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By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

The idea of bankruptcy began in England in the early sixteenth century when merchants and traders conducted business on credit.  A bankrupt person could face imprisonment until released by the Lord Chancellor after disclosure of all debts and various tasks had been completed.  In the late seventeenth century Lord Kenyon reasserted the old sentiment that “Bankruptcy is considered a crime and a bankrupt in the old laws is called an offender.”

The term “bankruptcy” comes from “banka rupt” or “broken bench”.  The system of bankruptcy evolved as more and more businesses used credit as a form of trade following the onset of the industrial revolution to what we have today where any person unable to pay their debts can petition to be declared bankrupt.

Bankruptcy today is sometimes considered to be an easy option to paying debts.  However, attempting to buck the system can still result in criminal charges being brought against you under the Bankruptcy Act 1966 (Cth)(“the Act”) and if convicted, a gaol term maybe imposed.

In a recent decision in the New South Wales Local Court, Magistrate Compton sentenced a bankrupt Robert King after Mr King pleaded guilty to two charges including concealing, removing or disposing of property within 12 months of presenting a Petition (section 265(7) of the Act) and knowingly making a false declaration (section 267(2) of the Act).  Mr King faced up to 12 month in gaol for each offence.

Prior to presenting his Petition, Mr King received over $130,000 from the sale of a property.  Rather than pay his debts of approximately $88,000, Mr King spent $76,500 over the following three months later advising his trustee that he gambled the monies away on poker machines.  Then to complicate the matter, Mr King provided a false statement to his trustee saying that he had received $30,000 less from the sale of the property.

The Commonwealth DPP pursued the matter and obtained the convictions.  Although Mr King did not receive a prison sentence for either offence, he was subjected to other penalties and the convictions will stay with Mr King for the rest of his life.

The notion of bankruptcy is to relieve a person from financial pressures.  The person must however by bona fide in his dealings with the trustee and so with his/her creditors or criminal and/or civil penalties can result.

For information on the options available to persons or companies suffering financial pressure, contact the Insolvency, Restructuring and Debt Recovery team at Matthews Folbigg Lawyers.

If you would like more information or advice in relation to insolvency, restructuring or debt recovery practice and procedure, contact Darrin Mitchell on 02 9806 7428 or or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:

Jeffrey Brown on (02) 9806 7446 or

Stephen Mullette on (02) 9806 7459 or