What are the consequences of bankruptcy? Stephanie McGrath looks at the effects on pharmacy owners
On 18 February 2019 AJP reported that the National Health Amendment (Pharmaceutical Benefits) Bill 2019 would enable PBS medicines supply to continue when a pharmacy owner enters bankruptcy.
The Bill lapsed at dissolution on 11 April 2019 and is not proceeding.
In light of Mr Hunt’s comments at the time that there are approximately 20 pharmacies each year affected by bankruptcy or external administration, it is timely to revisit the consequences of bankruptcy.
What are the consequences of bankruptcy?
The threat of bankruptcy casts a huge shadow over a person both emotionally and personally. While it can be seen to provide relief where you cannot pay your debts, there are consequences including (in summary):
Bankruptcy can last for 3 years and 1 day from the day you file your statement of affairs. This starts from the day the Australian Financial Security Authority (AFSA) accept your bankruptcy application. If a creditor makes you bankrupt, AFSA calculates the bankruptcy period from the date you file your statement of affairs. In some cases, your trustee can lodge an objection to discharging you from bankruptcy, which if successful will extend your bankruptcy for up to eight years.
If you earn over a set amount, you will need to make compulsory payments to your trustee.
Bankruptcy does not release you from all debts. You may need to come to payment agreements with some of your creditors.
It is an offence to travel overseas without your trustee’s written consent.
Your name will permanently appear on the National Personal Insolvency Index, an Australian public register in Australia.
If you apply for credit over a set amount, you must inform the credit provider of your bankruptcy. Credit reporting agencies keep a record of your bankruptcy for 5 years from the date you became bankrupt or 2 years from when your bankruptcy ends, whichever is later.
You must declare all assets you have, or receive during your bankruptcy, to your trustee. Your trustee can sell assets including your pharmacy, house and property (other than ordinary household goods, tools up to a set amount used to earn an income and vehicles of a value up to a set amount).
A trustee will be appointed to manage your estate including your pharmacy business. If you entered voluntary bankruptcy, you can nominate a trustee. Otherwise, AFSA will appoint a trustee. It is a collaborative relationship in that your trustee will work with you and the relevant creditors to fairly resolve the payment of debts.
Your trustee may carry on your pharmacy business for a set period depending on the State or Territory (e.g. 6 months in Victoria, 12 months in Western Australia) or for any further period permitted by the relevant State Board or Authority if the pharmacy services of the business will be provided by a registered pharmacist.
Further, if you hold roles or powers under a trust (e.g. as appointor or trustee of a family trust) we suggest you review your trust deed. Most likely, your trust deed will provide that a bankrupt is not permitted to act as trustee of the trust.
Your trust deed should envisage this potential situation and provide for an alternative trustee in the event of your bankruptcy. If your trust is associated with your pharmacy, you should seek expert legal advice on who an appropriate alternative trustee would be.
With these consequences in mind, bankruptcy should be a last resort.
If your pharmacy is having financial trouble, seek expert legal advice and support as soon as possible so that you may make informed decisions.
If you require any specific information or assistance to protect your interests, please do not hesitate to contact the writer on (03) 8628 2039 or firstname.lastname@example.org.
Stephanie McGrath is a Senior Associate at Robert James Lawyers practising in commercial law with a focus on health, business and property across Australia.
Stephanie’s significant pharmacy experience includes buying and selling interests in pharmacies Australia-wide, advising clients in relation to compliance with the requirements of different State and Territory Pharmacy Regulatory Bodies, applications to Medicare, applications and objections under the Pharmacy Location Rules and Ministerial Discretional Applications, partnership disputes and much more.
Disclaimer: The content of this article is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. You should seek legal or other professional advice before acting or relying on any content of this article.
Credit to the Australian Financial Security Authority and Australian Restructuring Insolvency & Turnaround Association for information that assisted in the preparation of, and is reproduced in, this article.