What Happens to Cash at Bank When Company Liquidation?
Company liquidation problems are frequently perplexed about what they can and cannot keep after declaring bankruptcy. So much so that there are some myths about company liquidation.
One of the most frequently asked questions is, "What happens to my cash at the bank?"
In this article, we will first define bankruptcy, then explain what happens after an individual declares bankruptcy, and finally what happens to money in a bank.
What is company liquidation?
Company liquidation is that liquidation,disposition and distribution of company property and debt relations after declaring bankruptcy. It means an individual's inability to pay their debts. Simply put, the person's liabilities have outweighed their assets.
A person can become bankrupt by either:
- Filing a debtor's petition;
- Obtaining a court order obtained by a creditor.
What happens in a bankruptcy?
When a person is declared bankrupt, he or she is free of all provable debts. A bankruptcy trustee will be appointed to collect and sell the bankrupt's divisible property. The following properties are divisible:
- Real estate (land, house, etc. );
- Automobiles of a certain value;
- Investments such as stocks and cryptocurrencies.
Superannuation funds are generally not divisible property. There are, of course, exceptions.
What about creditor’s petition?
If you owe a creditor $10,000 or more, the creditor can petition the Court to declare you bankrupt. This is referred to as a creditor's petition. Prior to filing a creditor's petition, a creditor must comply with certain formalities. A summary follows:
To prove that you owe the creditor more than $10,000, the creditor must first obtain a Judgment or Order. The judgment or order must also be less than six years old at the time the creditor's petition is filed; and
The creditor must then obtain and serve a Bankruptcy Notice on you. The Bankruptcy Notice specifies how much time you have to pay the creditor.
Failure to pay the amount claimed in the Bankruptcy Notice within 21 days is considered a "act of bankruptcy" under Section 40 of the Bankruptcy Act 1966. (Cth). In order for the creditor's petition to be successful, the creditor must demonstrate that you committed an act of bankruptcy.
If the Court believes you have committed an act of bankruptcy, it will issue a sequestration order. The Order declares and declares you bankrupt.
Appointment of Bankruptcy Trustee
A Bankruptcy Trustee will be appointed to administer your bankrupt estate once an Order for Bankruptcy is issued. A Bankruptcy Trustee is responsible for collecting and selling all of your divisible property in order to pay your creditors. Real property (such as your home) and motor vehicles worth more than a certain amount are examples of divisible property.
What about my cash at bank?
Strictly speaking, a bankrupt's cash is divisible property. The Bankruptcy Act contains no provisions that allow a bankrupt to keep any cash. Some Trustees will collect all of the bankrupt's assets, including all cash in the bank.
At Pearce & Heers, we usually allow a bankrupt to keep an amount sufficient to cover their day-to-day expenses. The amount would be determined by the individual's circumstances. However, as a general rule, we allow a bankrupt to keep around $2,000 to cover their daily expenses. Only in extreme cases would a bankrupt be permitted to keep more than $2,000.
Contact us for assistance
If you have any questions about company liquidation, bankruptcy or simply want to discuss the contents of this article, please contact us at our Brisbane or Gold Coast offices. We may also talk about the alternatives to avoid bankruptcy and company liquidation.