselves in pursuance of section 57 of the bankruptcy Act.

Deed of Company Arrangement – means a deed of company arrangement executed under Part 5.3A of the Corporations Act or such a deed as varied and in force from time to time. It is a formal arrangement entered into between an insolvent company and its creditors to resolve it outstanding debt without going into liquidation.

Dependant – in relation to bankrupt means a person who:

  1. resides with the bankrupt; and
  2. does not receive any income from a person other than the bankrupt or spouse or former spouse of the bankrupt and:
  3. is wholly dependant on the bankrupt for economic support or partially dependant on the bankrupt and partially on the spouse or former spouse.

Director – A person who:

  1. is appointed to the position of director; or
  2. is appointed to the position of an alternate director and is acting in that capacity regardless of the name that is given to their position.

Unless the contrary intention appears, it also includes a person who is not validly appointed as a director, if:

  1. they act in the position of a director; or
  2. the director of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

Director Penalty Notice – A notice served by the Commissioner of Taxation on a director regarding a remittable amount, under the prompt Recovery Regime.

Disclaiming a Lease – The process where a liquidator of bankruptcy trustee formally terminates an ongoing lease (or other financial obligation), thereby activating the right of the financier to deal with the financed asset.

Doctrine of Exoneration – A principle in equity law that deals with the rights of co owners of property where one co owner has used that property as security for a loan that solely benefited that person. The Doctrine makes assumptions about the roles of principle and surety over the loan and the security.

Dividend – a payment from an insolvent estate on a proved claim in that estate. Dividends are paid under the provisions of the Corporations Act or Bankruptcy Act in the set priorities for different classes of creditors and “pro rata” to the creditors within the class.

E

Eligible Applicant (in relation to public Examinations) – in relation to a corporation, means:

  1. ASIC; or
  2. A liquidator or provisional liquidator of the corporation; or
  3. An administrator of the corporation; or
  4. An administrator of a deed of company arrangement executed by the corporation; or
  5. A person authorized in writing by ASIC to make:
  6. Applications under the division of Part 5.9 in which the expression occurs; or
  7. Such an application in relation to the corporation.

Embezzlement – A dishonest appropriation by an employee of money or property given to him on behalf of his employer. The offense is classified as a form of theft.

Employee Entitlements – Amounts owing the employees of the insolvent usually made up of outstanding wages, commissions etc; outstanding leave entitlements and redundancy payments. These entitlements are generally Priority claims in insolvent estates, but the level of that priority and the amount of the entitlement that is priority varies in certain circumstances.

Entity – means a natural person, company partnership or trust.

Examinable Affairs – in relation to a bankrupt means,

  1. the persons dealings, transactions property and affairs; and
  2. 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.

In relation to a company means:

  1. the promotion, formation, management, administration or winding up of the corporation; or
  2. any other affairs of the corporation( including anything that is included in the corporation’s affairs because of section 53); or
  3. the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation’s examinable affairs because of paragraph (a) or (b)

Externally Administered – means a company:

  1. that is being wound up; or
  2. in respect of property of which a receiver, or a receiver and manager, has been appointed (whether or not by a court) and is acting; or
  3. that is under administration; or
  4. that has executed a deed of company arrangement that has not yet terminated; or
  5. that has entered into a compromise or arrangement with another person the administration of which has not been concluded.

Extortion – The offense of using ones position to take money or other benefit that is not due for the purpose of exercising that position.

F

Final Meeting of Creditors – Liquidators of Voluntary Windings Up (whether Members or Creditors Voluntary Wings Up) are required under section 509 of the corporations Act to hold a final meeting of members and creditors of the company to advise of the finalization of the winding up and present a the final accounts of the winding up.

Floating Charge – includes a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge.

Forensic Accounting – The application of accounting and business knowledge to purposes of law. E.g. detecting fraud, analyzing or reconstructing books and records.

Forgery – The offense of making a false instrument or document so that it may be passed off as the original.

