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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Applying to be a bankruptcy trustee – part 2

The interest in this topic is such that some further issues must be explained, for the benefit of applicants and of the regulators.

Can experienced insolvency lawyers be trustees?

Lawyers don’t cut it when applying to be registered as trustees, even if they are experienced insolvency lawyers. This was the outcome in Moore v Inspector General in Bankruptcy [1997] FCA 638, the Judge saying that legal studies do not offer the required accounting knowledge, no matter how many trustees and liquidators and creditors the applicant lawyer had acted for.

That was the case under the law at that time, and it may be different under the new “but even if” exception the committee can adopt under s 20-20(5) of the Bankruptcy Schedule.

It is also a little surprising when the principles and application of bankruptcy accounting appear nowhere on AFSA’s website or in its guidance, nor do accounting issues arise in the series of AFSA’s questions in Growden.

Can anyone object to an application?

The process of an application to be registered as a trustee or liquidator is not public. This contrasts with the old law, where applicants appeared before a judge in open court, and anyone could appear and raise objections, or give support, to the applicant.

It misfired for the applicant in Re J (1928) 1 ABC 15, who, while he had 50 affidavits supporting his application, a large number of people turned up to object.  The judge refused his application.

Interestingly, ASIC not only lists pending applications for registration on its website, but also invites any objections.  There appears no legal authority for either.

Costs

An unsuccessful applicant need have no fear of any costs being ordered, for example in favour of an objector.

But the application for registration made by the unfortunate Mr J was, according to the judge, “from the outset doomed to failure”. He was ordered to pay his objectors’ legal costs. The judge dismissed concerns that this might lead to every application for registration being opposed by a “horde of objectors”, potentially subjecting applicants to great expense.

Employee trustees and liquidators

Both AFSA and ASIC (in its draft Regulatory Guide, January 2017) say that liquidators and trustees may have difficulty with maintaining their independence if they are employees, as opposed to partners of their firm. That issue comes from a series of old bankruptcy cases concluding with Re Hurt (1988) 80 ALR 236 and Re Dare [1992] FCA 509; (1992) 38 FCR 356, with the situation of liquidators later examined in ACN 079 638 501 Pty Ltd (in liq) (recs & mgrs apptd) v Pattison [2012] VSC 445.

However, when reforms were made to the criteria for the registration of trustees in the Bankruptcy Legislation Amendment Act 1996, the Explanatory Memorandum said that while the government was aware of the case law it did not consider that any criterion based on whether the applicant was an employee or not was needed. In effect, the government decided that this is not a relevant issue.

Those comments of ASIC or AFSA should be seen in that limited context, that a practitioner’s on-going independence is important and being an employee may have impact on that.

Further questions are welcome.

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