Hi there. If the business responsible for the kitchen renovation was a true legal “partnership” (rather than a corporation), then the partnership would have ceased to exist when one or both the partners were declared bankrupt. In this situation, a trustee would be appointed to manage the debts of the former partner(s).

This law says that, when someone is made bankrupt, any unsecured creditors are not permitted to commence or continue legal proceedings (such as a claim in VCAT) against the bankrupt individual, unless permission is obtained from a court. This means you would need to apply to the Federal Circuit Court – which is the main court responsible for bankruptcy matters – to seek permission to continue your claim in VCAT.

Once you have obtained permission to continue your VCAT claim, how much money you can recover will depend on a number of things. We have assumed you are seeking compensation from the business for their breach of contract and failure to complete the renovation as agreed. If you are awarded a fixed amount of compensation by VCAT (called “liquidated damages”), this would qualify as a “provable debt” in the bankruptcy proceedings. This means you, as an unsecured creditor, could lodge a “proof of debt” claim with the trustee. If you lodge this claim, you may be entitled to receive a proportionate share in any money that is left over from the bankrupt person’s assets after secured creditors and administration fees have been paid. This is known as a “dividend” payment.

Other than participating in bankruptcy proceedings as an unsecured creditor, there are not many options available to you, especially as your legal claim has not been finalised by VCAT. You may be able to speak to the trustee about how the bankrupt person’s affairs are being managed. The individual may have opted for what is known as a “Part IX debt agreement”, which is less restrictive than bankruptcy but works in a similar manner. You may be entitled to recover some money if such an agreement has been put in place.

Suggested way forward

General information about bankruptcy is available from the website of the Australian Financial Security Authority (www.afsa.gov.au). You should consider speaking to a lawyer who can fully assess your situation and advise you of your legal rights. By pressing the “Consult a Lawyer” button, LawAdvisor can help you search for experienced lawyers and obtain fee proposals for their services. Costs for legal advice and representation will vary between providers based on experience and the scope of services.