Fraud – A False representation (a deception) by means of a false statement or conduct in order to gain an advantage (usually commercial) over another.

G

Ghost Employee – An employee that is falsely entered into the records of a company as a current employee but that does not work for the company.

H

Holding Company – in relation to a body corporate, means a body corporate of which the first body corporate is a subsidiary.

I

Identity Theft – Stealing personal information about an individual and setting yourself up with that person’s identity. This usually used to conduct fraud on financial institutions in the victims name, leaving the victim with the debts.

Incapacitated Entity – An entity that is in liquidation or receivership, or which has a representative appointed; and a person that in bankrupt or who has entered into some arrangement under the Bankruptcy Act.

Income Contribution Assessment – The assessment of a bankrupt’s income by their Trustee to determine whether the bankrupt is liable under the Bankruptcy Act to pay a contribution to their estate.

Indemnity – An enforceable agreement by one person to pay another person sums of money that are owed, or may become owed, due to a costs, loss or damage, especially in the form of financial compensation.

Insolvent – A State of not being able to satisfy ones debts as and when they become due and payable. Insolvency can also be deemed for non-satisfaction of a Bankruptcy Notice or a Statutory Demand.

Insolvent Trading – A claim that a liquidator of a company may make against a Director of that company for compensation. The amount of compensation is calculated on the amounts of debts incurred by the company, that remains unpaid at the time liquidation and that were incurred when the director knew or should have known, that the company was insolvent.

Insolvent under Administration – means a person who:

  1.  
    1. under the Bankruptcy Act 1966 or the law of an external Territory, is a bankrupt in respect of a bankruptcy from which the person has not been discharged; or
    2. under the law of an external Territory or the law of a foreign country, has the status of an undischarged bankrupt; and includes:
    3. a person any of whose property is subject to control under:
  2. section 50 or Division 2 of Part X of the Bankruptcy Act 1966; or
  3. a corresponding provision of the law of an external territory or the law of a foreign country; or
    1. a person who has executed a personal insolvency agreement under:
  4. Part X of the Bankruptcy Act 1966; or
  5. The corresponding provisions of the law of an external territory or the law of a foreign country;

Territory or the law of a foreign country;
Where the terms of the agreement have not been fully complied with.

J

Joint Tenancy – Ownership of land by two or more persons who have identical interests in the whole of the land. Joint Tenancy can arise only when 4 conditions are satisfied:

  1. Each joint tenant is entitled to possession at the same time;
  2. The interests must be identical
  3. Each must have the same title
  4. The interests must exist at the same time.

Judgement – means a judgement, decree or order, whether final or interlocutory, obtained by way of a decision of a court, made pursuant to an application to the court to make that decision.

K

Kickbacks – Also referred to as “Secret Commissions”. The payment of money or some other consideration to a business employee or official for the effect of influencing a decision.

L

Lapping – A term used to describe a technique used to hind fraud, whereby a new fraud is committed and the proceeds used (at least in part) to hide or resolve the initial fraud. This technique can be used in a never-ending cycle. This technique is commonly used when monies are being skimmed from businesses.

Lease – A contract under which the lessor grants the lessee exclusive possession of the property for an agreed period, usually in return for rental and, sometimes, a capital sum called the premium. These are to be distinguished from Chattel Mortgages that are a security over assets owned by the entity or person.

Liquidation – The process of winding up a company’s affairs, having a liquidator appointed to the company, whether it solvent (members voluntary winding up) or insolvent (creditors voluntary winding up or Official Liquidation by the Courts).

Liquidator – A personal able to be appointed to oversee the winding up of a company. See “Registered Liquidator” and “Official Liquidator”

M

Maintenance Agreement – Under the Bankruptcy Act means a maintenance agreement, within the meaning of the family law act 1975, that has been registered in or approved by a court in Australia or an external territory or any other agreement with respect to the maintenance of a person that has been so registered or approved.

