Inspector-General Practice Direction 9

Subtitle: 
Inspector-General Practice Direction (IGPD) 9 - Standards for trustees and controlling trustees

Purpose of the Standards

The purpose of the standards is to ensure:

    (a)  that a registered trustee acts at all times in accordance with the trustee’s powers and duties under the Bankruptcy Act 1966 (“the Act”) , the Bankruptcy Regulations 1996 (“the Regulations”) and the Insolvency Practice Rules (Bankruptcy) 2016 (“the Rules”)  in relation to the practice of bankruptcy law generally; and

    (b)  that an administration to which these standards apply is carried out consistently at a high level.

The Standards are located in Division 42 of the Rules.

Debtors and creditors no matter where they are located can be assured they are being treated fairly, and if not then they have the ability to contact Bankruptcy Regulation on the conduct of the trustee/controlling trustee.

Registered trustees

In considering whether the trustee should continue to remain registered, a disciplinary committee can take into consideration a trustee’s failure to comply with a prescribed standard.

The standards provide transparency, certainty and consistency for practitioners on the basis on which their performance will be assessed by Bankruptcy Regulation.

Application of the Standards by Bankruptcy Regulation

There is an expectation that trustees who regularly fail to comply with the Bankruptcy Act, Regulations and the Rules without a reasonable explanation for their divergence from acceptable practice, or whose behaviour/conduct brings the integrity of the profession in disrepute, will be subject to disciplinary action. It is not automatic that disciplinary action will be taken where a breach of a performance standards is made, however it is a basis upon which the Inspector-General or a committee could consider:

  • the importance of a standard that has not been complied with
  • the seriousness of the effect of a failure to comply with a standard, including the impact the failure to comply has on a particular estate
  • a trustee’s performance history and whether the trustee has previously failed to comply with a standard, and suggest a particular course of action.

Non-compliance with a performance standard may give rise to a simple query by Bankruptcy Regulation on the reasons why there has been a deviation and where repetitive breaches occur or in the case of a serious breach invoke disciplinary action.

Performance standards

The standards provide a minimum standard of conduct and performance expected by practitioners. These standards are set out in four Subdivisions A to D which apply respectively to:

A. Registered Trustees Generally

B. Trustees other Than Controlling Trustees

C. Trustees of Bankrupt Estates and

D. Controlling Trustees

The Standards are as follows adopting the same numbering as in Division 42 of the Rules:

Subdivision A—Standards for registered trustees generally

42‑5  Application of this Subdivision

                   This Subdivision applies in relation to registered trustees in the administration of regulated debtors’ estates.

42‑10  Trustees to act honestly and impartially

             (1)  A registered trustee must act honestly and impartially in relation to each administration.

             (2)  Without limiting subsection (1), a registered trustee must not make or sign a document that the trustee knows, or ought reasonably to know, is false or misleading in a material particular.

             (3)  The trustee must not include in any document prepared by the trustee a clause that disclaims the trustee’s responsibility for the document’s authenticity.

42‑15  Communication

             (1)  Communications by a registered trustee must be:

                     (a)  clear and concise and, where appropriate, expressed in lay terms; and

                     (b)  objective; and

                     (c)  responsive; and

                     (d)  timely; and

                     (e)  expressed in a professionally courteous tone and manner.

             (2)  A registered trustee must take care to ensure that all communications, including reports (whether issued personally or by delegation) are accurate and do not omit or obscure information required to be included or relevant to users of the communication.

             (3)  A registered trustee must preserve confidential information where necessary, unless disclosure of such information is required by law.

42‑20  Conflict of interest

                   If, during an administration, it becomes apparent that the registered trustee has an actual or potential conflict of interest in relation to the administration, the trustee must, as soon as practicable after becoming aware of the conflict of interest:

                     (a)  notify the creditors, the person who appointed the trustee, a committee of inspection or the Court, as appropriate, of the conflict of interest; and

                     (b)  take appropriate steps to avoid the conflict of interest.

42‑25  Compliance with standards by trustee’s employees

                   A registered trustee must ensure that his or her employees comply with this Subdivision.

42‑30  Preliminary inquiries and actions

                   A registered trustee must undertake preliminary inquiries and actions at the start of each administration, including the following:

                     (a)  informing the regulated debtor (or legal personal representative in the case of a deceased debtor) of the debtor’s obligations under the Act and the penalties for failing to comply with those obligations;

                     (b)  obtaining and reviewing the statement of affairs of the regulated debtor;

                     (c)  if necessary, interviewing the regulated debtor (or legal personal representative in the case of a deceased debtor) to clarify any matters in the statement of affairs;

                     (d)  identifying and making an assessment of realisable assets that could be expected to:

                              (i)  provide, on a cost‑benefit basis, a return to creditors; or

                             (ii)  contribute to the payment of the costs and fees of the administration;

