Bankruptcy Fraud: Concealed Assets and Offences

What Counts as Bankruptcy Fraud

Bankruptcy fraud covers several forms of concealment and dishonesty under Part XIV of the Bankruptcy Act 1966. Part XI deals with administration of deceased estates. The offence provision depends on what happened, when it happened and whose conduct is alleged.

The following provisions address the main conduct trustees encounter.

Section 265(4)(c) includes destroying, falsifying or concealing books relating to the person’s examinable affairs. Those affairs include the financial dealings relevant to the bankruptcy investigation. A missing statement and evidence that someone deliberately destroyed records are different evidentiary propositions.

Section 265 contains specific compliance provisions and defences. For example, subsection (1A) recognises disclosure to the best of the bankrupt’s knowledge and belief for the duties it names. Subsection (9) provides an absence-of-intent-to-defraud defence for specified charges. The applicable provision and defence must be assessed together.

The Statement of Affairs

A statement of affairs is the debtor’s formal account of their financial position, including income, debts, bank accounts and other assets. It also asks about assets held overseas and earlier transfers. It accompanies a voluntary bankruptcy application or is filed after a court makes a sequestration order.

AFSA’s statement of affairs form asks about assets, including money, worth over $5,000 that were sold, gifted or transferred in the previous five years. The requested details include the recipient’s relationship to the debtor, disposal date, estimated value and amount received. That form question has a different period from the 12-month pre-petition offence provisions.

The form’s declaration states that the information is correct so far as the applicant is aware. A knowingly false declaration can engage section 267(2). An omission of an account, income or property can also require examination under section 265 and the relevant disclosure duty. Record the exact question, answer and contradictory evidence, including evidence of what the person knew.

Income non-disclosure requires attention to the duty involved. Concealed earnings can affect the statement of affairs and later information supplied to the trustee. A bank deposit alone does not establish earnings: a loan or transfer between the bankrupt’s accounts can produce the same credit entry.

“Insolvency fraud” is a broader description that also appears in other insolvency settings. Section 268 addresses personal insolvency agreements. Section 269 addresses obtaining credit and other specified conduct without disclosing bankruptcy or a debt agreement. Those sections do not replace the provisions governing concealed assets or false declarations.

Who Investigates and Prosecutes

The trustee investigates the bankrupt estate, AFSA investigates alleged Bankruptcy Act offences and the Commonwealth Director of Public Prosecutions decides whether to prosecute. These are separate responsibilities.

The trustee in bankruptcy examines property and financial affairs through the estate administration. Section 19 includes duties concerning suspected offences and reporting them to the Inspector-General. The trustee gathers supporting documents and makes the referral. Creditors and their lawyers can supply evidence to the trustee or report suspected conduct to AFSA.

The Australian Financial Security Authority (AFSA) administers the regulatory and enforcement functions. Its Insolvency & Securities Investigations team assesses referrals and investigates suspected offences. AFSA’s referral guidance describes outcomes including compliance, an official caution or a brief sent to the Commonwealth Director of Public Prosecutions (CDPP).

The CDPP assesses prosecution. An investigation does not automatically lead to charges, and a referral does not establish guilt. AFSA assesses whether evidence can prove an offence beyond reasonable doubt, the criminal standard of proof.

Evidence of Concealed Assets

Bank statements can expose contradictions between disclosed assets and the bankrupt’s actual transactions. They can show payments to an undisclosed account, transfers to relatives or cash withdrawals inconsistent with the explanation provided.

The next enquiry depends on what the record establishes.

• A transfer description naming another account can identify a destination for further records. Account ownership and the bankrupt’s beneficial interest still need evidence.
• Payments to a relative can be compared with the asset-transfer answers and any repayment explanation. Obtain the recipient’s records through the available lawful process where required.
• Cash withdrawals can be compared with declared cash holdings and the account of how money was spent. A withdrawal proves money left the account, while other evidence establishes where it went.
• Repeated credits can be compared with disclosed employment or business income. Identify their source before classifying them as earnings.

Asset tracing follows the money across accounts and into later transactions. Concealment in family proceedings raises separate disclosure issues, explained in hiding assets in divorce.

From a Discrepancy to a Referral Brief

In a hypothetical matter, a bankrupt lists one Australian account and no overseas assets. Statements show four transfers of $6,000 each to the same foreign destination before the petition. The $24,000 total establishes outflows from the disclosed account. Recipient statements or bank ownership records are needed to establish whether the destination belongs to the bankrupt.

If the destination is the bankrupt’s own account, compare its balance and ownership with the statement of affairs. If a relative received the money, examine the transfer disclosure and explanation. Preserve correspondence that shows what the bankrupt was asked and how they responded.

AFSA identifies banking statements and ownership evidence as referral material. It also lists the statement of affairs, correspondence and proof of service. Page-cited findings let an investigator move from each allegation to the underlying transaction without searching the entire bundle.

Organise the referral around the suspected provision. Identify the relevant conduct and period, then map the supporting evidence to each element. Include the bankrupt’s explanation and records that contradict or support it. AFSA’s offence-referral table explains when evidence of a trustee’s request is required.

FinTrace saves trustees and forensic accountants hours of statement conversion and review by turning supplied PDFs into a searchable Excel ledger and clear findings report. The analysis flags suspicious transfers and possible undisclosed income, with each finding citing the source PDF filename and page. The supporting statement evidence is directly available for the referral brief, while the professional has more time for the wider investigation.

Consequences for the Bankrupt

Bankruptcy offences can lead to imprisonment, and the bankruptcy period can also be extended through an objection to discharge. The criminal process and the discharge process have different requirements.

The table above gives the maximum imprisonment stated for the specified offences. Five years is the maximum for fraudulent disposal under section 266, while section 267(2) states 12 months for a knowingly false declaration. The sentence imposed depends on the offence proved and the court’s sentencing decision. Section 275 preserves criminal liability despite discharge or annulment.

Ordinary bankruptcy lasts three years and one day. For a voluntary bankruptcy, the period runs from acceptance of the debtor’s petition. For a court-ordered bankruptcy, it runs from filing an accepted statement of affairs. A trustee’s objection can extend the period to five or eight years under section 149A, depending on the statutory ground.

AFSA’s objection guidance requires a ground under section 149D and evidence supporting it. Grounds include failures to disclose property or income and failures to provide requested information. Some require intentional conduct. An objection is a statutory administration measure, and the trustee must consider its purpose and utility.

The notice must identify its grounds and supporting evidence. The bankrupt must receive a copy and can seek Inspector-General review, generally within 60 days after notification. A criminal conviction is not a prerequisite for an objection, and an objection does not prove a criminal offence.

For the trustee assessing overseas transfers, preserve the source statements and the disclosure record first. Establish the destination and ownership, then assess the offence referral and any discharge objection against their separate statutory requirements.