Members Voluntary Winding Up – This is the process of winding up a solvent company, done when the members no longer wish to retain the company structure. There can be a number of reasons for the members wanting to do this, but usually it is because the company has reached the end of its useful life. This is the company. It ensures that outstanding creditors are paid in full and protects the members’ interests while the company structure is dismantled.

Money Laundering – Knowingly using monies obtained from illegal activities for legitimate purposes, to wash the monies clean.

Mutual Credit and Setoff – (in relation to proving a claim) where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:

  1.  
    1. an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
    2. the sum due from the one party is to be set off against any sum due from the other party; and
    3. only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

N

National Personal Insolvency Index (NPII) – in Bankruptcy, means the index of that name established under the Bankruptcy regulations.

Net Value – in relation to property, means:

  1. if the property is unencumbered: the value of the property;
  2. if the property is encumbered and the unencumbered value of the property exceeds the amount or value of the encumbrances: the amount of the excess; or
  3. in any other case: a nil amount.

Net Worth – (in Bankruptcy) in relation to an entity, in relation to a time, means:

  1. if the entity is a trust and the total value of the trust property as at that time exceeds the total of the amounts of the trustee’s liabilities as at that time (other than liabilities constituted by the rights of persons as beneficiaries under the trust): the amount of the excess;
  2. if the entity is not a trust and the total value of the entity’s assests as at that time exceeds the total of the amounts of the entity’s liabilities as at that time the amount of the excess; or
  3. in any other case; a nil amount.

O

Objections to Discharge – A process where a Trustee in Bankruptcy may apply for the extension of the term of a bankruptcy (effectively keeping someone bankrupt for an extended period). Objections to Discharge must be based on some ‘Ground’ and – depending on that Ground – the extension may be for 2 or 5 years. This process is possible under Division 2 of Part VII of the Bankruptcy Act.

Officer of a Company – means:

  1. a director or secretary of the corporation; or
  2. a person:
  3. who makes, or participates in making, decisions that affect the whol, or a substantial part, of the business of the corporation; or
  4. who has the capacity to affect significantly the corporation’s financial standing; or
  5. in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or
  6. a receiver, or receiver and manger, of the property of the corporation; or
  7. an administrator of the corporation; or
  8. an administrator of a deed of company arrangement executed by the corporation; or
  9. a liquidator of the corporation; or
  10. a trustee or other person administering a compromise or arrangement made between the corporation and someone else.

Official Liquidator – means a person registered as an official liquidator under section 1283 of the Corporations Act. (Also see “Liquidator” and “Registered Liquidator”)

P

Part IX – Part IX (Nine) of the Bankruptcy Act, dealing with the administration of smaller insolvent estates outside bankruptcy.

Part X – Part X (Ten) of the Bankruptcy Act, dealing with administration of insolvent estates outside of bankruptcy leading to a proposal by a debtor to their creditors to enter into a Personal Insolvency Agreement.

Personal Insolvency Agreement – The name of the agreement that can be made between a debtor (being a real person) and their creditors under Part X of the Bankruptcy Act.

Preferential Payment – A payment(s) to a creditor made under certain circumstances whilst the payer is insolvent, where that payment is recoverable from the recipient by a Liquidator of a company or  Trustee of a Bankrupt Estate.

Proof of Debt – Specific forms under the corporations Act and Bankruptcy Act for a creditor to prove the existence and quantum of their claim against the insolvent estate in the estate for voting and dividend purposes. The forms have to be in accordance with form 535 (or form 536 for employee claims) under the corporations Act and Form 8 under the Bankruptcy Act.

Proxy – The agency, function, or office of a deputy who acts as a substitute for another. Authority or power to act for another by a document giving such authority. In Insolvent estates, the appointment of a proxy is performed by the creditor for attendance at meetings of creditors under the appropriate forms.

