+ Binding Financial Agreements and Bankruptcy
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Bankruptcy Act issues in relation to BFA’s
Estate planning lawyers generally give consideration to the provisions of the Bankruptcy Act 1966 during the drafting of a Binding Financial Agreement (BFA).
Section 120(1) provides that a transfer is void against the trustee in bankruptcy if:
1. The transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
2. The transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Prior to the decision in Australian Securities and Investments Commission v Rich & Anors (2003) Fam CA1114 (15 October 2003) and the so-called “Rich” amendment to the Bankruptcy Act 1966, BFAs were exempt from s120(1) of that Act.
It is timely to remember that now, under Section 120(5) transactions where “the transferee being a spouse or de facto spouse and the transfer being done by way of deed” are specifically considered as transactions where the transferee has given no consideration for the transfer and are thereby caught by s120. In other words, BFAs are caught as voidable transfers.