Trading Whilst Bankrupt
Operating a Business in Bankruptcy
We often get asked, “can I run my business or start a new business whilst being an undischarged bankrupt?” There are ways that you can legally operate a business during bankruptcy, however there are strict rules to follow.
At present, a person who is an undischarged bankrupt, can operate a business in bankruptcy as a sole trader under an ABN. There are guidelines you have to follow and laws to comply with – to find out if your business would be able to continue if you go bankrupt, you best speak to us. There are only so many things that can be covered on a webpage and you should not risk breaking the law when there may have been a simple and clean way to achieve your objective.
What you can’t do is be a Director of a Company during the term of your bankruptcy, unless ordered differently by ASIC, in which case you may be prohibited from being a Company Director for a time as specified by ASIC – which can exceed the term of your bankruptcy.
What You Can Do
To operate a business in bankruptcy under an ABN, you should trade under your full name – not a business name. If trading under a business name, you need to inform all of your clients & suppliers that you are an undischarged bankrupt. However, if you trade under your own name you will only have to disclose that you are an undischarged bankrupt for quotes and/or purchases over $4000. A small business which allows you an income may be an ideal way of getting yourself back on track after many years of hardship. The income threshold is the same as if working for an employer – so you simply declare your income and for every dollar you earn above the threshold, you keep 50 cents and your Trustee (in this case that means the AFSA) will distribute the other 50 cents equally amongst your creditors. This only applies during the 3 years of your bankruptcy or less, if you are able to pay off your creditors prior to the end of your natural bankruptcy term of 3 years.
There is one important thing: if your business is seen as an asset that can be sold by AFSA in the aim to repay your creditors, AFSA has the right to do so. Any assets that you have or accumulate during the term of bankruptcy becomes the property of your Trustee/AFSA.
However, this does not apply in too many cases. If you could sell your business to get out of debt, most people would do so prior to entering into bankruptcy. A1 Debt Assistance would certainly advise you to do this, as our aim is to stop people from entering into bankruptcy if they have other options available. If you are not sure about the value of your business or how it would work if you go into bankruptcy, please feel free to contact us.