Chapter 16 B Artika

 Bankruptcy is the legal process that allows a
debtor to work out an orderly plan to settle
debts or liquidates a debtor’s assets and
distributes them to creditors.
(Albrecht, Albercht, Albercht & Zimbelman,
2012)

 To enter into a bankruptcy an individuals
total debt needs to be more than $1000.
 The usual term of the for the bankruptcy is
three years but has been extended in some
cases.
(Ministry of Economic Development, 2013)

 Section 7 states the nature of the
bankruptcy.
 Bankruptcy affects the legal status of a
person and has important consequences.
These include—
 (a) the bankrupt's property vests in the
Official Assignee:
 (b) the bankrupt is limited in the business
activities he or she can undertake:
 (c) the Official Assignee may be entitled to
recover assets that the bankrupt has
transferred before bankruptcy

 What is bankruptcy fraud?
 There are four forms of bankruptcy fraud.
 When debtors conceal assets to avoid having
to forfeit them.
 Individuals intentionally files false or
incomplete forms.

 Individuals file multiple times using either
false information or real information in
different states.
 It involves bribing a court-appointed trustee.
(Legal Information Institue, 2013)

 The monies that are defrauded from a
bankruptcy never reaches the pockets of
deserving creditors and investors.
 There is a consequence of bankruptcy fraud.
 As it occurs more frequently, creditors and
investors lose faith that their interest will be
protected.

 This loss of faith has a ripple effect in the
economy through:
 Tightening of credit
 Raising interest rate
 Subsequent economic reactions

 http://www.youtube.com/watch?v=g6DodL7
Ditk

 Why do you think the hiding of assets is so
common in bankruptcy?

 Petition mills
 Multiple filings
 False statements
 Trustee fraud
 Attorney fraud
 Forged filings
 Embezzlement
 Credit card fraud
 Bust-outs

 A debtor who files several bankruptcies in
two or more states lists nearly identical
assets and liabilities in each filing.
 The debtor becomes discharged from the
debts.
 If the debtor fears of getting caught, then
the debtor travels to another state and files
for another bankruptcy.

 Conceal property of a debtor’s estate from
creditors
 Make a false oath or account in a bankruptcy
case
 Make a false declaration, certification,
verification or statement – omitting property
from an official form required in a
bankruptcy case.
 Present a false proof of claim against the
debtor’s estate

 This applies to anyone engaged by a court
officer to perform a service for a debtor’s
estate.
 The statute makes it crime for such persons
to ―knowingly and fraudulently appropriate
to [their] own use, embezzle, spend, or
transfer‖ any property or hide or destroy any
documents belonging to the debtor’s estate.

 Bankruptcy Court
 U.S Trustee
 Court-appointed or panel trustee
 Examiners
 Debtors
 Creditors
 Adjusters

 It involves intentionally obtaining loans or
purchasing inventory on a credit basis and
concealing the proceeds from the loan or
sale of inventory.
 Insolvency is declared and bankruptcy is
filed.
 The creditors are unable to find assets which
can be used to pay them.

 If the scam works the perpetrators retain the
cash proceeds but escape the liability for the
unpaid debt.
 A bust-out may involve setting up a new
company.
 Fraud perpetrators set up and operate the
new company legitimately for a while in
order to establish credibility.
 The new company may take a name similar
of an existing company due to the reputation
of that company.

 The scam company may also submit
intentionally misstated financial statements
to the suppliers or the creditors.
 This is to inflates its financial position and
profitability.

 The second type of bust-out:
 The perpetrators quietly buy an established
company that already has a good reputation
and credit rating.
 The perpetrators rely on the established
credit rating to get credit from suppliers and
loans from bank.
 The perpetrators buy large amounts of
inventory on credit from numerous suppliers

 At first, the perpetrators pay the suppliers
promptly in order to build up their credit
rating.
 Then, the perpetrators buy larger and larger
amounts of inventory on credit and
eventually stop paying creditors.
 They stock-pile the inventory.
 They either conceal the inventory for a sale
in another location or secretly liquidate it at
bargain prices.

 The perpetrators can either claim insolvency
and file for bankruptcy or simply close up the
shop without filing for bankruptcy.
 The company will appear to be insolvent
because the sales of inventory at bargain or
liquidation prices reduced profits and cash
flow.

 The intent is to make a company insolvent
and to file bankruptcy in a scheme to
defraud creditors.
 A bust-out is difficult to detect.
 If a company claims insolvency and files for
bankruptcy, creditors may find it difficult to
determine that insolvency was deliberately
taken for the purpose of perpetuating fraud.

 A company’s only listed address and phone
number are a post office box and an
answering service.
 A new company is owned and managed by
persons from another state.
 A sudden change is made in a company’s
management especially if the change is made
without public notice.
 The inventory is suddenly deleted, without
explanation

 Some ways in which assets or income can be
fraudulently concealed:
 Payments may be made to fictitious
individuals or vendors and the amounts are
diverted to the debtor.
 Sales may not be reported in the debtor
company’s books, instead the sales proceeds
are diverted.

 Inventory may be shipped to an off-site
location or sold to a related party.
 Cash received in payment of receivables may
be diverted to another entity.
 Assets or income may be shifted to another
entity controlled by the debtor.

 Transfers of property or large payments to
related parties or individuals.
 Unusual or rapid reductions in assets.
 Missing, inaccurate, or damage records.
 Unusually large and unexplainable payments
to vendors

 The phrase ―money laundering‖ implies that
money which is ―dirty‖ because it was
generated illegally is ―laundered‖, or made
to appear that it came from legitimate
sources.
(Albrecht, Albercht, Albercht & Zimbelman,
2012)

 http://www.youtube.com/watch?v=pGocvqS
Ki4k

 Purchasing large assets or paying periodic
expenses with cash.
 Using a post office box or general delivery
address instead of a home address when
dealing with contracts.
 Owning expensive assets without legitimate
means of being able to afford them.

 This Act came into force on 30 June 2013
 The Act places obligations on New Zealand’s
financial institutions and casinos to detect
and deter money laundering and terrorism
financing.
 The Act will ensure that businesses take
appropriate measures to guard against
money laundering and terrorism financing.
(Department of Internal affairs, 2013)

 The agencies that will supervise the new
AML/CFT are:
 The Reserve Bank - supervises banks, life
insurers, and non-bank deposit takers.
 The FMA - supervises issuers of securities,
trustee companies, futures dealers,
collective investment schemes, brokers, and
financial advisers.

 The Department of Internal Affairs -
supervises casinos, non-deposit taking
lenders, money changers, money remitters,
payroll remitters, debt collectors, factors,
financial lessors.
 The Ministry of Justice - responsible for
drafting and administering the AML/CFT Act
and regulations.
(Department of Internal affairs, 2013)

Chapter 16 B Artika

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