                     (e)  assessing the contribution that the regulated debtor is liable to pay in respect of a contribution assessment period, calculated in accordance with section 139S of the Act;

                      (f)  determining the likelihood of whether the estate of the regulated debtor includes property that can be realised to pay a dividend to creditors;

                     (g)  if the trustee has a genuine reason for believing that the regulated debtor (or legal personal representative in the case of a deceased debtor) may not have disclosed an interest in real or other registered property—conducting appropriate searches for such property;

                     (h)  if information obtained from a search mentioned in paragraph (g) shows that the regulated debtor (or legal personal representative of the deceased debtor) has not made full and true disclosure of his or her interest in property:

                              (i)  making inquiries of third parties about the information; or

                             (ii)  if further inquiries are not made, explaining to the creditors why further inquiries were considered unnecessary;

                      (i)  if the trustee considers that there may have been antecedent transactions—making inquiries of third parties to identify those transactions;

                      (j)  cooperating with the Inspector‑General by, for example, responding to reasonable requests for information.

42‑35  Investigations and inquiries of matters affecting an administration

             (1)  A registered trustee in relation to an administration must consider the views of creditors regarding the extent to which investigations are undertaken in the administration.

             (2)  A registered trustee in relation to an administration must inform creditors, as soon as practicable, of the outcomes of any inquiries undertaken in the administration.

42‑40  Realising assets

                   A registered trustee in relation to an administration must realise only those assets:

                     (a)  that will give a cost‑effective return to creditors; or

                     (b)  that contribute to the payment of the costs of the administration; or

                     (c)  that may be realised in accordance with a personal insolvency agreement.

42‑45  Ownership or interests in assets

                   In determining the ownership of, or an interest in, an asset that is part of divisible property, a registered trustee must act reasonably and claim only the amount that fairly represents the interest in, or value of, the asset.

42‑50  Obtaining advice about interest or value

                   If:

                     (a)  the value of divisible property is likely to have a material impact on the administration of a regulated debtor’s estate; and

                     (b)  the market value of the property is not readily ascertainable;

the registered trustee must obtain advice from an independent expert in assessing:

                     (c)  the extent of the trustee’s interest in any realisable asset; and

                     (d)  the value of the property or offers for the property.

42‑55  Disposal of property

                   A registered trustee must act independently and impartially in undertaking transactions and dealings relating to the disposal of the property of a regulated debtor.

42‑60  Costs incurred to be necessary and reasonable

                   In conducting an administration, a registered trustee must:

                     (a)  incur only those costs that are necessary and reasonable; and

                     (b)  before deciding whether it is appropriate to incur a cost, compare the amount of the cost likely to be incurred with the value and complexity of the administration.

42‑65  Rate for tasks undertaken by trustee’s staff

             (1)  This section applies if the remuneration of a registered trustee is worked out wholly or partly on a time‑cost basis.

             (2)  The registered trustee must ensure that time billed for a task undertaken in conducting an administration is charged at the appropriate rate for the level of staff who would be reasonably expected to undertake the task.

42‑70  Keeping proper records in relation to work done

                   A registered trustee must ensure that proper records are kept that:

                     (a)  adequately describe the nature of the work; and

                     (b)  if the trustee’s remuneration is worked out wholly or partly on a time‑cost basis—provide evidence of the time spent on work done in conducting an administration.

42‑75  Need for meeting

                   A registered trustee must consider whether the matters sought to be addressed at a meeting of creditors:

                     (a)  require the holding of a meeting; or

                     (b)  could be addressed more cost effectively by another form of communication with creditors.

42‑80  Matters to be considered when holding a meeting

                   In deciding whether the proposed time and place for a meeting of creditors is convenient for the creditors, a registered trustee must consider the following:

                     (a)  the requirements for meetings set out in the Act, the regulations and these Rules;

                     (b)  the location of creditors;

                     (c)  the ability of creditors to return proxies and statements of debt;

                     (d)  the complexity of issues to be considered by creditors before the meeting.

42‑85  Attendance at meetings

                   A registered trustee, or a person appointed under section 75‑25 of the Insolvency Practice Schedule (Bankruptcy) to represent the trustee at a meeting of creditors, must attend meetings of creditors.

42‑90  Verifying payments and transfers

                   A registered trustee must verify all payments from an administration, and transfers between estates, by reference to appropriate supporting vouchers and original documents kept with the books relating to the administration.

42‑95  Separate accounts and records

                   A registered trustee must ensure that bank accounts and records maintained in respect of all transactions relating to the regulated debtor’s property are kept separate from records relating to any later administration that takes place in relation to the regulated debtor.

Subdivision B—Standards for trustees other than controlling trustees

42‑120  Application of this Subdivision

                   This Subdivision applies in relation to registered trustees in the administration of the following:

                     (a)  the estate of a bankrupt;

                     (b)  a personal insolvency agreement;

                     (c)  the estate of a deceased person in respect of which an order has been made under Part XI of the Act.

