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ARE RESTITUTION /COMPENSATION ORDERS EXTINGUISHED BY BANKRUPTCY?

Newsletter

by Clare Corrigan18.09.19

The short answer is YES they are, provided the amount payable was fixed prior to the date of bankruptcy and the Order has not been made under proceeds  of crime law or in relation to a crime involving fraud.

The  Law  is  different  from  state  to  state but  the  general  effect  of  a  Restitution or Compensation  Order  is  to  try  and  recover    support    payments    made    to  victims  of crimes or to make the offender liable to compensate the victim directly. In  New  South  Wales  for  example,  a  victim  of  an  act  of  violence  may  be  awarded financial support and/or a payment under the Victims Rights and Support  Act 2013.

This is a New South Wales State Act. The award or payment is paid from the Victims Fund.  If  a  person  has  been  convicted  of the  offence  that  led  to  the  victim’s  injury, restitution  action  may  be  taken  by  Victims Services  to  recover  that  money  from  the  offender.  The  convicted  offender  may  be ordered to pay back all, or some, of the victims support payments paid by the Fund to the victim. This is to make sure that offenders contribute to the assistance of their victims.

The  main  categories  of  non  provable debts  which  are  not  extinguished  by bankruptcy are:

  • Debts incurred after the date of bankruptcy;
  • Court fines;
  • Debts under the Higher Education 
  • Unliquidated debts (i.e. an amount claimed that has not been fixed by agreement or Court Order)

Depending on the individual wording and terms of the Restitution or Compensation Order  there  may  be  other  adverse  consequence  associated  with  non-payment. For example an order might include a condition that breach of the order results in imprisonment. As such it is essential to read all terms of any order carefully and fully before deciding that bankruptcy is the right option to deal with the liability.

We    have    been  asked    a  lot  recently whether  Restitution  Orders are extinguished  by  bankruptcy.  The confusion,  in  New  South  Wales  at least, stems from the fact that Revenue (now  known  as Revenue  NSW)  is  now responsible  for  collecting  outstanding Orders. In doing so they are referring to the amounts due as “fines”. Court  imposed  fines are  typically  not “provable” in a bankruptcy and as such not extinguished by the bankruptcy. This has  led  to  a  concern  that  Restitution Orders are not provable in a bankruptcy. Luckily this is NOT the case.

With reference to these broad categories of non-provable debts, to be extinguished by bankruptcy a Restitution or Compensation Order must have:

  • Been  incurred  prior  to  the  date  of bankruptcy; and
  • Must be liquidated prior to bankruptcy (i.e. the amount must have been fixed or agreed prior to bankruptcy)

Note  that  pursuant  to  Section  82(3A)  of  the  Bankruptcy  Act  1966,  amounts payable  under  proceeds  of  crime  orders are not provable. As such a Restitution or Compensation Order relating to proceeds of  crime  would  NOT  be  extinguished  by Bankruptcy.

You  should  also  be  aware  that  debts  resulting  from  fraud  can  be  provable  in  a bankruptcy  but  are  typically  not  extinguished  by  bankruptcy.  As  such  a  Restitution Order relating to a fraud based crime may be provable in bankruptcy but may not be extinguished. Further advice should be sought if the Restitution or Compensation Order is of this nature.