Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Trustee “entirely blameless” in his dealings with a mentally infirm bankrupt

While there is now greater training available in dealing with those suffering mental illness for professionals working in debt counselling and bankruptcy,[1] it remains the case that no-one should be making a medical diagnosis or offering any purported medical advice.  In a recent decision, a woman who had been made bankrupt claimed that her trustee – Paul Cook – should have recognised her psychiatric condition and taken some action.

The Judge roundly rejected that.

This was in the context of her application that the creditors pay the trustee’s costs or that he himself pay his own in relation to her unsuccessful application to have her bankruptcy ended. The Judge saw no basis for the making of such an order.

“ … the highest that it was put was that the trustee should have realised that Ms Burnett was suffering from some mental infirmity and should have approached the court to seek directions in order to reduce the expense of the administration. I reject that submission. In my view, the trustee is entirely blameless. He has endeavoured as best he can to bring about a sensible resolution of the matter, and to explore the claims that Ms Burnett has made, including by meeting with her local MP in relation to the claim that her home was purchased with exempt monies …

The trustee deposed that at no material time did he consider Ms Burnett to be suffering from a mental disability or legal incapacity such that she could not attend to what was required of her to assist him with the administration of her bankrupt estate, and that at all times he administered the bankrupt estate in the ordinary course and pursuant to the Act, the relevant regulations and the practice rules. I accept that evidence”.

The Judge had described

“the sorry history of Ms Burnett’s refusal to cooperate with the trustee in the administration of the estate, including:

(a) despite multiple requests, a continuing failure to lodge a statement of affairs (SOA); (b) on multiple occasions, failing to respond to correspondence from the trustee; (c) on multiple occasions, failing to meet with the trustee or his representatives;(d) failing to return phone calls made by the trustee or his representatives;(e) on occasions, hanging up on the trustee’s representatives when they would try and converse with her in order to progress the administration of the bankrupt estate;(f) generally refusing to recognise the trustee’s standing as the trustee of her bankrupt estate or the existence of the bankrupt estate at all; and(g) failing to cooperate with the Australian Financial Security Authority (AFSA)”.

As a result of that conduct, the trustee said that administration of the estate had been delayed and the costs were significantly more than in an ordinary bankruptcy. See Burnett v Browne (No 3) [2021] FCA 703.

As AFSA explains, lack of co-operation can prolong a bankruptcy in time and costs[2] and this is also a factor the law recognises in determining reasonable remuneration.[3]

This was a case where the bankrupt’s daughter had earlier unsuccessfully sought a litigation guardian to be appointed to her mother’s proceedings: see Litigation representatives and bankruptcy | Murrays Legal Commentary

Comment

To what extent a trustee in bankruptcy should take responsibility for the personal health and related issues of the bankrupt is problematic.  Each case will be different, and it is not so much a matter of law as the particular circumstances.  In so far as it is relevant to the administration of the estate the remuneration charged can be claimed though in many cases it may well be that a trustee does not, fully, in some cases because there are often no remaining funds available.   Creditors in other estates bear those charges.

In one case though, in setting aside a sequestration order of a woman with serious mental illness, the court looked back and found that the trustee had been on notice that she could not handle her affairs, that it was apparent that she should have had a litigation guardian appointed, that the trustee should have applied to the court for orders she comply with certain legal requirements, which, in this hypothetical scenario, meant a “consequent likelihood” of the court appointing a litigation guardian for her.  The trustee was not able to recover any of his fees or costs.[4]

Each trustee and their staff will have their own approaches to dealing with persons who have gone bankrupt, that often being the least of their problems.  Simple reliance on the law and its processes is often not enough.

And judges need to later avoid looking back too critically and with hindsight at what can be a difficult situation for trustees, being confronted with issues outside their direct responsibility and expertise, and trying to balance the rights of the bankrupt with those of the creditors.

=======================

[1] Insolvency Professionals | Mental Health First Aid (mhfa.com.au)

[2] Remuneration in the personal insolvency system, 4 March 2020.

[3] IPRB s 60-15(1)(f).

[4] The Owners of Strata Plan 58041 v Temelkovski [2014] FCCA 2962

 

Share on facebook
Share on google
Share on twitter
Share on linkedin

Leave a Reply

Your email address will not be published. Required fields are marked *

Latest

Popular

Featured

Stay Up To Date With Murrays Legal Commentary

Subscribe now