Both the Bankruptcy Act 1966 and Corporations Act 2001 were introduced at different times with different objectives in mind. Over the years a number of inconsistencies have grown between them, some examples of which will be provided below.

Acting as Company Director

According to the Corporations Act a director who becomes an undischarged bankrupt or has entered into a personal insolvency agreement under Part X of the Bankruptcy Act will be automatically disqualified from managing corporations and will cease to be a director. However, there is no similar restriction from being a director if you also act as a director for another company that is currently in liquidation. There is a process that can be undertaken by the Australian Securities Investments Commission (ASIC) to enforce a ban upon a director.

The inconsistency between the two Acts are that an individual who is unable to pay an amount of $5,000 to their creditors cannot remain a director, whereas an individual who has lost millions of dollars’ worth of creditor’s money through a company can remain a director unless ASIC takes action against them.

Trading whilst insolvent

Under the Corporations Act, directors are held personally liable for debts that are incurred whilst the company is insolvent. A breach of this by a director is an offence with a possible imprisonment of up to five years. On the other hand, the Bankruptcy Act does not impose any criminal sanctions for incurring debts whilst insolvent.

Related Parties

A limit is placed on the dividends payable to excluded company employees under the Corporations Act (e.g. employees that are related to director). The Corporations Act also provides a method for recovering assets from close associates of the director. No such provisions are evident in the Bankruptcy Act.

Meetings of Creditors

Some of the differences between the two Acts in relation to meetings of creditors are:

  • The number of creditors required for a quorum (minimum number of people required at a meeting): Under the Bankruptcy Act one person is sufficient, whereas under the Corporations Act two people are required.
  • What constitutes a majority: Under the Bankruptcy Act the majority is determined by value, whereas under the Corporations Act the majority is based on the number of voters.

If you require any further information in relation to the above, please do not hesitate to contact the tax lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry form.