Understand the role of a Trustee in Bankruptcy

Vesting of property

Any property belonging to the bankrupt at the date of bankruptcy automatically vests in the Trustee in Bankruptcy (Section 58 of the Bankruptcy Act).

Trustee to take possession of property

A Trustee in Bankruptcy must take control of the bankrupt’s property including any books and records of the bankrupt (Section 129 of the Bankruptcy Act).On application by the Trustee in Bankruptcy the court may enforce the Trustee’s rights to take possession of property.

Any person holding books and records of a bankrupt is not entitled to withhold possession of the books and records from the Trustee in Bankruptcy.

A Trustee in Bankruptcy is not to take possession of protected property (Section 116 of the Bankruptcy Act), which includes:

• motor vehicles worth less than the prescribed value (currently $6,850); or
• tools of trade worth less than the prescribed value (currently $3,400); or
• personal property of the bankrupt of sentimental value; or
• other property identified to be protected by a special resolution of creditors.

Admit provable debts to distribute in accordance with priorities

Provable debts
All debts and liabilities owing by a bankrupt at the date of bankruptcy (excluding non-provable debts) are provable in the bankrupt estate (Section 82 of the Bankruptcy Act). The exception to this rule is non-provable debts. Non-provable debts are debts are defined as debts such as:

• monies payable under a maintenance agreement;
• monies claimed as un-liquidated damages (ie an amount demanded as a result of a car accident);
• monies owing as a result of a court imposed fine;
• monies owed under the HECS scheme;
• monies owed under a proceeds of crime order;
• monies owed for interest after the date of bankruptcy

A provable debt needs to be submitted to the Trustee in Bankruptcy in the prescribed form (being a Proof of Debt in accordance with Section 84 of the Bankruptcy Act).

Distribution of funds
A Trustee in Bankruptcy must distribute any surplus funds to creditors strictly in accordance with Sections 109 and 140 of the Bankruptcy Act. Prior to any distribution of funds to creditors a Trustee in Bankruptcy is entitled to be remunerated in accordance with Sections 161B or 162 of the Bankruptcy Act.

What duties does a Trustee in Bankruptcy have?

A Trustee in Bankruptcy has fiduciary obligations to creditors and the bankrupt, however Section 19 of the Bankruptcy Act sets out statutory duties of a Trustee in Bankruptcy. These duties can be summarized as follows:

• notify the creditors of the bankruptcy
• determine whether the estate has any property that be can realized to pay a dividend to creditors
• report to creditors on the likelihood of creditors receiving a dividend
• provide information about the estate as creditors reasonably request it
• determine whether the bankrupt has made any transfer which is void as against the trustee in bankruptcy
• take appropriate steps to recover property for the benefit of creditors
• take appropriate action to try and ensure that the bankrupt discharges their obligations under the Bankruptcy Act
• consider if the bankrupt has committed an offence under the Bankruptcy Act
• refer to the Inspector General in Bankruptcy any evidence of an offence the bankrupt has committed under the Bankruptcy Act
• administer the estate as efficiently as possible by avoiding any unnecessary delay
• exercise powers and perform functions in a commercially sound way

Section 173 of the Bankruptcy Act states that a Trustee in Bankruptcy must maintain proper books and records to exhibit a full and correct account of the administration of the estate and the Trustee shall allow any creditor to inspect the records at any reasonable time.

Section 177 of the Bankruptcy Act states that a Trustee should also have regard for any lawful direction as resolved by creditors at a meeting of creditors.

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