How greater engagement led to an early bankruptcy annulment

Being made bankrupt is a major shock, especially if it comes out of the blue. But engaging with the Bankruptcy Trustee can help get you back on track more quickly.


When John Smith* was made bankrupt by a creditor in mid-2022, it was a complete surprise. While the primary debt was relatively small – around $8,000 – the addition of post-judgement interest and enforcement costs meant the amount ballooned to around $20,000. The debt was also aged and related to a contract from 2007. The judgement was entered into in 2017, which was just prior to the expiry of the statutory limitation period.

Smith disputed the debt and was initially reluctant to engage with Jirsch Sutherland’s Emma Mos, who had been overseeing the matter. “This made the process of establishing if it was possible to annul his bankruptcy, or dispute the sequestration order made against him, very difficult,” says Mos.


Emma Mos, Principal, Jirsch Sutherland

After some time, Smith did agree to participate in the bankruptcy process and allowed Jirsch Sutherland to assess his options. As the first step towards ascertaining his overall asset and liability position, the team helped complete and lodge his Bankruptcy Form, including his Statement of Affairs. This information showed Smith had sufficient assets to pay all his debts as well as the costs.  Apart from the debt owed to the petitioning creditor, his other debts were minimal, and this meant an early annulment of his bankruptcy was possible.

One of Smith’s most significant assets was shares he held in several proprietary companies, which had vested in the Trustee. However, there had been a breakdown in the relationship between Smith and his fellow directors who were also shareholders in these companies. These other shareholders contacted Jirsch Sutherland to express an interest in purchasing Smith’s shares from the Trustee.

“While the Trustee could sell his shares to the other shareholders, Mr Smith has expressed that he believed he had legitimate claims against them. These claims were complex and would be costly to pursue,” explains Mos. “We were also concerned that as part of any negotiation in relation to the shareholders’ purchase of the shares, a release of any other claims would be sought which would have meant these claims would not be available to Mr Smith after his bankruptcy was annulled.”

While Smith had other assets apart from the company shares, these would not be enough to allow for an annulment. One of these assets was a vehicle, which would be easy to sell and worth about $30,000. However, as a bankrupt, Smith was entitled to retain a vehicle with a value of up to $9,100, so the net realisation from the sale of his vehicle was expected to be about $20,000, after allowing for associated costs.

“Taking all these factors into consideration, we worked closely with Mr Smith to formulate a strategy that would lead to a timely annulment that would allow him to keep his company shares and enable him to retain the right to pursue the claims he asserted he had against the other shareholders,” adds Mos.


Ultimately, Jirsch Sutherland and Smith agreed a strategy whereby Smith’s vehicle was sold, and the full proceeds were paid to the Trustee, along with the funds held as cash at a bank. Smith then made voluntary contributions over a six-month period to clear the final amounts needed to annul the bankruptcy. “As part of this strategy, and to facilitate a swift resolution, we agreed to limit our fees to ensure the annulment could proceed,” says Mos.

“Taking such a collaborative approach meant Mr Smith was able to be discharged from his bankruptcy in a short period of time, while retaining the shares and the right to pursue the claims he had against his fellow shareholders. This successful outcome highlights the importance of engaging with the Trustee, even if the debt or bankruptcy is disputed. An approach such as this ensures all parties can achieve an optimum return.”

* Not his real name

Jirsch Sutherland