PCI knows bankruptcy – july 2019
Jul 15 2019
Bankruptcy – Which Occupations Fare The Worst?
When considering the prospect of becoming bankrupt many people will ask, do I have to tell my employer? Generally, the answer is no, however some occupations require that an individual be licensed is some way, and in many instances those licensing bodies will want to know whether someone is bankrupt. In turn, those organisations may have something to say about whether that person should continue to hold the relevant registration.
Let’s consider the following occupations:
- Solicitors & Barristers
- Accountants
- Medical practitioners
- Builders + Tradespeople
- Real estate agents
- Politicians
Solicitors & Barristers
Both solicitors and barristers are regulated by the relevant state-based Law Society or Bar Association, each of which are concerned about receiving notification of the event and the circumstances and making a determination as to membership based on the facts.
The Law Society of NSW requires that a “bankruptcy related event” is an automatic show cause event requiring the applicant to provide a submission setting out the relevant circumstances together with the reasons the applicant should continue to hold a practising certificate, and the NSW Bar Association has similar requirements.
A "bankruptcy-related event" includes Bankruptcy, being served with a creditors petition, lodging a notice of intention to lodge a debtors petition, as well as taking the benefit of any law to deal with creditors, which would include arrangements under Part IX and X of the Bankruptcy Act.
An applicant will also be required to provide the Law Society with a “Bankruptcy Undertaking” which includes not acting as a done under a power of attorney or as an administrator of a deceased estate.
In determining whether the applicant is a fit and proper person to continue to hold a practising certificate, the relevant bodies will generally have regard to:
a) Whether the bankruptcy arose as a result of the applicants practice of law
b) Whether there has been any element of fraud or dishonesty,
c) Has there been any reckless disregard for creditors interests.
In circumstances where the bankruptcy of the applicant has not arisen from their practice of law, and there has not otherwise been any evidence of dishonesty, the applicant will generally be entitled to retain their practicing certificate.
Accountants
To carry on practice as a public accountant it is necessary to hold a practising certificate from one of the authorised bodies which includes CAANZ, CPA, and IPA. Not having a practising certificate will not however prevent a bankrupt from working for another accountant who does hold a practising certificate.
Each of those regulatory bodies have a requirement that members be a “fit and proper person” and bankruptcy will factor into whether a member satisfies that test. Each of these organisations have similar provisions when dealing with Bankruptcy. The By-laws of Chartered Accountants ANZ require members to notify the organisation of an insolvency event.
In ordinary circumstances a member of each of these organisations will be suspended for the period of their bankruptcy. A recent appeal by a CAANZ member against this penalty highlighted the fact that there was nothing in the rules and by-laws of the CAANZ preventing a bankrupt from continuing to be a member and that if it was inappropriate then there would be a rule to that effect. The Professional Conduct Committee (PCC) submitted that:
“In the ordinary course where a member has been made bankrupt, the Tribunal would order that the members membership be suspended for the duration of the bankruptcy. That is the usual outcome in cases of this nature”
The PCC went on to say:
“This is seen as an appropriate measure for the protection of the interests of Chartered Accountants and the public on the basis that it is generally inappropriate that a person should continue to be held out to the public as a chartered accountant and carry the imprimatur of Chartered Accountants ANZ in circumstances where they are personally insolvent and their personal affairs are being externally managed as is the case with personal bankruptcy.”
The appeal was unsuccessful. As a result, being bankrupt will likely prevent a person from carrying on business as a sole trader or partner of an accounting firm, or any other manner which would ordinarily require them to hold a practising certificate but would not otherwise prevent them from undertaking employment as an accountant.
Real Estate Professionals
If you are a real estate agent, a stock and station agent, a conveyancer or property valuer, the relevant licencing authorities will be concerned about that fact and require further information to determine whether a person should continue to hold their license. These concerns extend to all “insolvents under administration” which will include arrangements under Part IX and X and may also require notification if the person has been an insolvent under administration in the past 3 years.
In reviewing the bankruptcy these licensing authorities will have regard to whether the debtor took all reasonable steps to avoid the bankruptcy or other financial difficulties.
Generally, the individual will be entitled to retain their license in most circumstances, however, there is a process that needs to be undertaken to do so, and restrictions would ordinarily apply in relation to the operation of Trust Accounts.
Medical Professionals
Not surprisingly those organisations concerned with the registration of various medical practitioners are less concerned with a member’s bankruptcy than those regulating accountants or lawyers, as the ability of that professional to undertake the job expected of them is unlikely to be effected by their financial position.
The regulatory bodies will ordinarily require a member to be a fit and proper person and potentially, depending on the circumstances that gave rise to the bankruptcy, those factors could figure in a determination as to whether a member was “fit and proper”. However, in most instances, medical professionals will be untroubled by the bankruptcy process in continuing to practice.
Builders & Tradespeople
In relation to the building industry, there are a number of different levels of registration depending on whether the person wishes to contract to do building work or merely supervise it. Again, there is a state-based system of registration, all of which have slight variations. However, generally, there is a prohibition on a bankrupt being licensed to contract to perform building work.
It gets even tougher for builders in that the Master Builders Association has a restriction on former bankrupts, requiring that a former bankrupt has to be discharged from bankruptcy for 5 years thereafter in order to apply for membership.
In the event of a corporate builder that has been wound up, it cannot have a bankrupt acting as a director, given any director is not able to be an undischarged bankrupt under legislation.
Politicians
Section 44 of the Constitution disqualifies an undischarged bankrupt from sitting in parliament which seems pretty clear. However, it may not prevent you from giving it a go. At the recent 2019 Federal election, Fraser Anning’s candidate in Bendigo, Julie Hoskin was an undischarged bankrupt, having had a sequestration order made against her on 20 September 2018. Julie claimed “I am not insolvent and should not be declared bankrupt. This is an injustice and a wrongful decision.” An appeal was to be heard in July this year.
The Electoral Commission said that they “had no legal power in this case to reject the nomination.” Of course, if she had been successful then she would not have been able to take her seat as she would have been in breach of Section 44.
All material contained in this newsletter is written by way of general comment. No material should be accepted as authoritative advice and any reader wishing to act upon the material should first contact our office for properly considered professional advice which will take into account your own specific conditions. No responsibility is accepted for any action taken without advice by readers of the material contained herein.
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Did you know?
Legendary musicians Marvin Gaye, Meatloaf, and Cyndi Lauper have all filed for bankruptcy to deal with their financial issues and bounced back from their problems.
Disco icons, “The Village People” included a policeman, a soldier, a cowboy, a construction worker, a bikie, and a native American Indian. Occupations that would all be untroubled by the bankruptcy process. That’s why they declared “You can’t stop the music”