Public Examination – In relation to a company: a common name given to the process of examining parties that are connected to the company about the affairs of the company. These examinations are conducted by the courts under section 596A and section596B of the Corporations Act. In relation to a bankrupt: a common name given to the process of examining parties that are connected to the bankrupt about the affairs of the bankrupt. These examinations are conducted by the Courts under section 81 of the Bankruptcy Act.

Pyramid Scheme – Any scheme that relies on each new level of participants to find people to make up a lower level in order to obtain a return from the scheme. These schemes also include Chain Letter schemes.

Q

Quorum Corporations Act – In relation to the Corporations Act, a quorum consists of:

  1.  
    1. if the number of persons entitled to vote exceeds 2: at least 2 of those persons; or
    2. if only one person is, or 2 persons are, entitled to vote: that person or those persons; present in person or by proxy or attorney.

Quorum Bankruptcy Act – In relation to the Bankruptcy Act, a quorum is constituted by:

  1. the presence in person of the trustee ( or the trustee’s representative); and
  2. a creditor, or a proxy or attorney of a creditor, participating in person or by telephone.

Note: A meeting requires at least 2 persons. Therefore the person covered by paragraph (2)(a) cannot also be the proxy or attorney of the creditor covered by paragraph (2)(b).

R

Receivers and Mangers – A receiver of property of a body corporate is also a manger if the receiver manages, or has under the terms of the receiver’s appointment power to manage, affairs of the body.

Registered Trustee – Means a person that has been registered to act as a Trustee under Division 1 of Part VIII in appointments under the Bankruptcy Act.

Related Company – Where a company is:

  1. a holding company of another company; or
  2. a subsidiary of another company; or
  3. a subsidiary of a holding company of another company; the first-mentioned company and the other company are related to each other.

Related Entity – in relation to a company, means any of the following

  1. a promoter of the body;
  2. a relative, or de facto spouse, of such a promoter;
  3. a relative of a spouse, or of a de facto spouse, of such a promoter;
  4. a director or member of the body or of a related body corporate;
  5. a relative, or de facto spouse, of such a director or member
  6. a relative of a spouse, or of a de facto spouse, of such a director or member
  7. a body corporate that is related to the first-mentioned body
  8. a beneficiary under a trust of which the first-mentioned body is or has at any time been a trustee;
  9. a relative, or de facto spouse of such a beneficiary ;
  10. a relative of a spouse, or of a de facto spouse, of such a beneficiary;
  11. a body corporate one of whose directors is also a director of the first-mentioned body;
  12. a trustee of a trust under which a person is a beneficiary, where the person is related entity of the first-mentioned body because of any other application or applications of this definition.

Relation-Back Day – in relation to a winding up of a company means:

  1. if, because of Division 1A of Part 5,6, the winding up is taken to have begun on the day when an order that the company or body be wound up was made-the day on which the application for the order was filed; or
  2. Otherwise-the day on which the winding up is taken because of Division 1A of Part 5, 6 to have begun.

Resolution – A motion moved at a meeting of creditors (or a committee) that is approved by the required majority of creditors (more than 50% in number and 50% in value) voting for the motion. For a special Resolution under the Bankruptcy Act a majority of 50% in number and 75% in value is required. The Corporations Act has no special resolutions.

Retrenchment Payment – in relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee’s employment by the company, whether the amount becomes payable before, on or after the relevant date.

S

Scheme of Arrangement – One of the two types of agreements that can be made between a bankrupt and their creditors (under section 73 of the Bankruptcy Act) during bankruptcy. Acceptance of a proposal for a scheme of arrangement will annul the bankruptcy.

Section 73 Arrangements – Arrangements that are made by bankrupts with their creditors to provide for the annulment of the bankruptcy and the creation of a formal obligation for the ex-bankrupt to satisfy their creditors (wholly or in part) over time.

Sequestration Order – An order made by the Federal Court at the gearing of a creditor’s petition against a personal debtor ( a real person as opposed to a company) that makes that person an undischarged bankrupt.

