Bankruptcy trustee independence

The Australian personal insolvency regulator and government trustee, AFSA, has produced a useful report – Practitioner Independence in the Personal Insolvency System Best Practice Report 2021. This article elaborates further on some independence issues and examples from the insolvency case law; looks at the position of AFSA and the Official Trustee; and notes some potential re-thinking coming out of a law reform review of judicial impartiality.  

The Report is a plain English explanation of the requirements of independence for bankruptcy trustees, necessarily comparable with many trustees’ own independence requirements as liquidators, and is a useful reference point for trustees.

There is little in there to question as to matters of principle but as the report says, independence can be complicated, and it was perhaps too complex for the general overview offered to explain the fundamental of independence as to whether a fair-minded informed person might reasonably apprehend that the practitioner might not bring an impartial and unprejudiced mind to the matter.  This is regarded as a low threshold and change by way of proceeding to assess the reasonableness of the apprehension of bias has been raised.[1]

There are also many factual circumstances that potentially raise independence issues and the report wisely says that trustees may need to seek legal advice or discuss particular cases with colleagues to come to an answer.  To apply to court to resolve an independence issue is costly, as is the cost of a new trustee taking over, and as AFSA’s 2020 report on trustee remuneration shows, bankruptcy practice operates on fine margins.

Courts’ decisions are necessarily useful in informing legal advice given.  It is instructive to see that courts will often address conflicts without requiring the trustee be removed, in particular if the issue arises in the midst of the administration of the estate. In one matter, where the trustees and the liquidators of the bankrupt’s company were partners in the one firm and the trustees envisaged potential claims being made by the liquidators against the bankrupt estate, a separate “special purpose” trustee was appointed to deal with the liquidators’ claim, with the costs of replacement of the trustees being a factor.  On the other hand, costs savings were a factor in a court permitting the trustee’s partners to be the liquidators of the bankrupt’s company.[2]

While it would be a rare case where a trustee would handle a bankruptcy and a liquidation where there was an insolvent trading claim against the bankrupt director, to which the report refers, the Pascoe v Ambernap[3] case cited was in fact more benign, though it involved a trustee as sole shareholder resolving to wind up a company and then becoming its liquidator. This can be permitted where the creditors, assets and factual and legal issues are intertwined, usually with a direction made that the trustee come back before the court in the event that an actual conflict arises.[4] That direction is consistent with practitioners being officers of the court to whom the court entrusts the proper administration of estates.

In a case where the trustees’ national firm had provided tax and accounting advice to parties the subject of examinations who were connected with the bankrupt, the court found no real conflict, relying on the need to avoid extra costs, the views of creditors and the responsibility of the trustees to raise any concerns with the court.[5]

All this suggests that courts may offer a more commercial assessment and legal advice should be informed by that case law.  A regulator’s views of the law are important but not determinative.

AFSA itself

There is no mention in the report of the trustee of over 80% of Australia’s bankruptcies, the Official Trustee. Its independence as a trustee of estates may be a given, including its ready handling of joint estates, but its officers must be subject to duties of disclosure and to avoid conflicts.  As to the law, the provisions of Schedule 2 to the Bankruptcy Act do not apply to the Official Trustee unless specifically stated: s 6-1. While the standards under IPRB Div 42 apply only to registered trustees, including as to conflicts of interest (s 42-20), AFSA does say that “however the Official Trustee will, where appropriate observe these standards.”[6] AFSA also says that its guidance on the proper performance of the duties of a bankruptcy trustee “outlines a broad principles-based framework which is aimed at clarifying the conduct that the Inspector-General expects of trustees, including the Official Trustee”.[7]  

The Official Trustee is necessarily regulated internally, and audited.  It is not subject to the Public Governance, Performance and Accountability Act 2013 as to disclosure of interests, etc: s 18AA

Apart from the Official Trustee, AFSA encompasses the Official Receiver, the Inspector-General, along with Proceeds of Crimes and general trustee for the Commonwealth roles. AFSA says it has a national management board and AFSA’s commercial dealings appear transparent Government contracts | Australian Financial Security Authority (

Many manifestations of the Commonwealth are creditors in bankruptcies handled by the Official Trustee, including the Attorney-General’s Department itself through FEG, and the ATO.

ALRC and Judicial Impartiality

The ALRC is undertaking a review of the laws relating to impartiality and bias as they apply to the federal judiciary and insights as to the bases of the independence rules in relation to insolvency practitioners can be found there.

JI7-The-Fair-Minded-Observer-and-its-Critics.pdf ( raises difficult issues about the extent of knowledge and understanding of the fictitious fair-minded observer. In one insolvency matter, the court contrasted the fair-minded observer with “the uncharitably-minded observer hypothesised by [those challenging the practitioners’ independence]”[8], with the fair-minded one properly being assumed to understand independence in the context of the current practices of appointments of insolvency practitioners by directors and creditors.



[1] JI7-The-Fair-Minded-Observer-and-its-Critics.pdf (

[2] Scott (Trustee) v Icicek Holdings Pty Ltd [2015] FCA 1387; see also Weston (Trustee) v ASIC, in the matter of Empire Property and Investment Group Pty Ltd (Deregistered) [2017] FCA 176.

[3]  [2008] FCA 1975

[4] Application by Solomons [2013] FCA 1273

[5] BC39 Pty Ltd v Rambaldi, in the matter of Wharington (Bankrupt) [2014] FCA 1076

[6] IGPD 9 – Standards for trustees and controlling trustees, 1 April 2021.

[7] IGPD 14 – Proper performance of duties of a bankruptcy trustee, 1 April 2021, at [5.1].

[8] Ziziphus Pty Ltd v Pluton Resources (in liq) [2017] WASCA 193


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2 Responses

  1. To my mind the use of the word “independence” is a loose phrase to suggest “conflict of interest” as discussed in case law since the beginning of the appointment of independent trustees. It is equally clear that a “lack of independence” is not, prima facie, a bar to continuing to act as a trustee of a regulated debtor’s estate (however that might be). What is necessary is that there be the additional component of there being made out or seen to exist in connection with the conflict of interest, a breach of duty.

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