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. 

The contributions of bankruptcy trustees to AFSA’s regulation of criminal conduct

Bankruptcy trustees, and liquidators, and creditors in insolvencies, contribute much to the government, in effect for free.

In a recent bankruptcy disciplinary decision, the Sydney trustee’s plea, apparently in mitigation, that he had ‘assisted’ the Inspector-General by way of giving evidence in a bankruptcy prosecution, in Launceston, Tasmania, was given little value.  The committee saw this more in terms of the trustee acting as an ‘officer of the Court’ and as a person who was a witness with evidence to give, and then complying with a summons issued by the Commonwealth DPP.[1]

Work required of a trustee

That may be so when a summons is served and the trustee responds, but there is work done leading up to that. Trustees are required by the law to ‘consider’ evidence of offences of ‘the bankrupt’ under the Bankruptcy Act and ‘refer’ these to the Inspector-General: s 19.[2] In respect of any such matters, it is up to the Inspector-General to decide whether to refer it to the CDPP.

Remuneration

Work done by a trustee pursuant to s 19 is properly claimed as remuneration and paid for out of the insolvent’s remaining funds.[4]  In effect, that public duty work is funded by the creditors, not by the Commonwealth.  That work would extend to then providing assistance and responding to a summons and giving evidence in court.

While remuneration is generally recoverable for such tasks there can be other cases where it is not. A line was drawn in a case of Ide, where a receiver, David Leigh, witnessed a homicide while he was on the rural property over which he was appointed.  He then spent much time in assisting the police and appearing as a witness at the criminal trial.  He was unable to claim that as a cost of the receivership.  The Court likened it to him driving to the property and witnessing a fatal road accident on the way. Assisting the police with any such event “falls into a greater civic duty that surpasses all professional duties”.[7]

That is not the case with the referral process work of a bankruptcy trustee.

When a trustee becomes a witness – their travel, costs and remuneration

When a trustee is called as a witness, the trustee is entitled to witness expenses in accordance with the Witness Expenses National Legal Direction (NLD)[5] on the basis that they are not considered expert witnesses. In particular, this provides that the maximum amount payable for loss of income is based on the seasonally adjusted average weekly full-time adult ordinary time earnings, published by the ABS. All claims must be fully substantiated. The CDPP says its case officer will try to minimise the inconvenience caused to the trustee, including considering the possibility of the trustee giving evidence via AVL or being called first.[6]

The CDPP explains its practice in relation to bankruptcy offences.[8]  The officers of AFSA act as informants in any criminal proceedings against bankrupts or debtors in connection with estates administered either by AFSA or by registered trustees ‘where AFSA has investigated the matter’. The AFP acts as the informant in respect of matters investigated by them. The CDPP goes on to say that registered trustees who administer an estate should not be the informant against the bankrupt or debtor. The trustee refers the matter to AFSA which then makes the decision whether to refer the matter to the CDPP.  Most are summary offences; more serious ones, such as under s 266, proceed on indictment.[9]

The number of times trustees are called to give evidence by personal attendance is however understood to be low.

High number of bankruptcy offences prosecuted

The focus on criminality in bankruptcy remains, in some quarters.

The DPP reports that in 2019-20, charges under the Bankruptcy Act were the third highest in number under Commonwealth law (254), well above the Corporations Act (155), and the Taxation Administration Act (187); and that AFSA was the third highest Commonwealth referrer (after the AFP and Centrelink).[10]  This no doubt significantly met a KPI of under the Bankruptcy Act.  Some agencies, such as ASIC, pursue their prosecutions themselves, not only through the CDPP: see for example 21-216MR ASIC prosecutes 124 people for failing to assist registered liquidators | ASIC – Australian Securities and Investments Commission.

AFSA says that during 2019–20, 65% of the matters referred for investigation related to serious offences, up from 46% in 2018–19 – it seeks to punish significant misconduct and thereby influence behaviour. But 47% of all investigation outcomes resulted in an official caution.

The cost to creditors

While there appears to be no published break-up of who was the trustee of the estates involved, one can assume that many were referred by registered trustees.  The imposts on creditors of the costs of these public duties being performed by private registered trustees on behalf of the Commonwealth are considerable.  Then, in corporate insolvency, many of those trustees, registered as liquidators, would have referred the 19,000 offences reported to ASIC in the year before, reducing dividends otherwise payable to creditors.[11]

Both AFSA and the CDPP need to keep that financial impost on creditors in mind.

But as to the trustee mentioned initially, the discipline committee was probably right, he was just attending to one of the many calls made by the government on insolvency practitioners and creditors, generally, and on bankruptcy trustees in particular.

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[1] Report of the committee convened under s 50-40 in relation to Daniel Moore, 15 July 2021 Normal (afsa.gov.au)

[2] AFSA’s guidance extends beyond the terms of the section – see IGPS 14 – Referring offences against the Bankruptcy Act 1966 to the Inspector-General, 1 July 2021.  See also s 185LA for debt agreement administrators. In corporate insolvency, the duty is much wider: s 533CA.

[3] Annual report 2019-20 | Australian Financial Security Authority (afsa.gov.au)

[4] ARITA Code Practice Statement Insolvency 5: Remuneration reporting.

[5] NLD-Witness-Expenses-2021-Jun.pdf (cdpp.gov.au)

[6] CDPP Practice Group Instructions Bankruptcy Prosecutions Instruction Number: 8, 28 October 2020. Bankruptcy Act 1966 (cdpp.gov.au)

[7] Ide v Ide [2004] NSWSC 751

[8] CDPP Practice Group Instructions Bankruptcy Prosecutions Instruction Number: 8, 28 October 2020.

[9] See ch 6 of the Prosecution Policy of the Commonwealth.

[10] ANNUAL REPORT 2019–20 | Commonwealth Director of Public Prosecutions (cdpp.gov.au).

[11] ASIC Report 645 Insolvency statistics: External administrators’ reports (July 2018 to June 2019) December 2019.

 

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