Skimming – A technique for fraud whereby the perpetrator steals a portion of monies coming into a business and fails to record the receipt of those monies. In cases where the monies may be eventually missed, a technique of lapping is commonly used to delay discovery.

Surfing – A technique commonly used in money Laundering whereby large amounts of cash are broken up into many smaller amounts for deposit, so that each smaller amount is less under the statutory limit for cash transaction reporting.

Solvent – means being able to pay all ones debts as and when they fall due.

Special Resolution – Under the Bankruptcy Act, means a resolution passed by a majority in number and at least three-fourths in value of the creditors present at a meeting of creditors and voting on the resolution.

Statutory Demand – A demand in the appropriate form (Form 509H) served by a creditor on a debtor company requiring the company to satisfy or otherwise secure or compound the debt to the creditors satisfaction within 21 day period from service of the notice. Non-satisfaction of the debt under the notice is used to deem that the company is insolvent is winding up proceedings.

Statutory Trustee – An appointment under a states property law legislation ( for example: section 38 of the QLD property law act) of Trustees to be held by them on the statutory trust for sale or on the statutory trust for partition.

Subordinate – To treat as less important. In relation to a claim in a insolvent estate: to place it behind other claims in priority.

Subrogation – The substitution of one person for another so that the person substituted succeeds to the rights of the other.

Subsidiary – in relation to a body corporate, means a body corporate that is a subsidiary of the first-mentioned body by virtue of Division 6.

A body corporate is a subsidiary of another body corporate if, and only if:
(a) the other body:
(i) controls the composition of the first body’s board; or
(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or

  1. holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
  2. the first body is a subsidiary of a subsidiary of the other body.

Superannuation Contribution – in relation to a company, means a contribution by the company to a fund for the purposes of making provision for, or obtaining, superannuation benefits for an employee of the company, or for dependants of such an employee.

T

Tenants in Common – Equitable ownership of land by two or more persons in equal or unequal undivided shares. The share does not automatically pass to the other owners under a right of survivorship (as with joint tenancy).

Trustee (in Bankruptcy) – means:

  1.  
    1. in relation to a bankruptcy: the trustee of the estate of the bankrupt;
    2. in relation to a Personal Insolvency Agreement under Division 6 of Part IV: the trustee of the Personal Insolvency Agreement:
    3. in relation to the estate of a deceased person in respect of which an order has been made under Part XI: the trustee of the estate; or
    4. in relation to a trust
  2. if only one person is a trustee of the trust: that person; or
  3. if 2 or more persons are trustees of the trust: any one or more of those persons;

in his, her or its capacity as a trustee, or in their respective capacities as trustees, as the case may be, of the trust.

U

Ultimate Holding Company – in relation to a body corporate, means a body corporate that:

  1. is a holding company of the first-mentioned body; and
  2. is itself a subsidiary of no body corporate

Ultra Vires – Beyond the powers. Describes an act that goes beyond the limits of the lowers conferred upon the entity or person. Ultra vires acts are usually invalid.

V

Vexatious Action – An action brought for the purpose of annoying the opponent and with no reasonable prospects of success. The actions may be struck out and the Court may order that no legal proceedings may be begun or continued without the leave of the court.

Vexatious Litigant – A person who regularly brings vexatious actions

Virtual Meeting – The common name given to the process of trustees passing a single Creditors’ Resolution without calling a physical meeting of creditors – done under section 64ZBA of the Bankruptcy Act.

W

Wholly-Owned Subsidiary – in relation to body corporate, means a body corporate none of whose members is a person other than:

  1. the first-mentioned body; or
  2. a nominee of the first-mentioned body; or
  3. a subsidiary of the first-mentioned body, being a subsidiary none of whose members is a person other than
  4. the first-mentioned body; or (ii) a nominee of the first-mentioned body; or
  5. a nominee of such a subsidiary
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