The AFCA financial complaints scheme and bankruptcy – no appeal

Further to my case comment below, AFSA has, belatedly, advised that it is not appealing this decision of Justice Rares of 11 October 2023. Nevertheless, it is “carefully considering the implications of the judgment [for] the Official Trustee’s management of estates”, that a compensation claim taken through the Australian Financial Complaints Authority (AFCA) by a former bankrupt is not property of the bankrupt which vests in the trustee. 

Statement: Outcome of the Official Trustee in Bankruptcy v Kent [2023] FCA 1211 | Australian Financial Security Authority (


In what was described by Justice Steven Rares[1] as “very much in the nature of a test case as to the interaction between the AFCA scheme and the rights of trustees in bankruptcy, bankrupts and financial firms under the Bankruptcy Act”, the Federal Court has found that a successful claim by a bankrupt for compensation against a bank through the Australian Financial Complaints Authority (AFCA) is personal to the bankrupt and can’t be claimed by the trustee.  

Banks and other financial bodies are members of the AFCA compensation and dispute resolution scheme as a condition of their financial services licences under Part 7.10A of the Corporations Act.  

In bankruptcy terms, a claim under s 133 of the National Consumer Credit Protection Act 2009 (NCCP Act) and consequential orders for compensation under ss 178, 179, is not “property of the bankrupt” that vests in the trustee under s 58(1) Bankruptcy Act, or, if it is property that vests, it is exempt from being divisible among creditors as a right to recover compensation for personal wrong done within s 116(2)(g)(i) of the Act. Official Trustee in Bankruptcy v Kent [2023] FCA 1211 (11 October 2023) (

AFCA fact sheet

Up until this decision, it seems to have been assumed that such claims and their outcomes were property that vested in the trustee.  An AFCA fact sheet referred to in the judgment says, or said, (as paraphrased) that the trustee controls the bankrupt’s right to bring a legal claim for financial loss and that AFCA can only consider a bankrupt’s claim if their trustee in bankruptcy consents. The trustee or staff member may deal with AFCA directly, or appoint the bankrupt as the trustee’s agent. AFCA will direct the financial firm to pay any award of compensation for financial loss to the trustee in bankruptcy.

The fact sheet also noted that AFCA could ask, but not compel, a trustee to participate in settlement discussions. If the trustee is unwilling to participate, settlement options may be limited. Only the trustee in bankruptcy can form a binding agreement with the financial firm about the loan or the security property. If the trustee’s involvement is needed to determine the matter, AFCA may not be able to consider the bankrupt’s complaint.


In this matter, after his discharge from bankruptcy, Mr Kent made a complaint to AFCA about certain pre-bankruptcy loans from the Commonwealth Bank, including five real property loans, said to involve irresponsible lending in contravention of s 133(1) of the NCCP Act that precipitated his insolvency.  As a result of his inability to meet the repayments, he had lost his home and his job and he and his wife separated in 2016 and later divorced.   

On the assumption that the claim was property and had vested in the trustee in bankruptcy, the Official Trustee (OT), the bank and the OT, without the consent of Mr Kent, entered into a deed to settle the claim with the moneys to be paid to the OT for distribution to unsecured creditors and the balance to Mr Kent.  The consequence of the Federal Court’s finding on the law was that the deed was invalid and not binding on Mr Kent.

After settling the matter, the OT had applied to the Federal Court for judicial advice together with binding declarations of right to justify its conduct in making the payment, with Mr Kent filing a cross-claim.  The OT was unsuccessful.

Whether a claim like this is property under s 58 is generally a matter of the legal nature of the claim.  If such a claim is property, whether it should be excluded divisible property is a matter of bankruptcy policy. 


In a further decision on costs, Justice Rares ordered the OT pay costs of Mr Kent, on an indemnity basis: Official Trustee in Bankruptcy v Kent (No 2)[2023] FCA 1396.  He said that the proceeding was in the nature of a test case of general public importance for the administration of bankrupt estates. He took into account that the OT has a statutory right to indemnity from the Commonwealth for costs ordered against it under s 18A(2)(a) of Bankruptcy Act although the Court has a discretion to order costs against the official trustee personally under s 18A(1)(a) and also s 9015(3)(d) and (5) in Sch 2 of Bankruptcy Act. The final orders were that:

  • the OT’s costs of the proceeding (including the cross-claim by Mr Kent) be an expense in the administration of Mr Kent’s bankrupt estate.
  • The OT, personally, pay Mr Kent’s costs of the proceeding (including the cross-claim) on an indemnity basis.
  • It be declared that the OT has a right of indemnity against Mr Kent’s bankrupt estate in respect of its personal liability for costs.


While this case might have had a better process of having the point of law resolved, if it has been, the handling of the matter by the OT is consistent with the policy of AFSA that the OT should be the one to investigate and administer estates where there is a public interest in doing so, even though the administration may not result in a financial return to creditors, nor cover the OT’s costs of the administration.[2]

If a registered trustee (RT) had been involved, they can be in a difficult position where if they act without seeking court orders, they can be criticised, but court orders cost money and if the estate has no or limited funds, these are not feasible.  Legal advice is an alternative.  Another alternative would be to apply for s 305 funding, under its criterion of ‘resolving a significant issue of law’; but no such funding has been reported as being provided for some years. Or, the RT could have transferred the matter to the OT to resolve.[3]

In the end, an RT should not bear the cost of unfunded matters involving legal issues that require resolution, in an area of law that the government acknowledges has not received law reform attention for a long time.[4]

As to AFCA, and AFSA, we should expect revised guidance to be issued shortly. 


[1] As Acting Chief Justice

[2] Distribution of bankrupt estates between the official trustee and registered trustees | Australian Financial Security Authority (

[3] See RT transfers to the OT in Distribution of bankrupt estates between the official trustee and registered trustees | Australian Financial Security Authority (

[4] “… it’s been a long time since the government has engaged with the personal insolvency system …” – Dreyfus to explore ‘urgent’ changes to insolvency laws, AFR, 2 February 2023


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