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. 

Assigning bankruptcy claims to a former trustee

A 5 day bankruptcy hearing was cancelled in March 2021, in relation to matters occurring in 2012, being challenged in a 2014 bankruptcy by way of recovery actions being brought in 2019. This cancellation followed the suspension in February 2021 by AFSA of the registration of the trustee litigant in the action, in relation to his misconduct in 2010.  That 2019 recovery action is now in danger of being dismissed for want of prosecution. Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FCCA 1614.

2014-2019

Bankruptcies last at least 3 years in Australia, and trustees have 6 years to bring proceedings.  While there is a government Official Trustee, it often transfers estates to the private trustee profession.  That occurred in this matter, in 2014, the Official Trustee referring the matter to Mr Macks, who commenced the actions in 2019, before his suspension sent the matter back to the Official Trustee.

2021

While Mr Macks remained the applicant in the court action, he had no legal capacity to pursue it further; only the Official Trustee could do that.  With the matter listed for directions on 3 March 2021, the Official Trustee advised the Court by letter on 2 March of its status as the applicant. The hearing was necessarily vacated. The Official Trustee then advised it was again transferring the estate to two registered trustees, as from 1 April.  They thereupon became the new trustees, and they needed to have themselves substituted as applicants.

It then became apparent that the new trustees were seeking to assign the recovery proceedings to Mr Macks, in his personal capacity.  That right of assignment would be available to them under s 100-5 IPSB, once they had the Court substitute themselves as the applicants, and court approval, under s 100-5(2). The structure of such an assignment was recently the subject of review in LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liq) [2021] FCA 324.

But that assignment to Mr Macks has not proceeded, nor other action taken, for reasons given in the judgment which prompted the Federal Circuit Court Judge to suggest dismissal of the 2019 recovery proceedings for want of prosecution.

The Judge held off, listing the matter on 30 July 2021 for a hearing as to why such orders should not be made.

In the meantime, there are creditors and the litigants impacted, in court proceedings commenced in 2019, about matters occurring 9 years ago.

Comment

The suspension of Mr Macks’ registration and then the transfer to registered trustees was a matter for AFSA, and its timing, a month out from a hearing. The transfer to the two trustees took place as from 1 April 2021, with the court hearing needing relisting.

The transfer would have proceeded according to this current guidance National panel of registered trustees | Australian Financial Security Authority (afsa.gov.au) under which panel trustees are invited to accept a transfer based on “a short report about the estate” and a relevant part of the bankrupt’s statement of affairs.  The trustee “has 24 hours to notify any conflict of interest or other reason to refuse accepting the estate, otherwise they should confirm they will accept the estate which will trigger the transfer process commencing”. Presumably the short time frame is based on the trustees receiving enough information in the short report to be able to decide.  Trustees should not of course accept estates beyond their capacity.

AFSA’s proposed change in focus

AFSA is rethinking its transfer of estates to registered trustees and took comment on its processes in March 2021, with a view to change after 1 July. A proposed change of focus of the Australian Official Trustee in Bankruptcy | Murrays Legal Commentary. Whether that would alter a decision to promptly transfer the estate of a trustee whose registration had just been suspended to trustees who would transfer their rights of recovery to a suspended trustee is not known. In any event, a decision on that process change seems to be delayed.

Corporate and other comparisons

Bankruptcy law at least has the necessary default arrangement of the Official Trustee.  In corporate insolvency, on the ending of a liquidator’s registration, there is no comparable default role available.  An administration could conceivably remain without an appointee for some time.

The position is different in the UK, with the Official Receiver assuming the ‘last resort’ role when there is no licensed trustee or liquidator acting, in corporate insolvency, and in personal. There however, it is said (by the profession) that the OR too actively takes on or retains the administration of bankrupt estates, rather than transferring them to licensed trustees.[1]

On the other hand, the UK Official Receiver has taken large corporate insolvency matters that were beyond the commercial risk of the private insolvency profession, such as British Steel,[2] an option not available in Australia.

Then there is New Zealand, where the Official Assignee has a monopoly on all personal bankruptcies, so the issue which prompted this comment would never arise.  The stated policy reason is that “the Official Assignee is not profit driven …[and] … the interests of debtors are better observed by the state than by the private sector”.[3]

Macks v Lee

The hearing on 30 July before the Federal Circuit Court of Australia should be interesting.

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[1] It’s Officialism – the Uncertain Past, Present and Future of the Insolvency Practitioner Profession in the United Kingdom, P Walton, 2017.

[2] British Steel, is it a wind up? Keay & Walton, 2019

[3] Latest decisions on Insolvency Law Review | Beehive.govt.nz

 

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