By Aritree Barua, Solicitor at Matthews Folbigg Lawyers
If you are concerned about the appointment of a trustee of a bankrupt estate, or you have a disagreement with a trustee, or a trustee has decided to retire, you may be able to replace that trustee. This article explores various ways in which you can replace a trustee of a bankrupt estate.
Replacing a trustee by resolution at a creditors’ meeting
If you are a creditor, you can remove and replace a trustee of a bankrupt estate by way of a resolution at a creditors’ meeting (Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), Schedule 2 (“the Insolvency Practice Schedule”), section 90-35(1)). Notice of the meeting must be provided to all persons who are entitled to receive notice at least 5 business days before the meeting (Insolvency Practice Schedule, section 90-35(2)).
The trustee of a bankrupt estate may convene a meeting of the creditors at any time. However, under section 75-15 of the Insolvency Practice Schedule, there are some circumstances where it is mandatory for a trustee to convene a creditors’ meeting. For example, a creditor’s meeting would be required where:
- there is a committee of inspection and the committee of inspection directs the trustee to call a creditors’ meeting; or
- the creditors direct the trustee to do so by resolution; or
- at least 25% in value of the creditors direct the trustee to do so in writing; or
- both of the following are satisfied:
- less than 25%, but more than 10%, in value of the creditors direct the trustee to do so in writing; and
- security for the cost of holding the meeting is given to the trustee before the meeting is convened.
It may be useful to obtain information in relation to the trustee prior to a creditors’ meeting to replace the trustee. Under section 70-40 and section 70-45 of the Insolvency Practice Schedule, an individual creditor, or a group of creditors by way of resolution, may request the trustee to provide information, a report, or a document to the creditor(s). The trustee must comply with this request unless:
- the requested information/documentation is not relevant to the bankruptcy, or
- providing the information would result in the trustee breaching their duties, or
- it would be unreasonable for the trustee to provide the information.
Replacing a trustee by going to Court
If relacing a trustee by resolution at a creditors’ meeting proves to be difficult – for example, there is difficulty arranging a creditors’ meeting, or the vote at the creditors’ meeting is not in favour of the replacement – then you may turn to the Court.
Section 90-15(1) of the Insolvency Practice Schedule provides that the Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate. These may include orders that a person cease to be the trustee of the estate, or orders that another person be appointed as the trustee of the estate.
When exercising these powers, the Court may take into account:
- whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and
- whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and
- whether an action or failure to act by the trustee is in compliance with an order of the Court; and
- whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and
- the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.
The Court will exercise the power to remove and replace a trustee in a manner which best advances the interests of the bankruptcy, having regard to the objects of the Bankruptcy Act (Borg v de Vries (Trustee), in the matter of the Bankrupt Estate of David Morton Bertram [2018] FCA 2116).
In order for the Court to be able to exercise its power under section 90-15(1), you would need to make an application under section 90-20 of the Insolvency Practice Schedule (unless the Court exercises the power on its own initiative during proceedings before the Court). You may be eligible to apply for an order under section 90-15(1) if you are one of the following persons under section 90-20(1):
- a person with financial interest in the administration of the regulated debtor’s estate, or
- a creditor in behalf of a committee of inspection, or
- the Inspector-General.
When you make an application, all reasonable expenses associated with the application should be taken to be expenses of the administration of the estate (Insolvency Practice Schedule section, 90-20 (2)).
Re-appointment of a former trustee
If you are a former trustee who has already been removed as a trustee of the bankrupt estate by resolution of the creditors, you may apply to the Court to be reappointed as trustee of the bankrupt estate under section 90-35(3) of the Insolvency Schedule.
However, you must record all costs incurred by you and the debtor’s estate in relation to the application, and separate those costs from the costs incurred by you and the regulated debtor’s estate in relation to other matters (Insolvency Practice Schedule, section 90-35(4)).
The Court may order that the former trustee be reappointed as trustee of the regulated debtor’s estate if the Court is satisfied that the removal of the former trustee was an improper use of the powers of one or more creditors (Insolvency Practice Schedule, section 90-35(5)).
The Court may also make other orders in relation to the application as it thinks fit, including orders in relation to the costs of the application and the remuneration of the former trustee (Insolvency Practice Schedule, section 90-35(6)).
If you would like more information or advice in relation to replacing a trustee of the bankrupt estate, please contact Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au, or Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
