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What is Bankruptcy Trustee and Why it Matters

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A Trustee in Bankruptcy in Australia is a person or entity appointed to manage the financial affairs of a bankrupt individual. Their role includes selling the bankrupt’s assets to repay creditors, investigating the financial conduct of the bankrupt, and reporting to creditors.

The trustee operates under the Australian Financial Security Authority (AFSA) guidance and must adhere to the Bankruptcy Act 1966.

How is a Trustee in Bankruptcy appointed in Australia?

A Trustee in Bankruptcy can be appointed in several ways:

  • Voluntary Bankruptcy: When an individual voluntarily declares bankruptcy by filing a Debtor’s Petition, they can nominate a registered trustee. The trustee will be appointed if the nominated trustee consents and the petition is accepted. If no trustee is nominated, or the nominated trustee does not consent, the Official Trustee (managed by the Australian Financial Security Authority, AFSA) is appointed by default.
  • Creditor’s Petition: If a creditor successfully petitions the court to declare an individual bankrupt and no registered trustee is nominated and consents, the Official Trustee is appointed.
  • Change of Trustee: Creditors, the bankrupt individual, or the trustee themselves can request the court or AFSA to change the trustee. If approved, a new registered trustee can be appointed to replace the current one.

All private trustees must be registered with the AFSA and meet strict qualifications, including ongoing professional development and adherence to a professional code of conduct.

What are the primary duties and responsibilities of a Bankruptcy Trustee?

A Trustee in Bankruptcy manages a bankrupt’s assets, selling them to repay creditors. They investigate the bankrupt’s financial actions, particularly for undervalued transactions and potential recoveries.

The trustee then distributes the sales proceeds to creditors after covering their fees. They provide regular updates to creditors, ensure the bankrupt meets their obligations, and can extend the bankruptcy period if needed.

The trustee also assesses the bankrupt’s income, requiring contributions if earnings exceed a specific limit.

Finally, they ensure the bankrupt’s proper discharge after the typical three-year term while maintaining professional and ethical standards. This role provides a just asset distribution and adherence to Australian bankruptcy laws.


What powers does a Bankruptcy Trustee have over a bankrupt individual’s assets?

Once an individual is declared bankrupt, a Trustee in Bankruptcy gains immediate control over most assets. The trustee can sell these assets, including property and shares, to repay debts.

They can also recover assets sold below value before bankruptcy and claim any financial windfalls the bankrupt might receive, like inheritances.

If the bankrupt earns above a set threshold, they must contribute part of their income to their debts. The trustee can oversee assets abroad and restrict the bankrupt’s overseas travel.

All these actions are governed by the Bankruptcy Act 1966 and guidelines from the Australian Financial Security Authority (AFSA), ensuring fairness to all creditors.

What is the relationship between a bankrupt individual and their Trustee?

The relationship between bankrupt individuals and their Trustees in Bankruptcy in Australia is primarily one of oversight and authority.

Upon bankruptcy, the trustee assumes legal control over most of the bankrupt’s assets and manages them to pay off debts to creditors, whether for family trusts, divorce, or child support.

The trustee ensures a fair and orderly process, adhering to the Bankruptcy Act 1966. They act in the best interests of the creditors, but they also have a duty of care towards the bankrupt.

The bankrupt individual must cooperate fully with the trustee, providing all necessary information and adhering to any restrictions or requirements set out by the trustee.

While the trustee has significant powers, they also have obligations, such as acting impartially, providing regular updates to the bankrupt, and ensuring the bankrupt’s rights are upheld.

It’s a professional relationship governed by regulations and laws, with the trustee playing a pivotal role in the administration and eventual resolution of the bankruptcy.

How can a Bankruptcy Trustee be removed or replaced?

A Trustee in Bankruptcy can be removed or replaced through several mechanisms:

  1. By Creditors: Creditors can pass a resolution to remove and replace the trustee. This usually requires a formal meeting where creditors vote on the matter. The Australian Financial Security Authority (AFSA) or the court must ratify the decision.
  2. By the Court: A court can order the removal of a trustee if it finds evidence of misconduct, incompetence, or any other valid reason that the trustee shouldn’t continue in their role. A creditor, the bankrupt individual, or a trustee can apply to the court for such an order.
  3. By the Trustee: A trustee can resign from their position, but the resignation usually requires the approval of the court or AFSA. In such cases, a replacement trustee is typically appointed.
  4. By AFSA: In cases where the trustee is the Official Trustee (managed directly by AFSA), AFSA can decide to transfer the bankruptcy administration to a registered trustee if deemed appropriate.

Whenever a trustee is removed or replaced, there’s a formal process to ensure the seamless transfer of responsibilities and duties to the incoming trustee, ensuring that the bankruptcy administration continues without disruption.

Our family lawyers who are experts in property settlement can discuss this matter with you, allowing you to find a Trustee who can work and advocate for you and your family.

Steps and reasons for removal or replacement of a trustee

Removing or replacing a Trustee in Bankruptcy in Australia follows specific actions and can occur for various reasons. Here’s an outline:

Steps for Removal or Replacement of a Trustee:

  • Initiation: The process can be initiated by the bankrupt, a creditor, the trustee, or another interested party. They can submit a proposal or application for the removal and replacement of the trustee.
  • Meeting of Creditors: If initiated by creditors or the bankrupt, a formal meeting of creditors may be called. During this meeting, a resolution will be presented to vote on the removal and replacement of the trustee.
  • Submission to AFSA or Court: The results of the creditors’ meeting or an application by an interested party are then submitted to either the Australian Financial Security Authority (AFSA) or the court for ratification.
  • Court Hearing: If the matter is escalated to the court, a hearing date is set where evidence and reasons for the removal will be presented. The court will then decide.
  • Appointment of a New Trustee: If the removal is approved, a new trustee is nominated and, once consented, is appointed to take over the duties and responsibilities.
  • Transfer of Duties: The outgoing trustee must provide all documents, records, and other relevant information to the incoming trustee to ensure a smooth transition.

Reasons for Removal or Replacement of a Trustee:

  • Misconduct: Evidence of unethical behavior, breach of fiduciary duty, or any other form of misconduct by the trustee.
  • Incompetence: If the trustee fails to competently manage the bankruptcy, resulting in unnecessary delays or losses.
  • Conflict of Interest: If the trustee has a personal or financial interest that might compromise their ability to act impartially.
  • Failure to Communicate: Inadequate communication with the bankrupt or creditors, leading to dissatisfaction or complaints.
  • Resignation: The trustees might choose to resign due to personal reasons, workload issues, or any other reason hindering their ability to perform their role.
  • Health Issues: The trustee might be unable to continue their duties due to significant health problems.

It’s crucial to note that any removal or replacement is undertaken to ensure the integrity of the bankruptcy process and protect the interests of all stakeholders, especially the creditors.

Considering Bankruptcy?

Navigating the intricacies of bankruptcy requires an expert touch. At Justice Family Lawyers, we specialize in guiding you through every twist and turn of the process. Don’t leave your financial future to chance. Let our dedicated team help you achieve the best possible outcome.

Contact us today and ensure you have a trusted bankruptcy trustee.