Bankruptcy is a state which can only be applied to an individual, never a company. If a company is insolvent it may be placed in liquidation.
When an individual is unable to meet his or her debts as they fall due he or she may be bankrupted by the Court on a creditor’s petition. Alternatively, the individual may apply to the Insolvency Trustee to be made bankrupt.
The immediate effect of bankruptcy is to place the assets of the bankrupt under the control of the Official Assignee. The Official Assignee will call for a statement of assets and liabilities by the bankrupt, and proofs of debt from his creditors. The Official Assignee may also investigate transactions by the bankrupt in the period prior to his or her bankruptcy to ascertain whether any transactions should be overturned.
The benefit of bankruptcy is that actions by creditors against the debtor are brought to an end. Although the bankrupt will be left with a number of personal effects and tools of trade, he or she is able to make a fresh start.
The name of the bankrupt remains on the public register of bankrupts for a period of three years. During that time the bankrupt is forbidden from managing or acting as a director of any company.
No Assets Procedure
An alternative for some insolvent persons providing their debts total less than $40,000 is the No Assets Proceedure.
A debtor who is unable to pay their debts may apply for the No Asset Procedure (NAP). Unlike bankruptcy, the NAP lasts one (1) year. The period of a NAP can be extended by up to 25 working days by the Official Assignee if a creditor objects to a debtor’s No Asset Procedure. The Official Assignee will write to the debtor to confirm if the period of their NAP is to be extended. The Official Assignee will also contact the debtor to confirm the outcome of the objection process.
Creditors cannot pursue you for debts included in the NAP. A record of a debtor’s entry to a NAP will remain on the Insolvency and Trustee Service website for four (4) years after discharge.
Further information about bankruptcy and the No Asset Procedure may be obtained from the web site of the Official Assignee:www.insolvency.govt.nz