42‑125  Provable debts in a joint administration

                   In conducting an administration in relation to joint regulated debtors, the registered trustee must ensure that a debt is proved in the appropriate estate.

42‑130  Creditors’ views to be considered

                   A registered trustee must consider the views of creditors in relation to whether money held by the trustee should be:

                     (a)  applied to conduct further investigations in relation to the administration; or

                     (b)  distributed as a dividend.

42‑135  Distribution of estate funds

                   A registered trustee must distribute estate funds in a timely manner, having regard to:

                     (a)  the complexity of the administration and the claims of creditors; and

                     (b)  the amount of funds available for distribution; and

                     (c)  the need to retain funds in the estate to meet existing or expected commitments.

42‑140  Advice relating to dividends and administration

                   A registered trustee must, when distributing dividends to the creditors of a regulated debtor, advise creditors about whether:

                     (a)  further dividends are expected to be distributed; or

                     (b)  the administration is finalised.

Subdivision C—Standards for trustees of bankrupt estates

42‑170  Application of this Subdivision

                   This Subdivision applies in relation to registered trustees in the administration of the following:

                     (a)  the estate of a bankrupt;

                     (b)  the estate of a deceased person in respect of which an order has been made under Part XI of the Act.

42‑175  Identifying assets for vesting

                   A registered trustee must take appropriate steps to identify the assets of the estate of a regulated debtor that will vest in the trustee, including the following:

                     (a)  obtaining and reviewing the statement of affairs of the regulated debtor;

                     (b)  considering the size of the deficiency in the estate for the purpose of finding possible assets or determining whether an issue needs to be investigated;

                     (c)  considering the activities and circumstances of the regulated debtor to decide whether assets disclosed by the regulated debtor (or legal personal representative in the case of a deceased debtor) are consistent with what would be expected of a regulated debtor having a similar background or undertaking a similar activity;

                     (d)  if the regulated debtor is or was involved in significant corporate or trust activity—making inquiries of third parties (for example, solicitors, accountants, creditors, associated entities and financial institutions) to establish whether there is any divisible property or antecedent transactions.

42‑180  Protecting certain assets

                   A registered trustee must take appropriate steps to protect assets with a commercial value that have vested in him or her, including doing any or all of the following:

                     (a)  ensuring that the assets are adequately insured;

                     (b)  taking possession of the assets;

                     (c)  perfecting legal ownership of the assets.

42‑185  Income and contribution assessment

             (1)  Despite section 42‑170, this section does not apply to a registered trustee in relation to the estate of a deceased person in respect of which an order has been made under Part XI of the Act.

             (2)  The registered trustee must, as soon as possible after all necessary information has been made available, make an assessment of:

                     (a)  the income of the regulated debtor in respect of a contribution assessment period; and

                     (b)  the contribution that the regulated debtor is liable to pay.

             (3)  The registered trustee must:

                     (a)  act fairly and reasonably in determining the time for payment of any contribution (contributions liability) that a regulated debtor is liable to pay in respect of a contribution assessment period, calculated in accordance with section 139S of the Act; and

                     (b)  if full payment within the contribution assessment period or before discharge would cause hardship to the regulated debtor, consider giving the regulated debtor an extension of the time for payment of contributions liability.

             (4)  The registered trustee must:

                     (a)  give the regulated debtor a copy of the assessment of income and contributions liability, setting out and explaining the basis on which the amount of any contributions liability has been calculated; and

                     (b)  notify the regulated debtor of the effect of section 139ZA of the Act (about internal review of assessment).

             (5)  In this section:

contribution assessment period has the same meaning as in section 139K of the Act.

42‑190  Monitoring payment of contributions

             (1)  Despite section 42‑170, this section does not apply to a registered trustee in relation to the estate of a deceased person in respect of which an order has been made under Part XI of the Act.

             (2)  The registered trustee must:

                     (a)  monitor the payment of contributions by a regulated debtor to ensure the contributions liability is discharged; and

                     (b)  if necessary, take appropriate steps to recover contributions that remain unpaid after the time for payment has passed.

Subdivision D—Standards for controlling trustees

42‑210  Application of this Subdivision

                   This Subdivision applies in relation to registered trustees in the administration of a debtor’s property that has become subject to control under Division 2 of Part X of the Act.

42‑215  Notification of administration

                   Notice of the administration given to the creditors by the registered trustee of a regulated debtor must include the debtor’s name, date of birth, address and occupation.

42‑220  Investigating debtor’s property and income

             (1)  As soon as practicable after an authority under section 188 of the Act becomes effective, the registered trustee must conduct appropriate investigations of the regulated debtor’s property and income.

             (2)  If the regulated debtor’s property includes significant real estate, company structures or motor vehicles, the registered trustee must:

                     (a)  search the appropriate registries for information about the property; and

                     (b)  obtain advice from an independent expert about the value of the property.

             (3)  If the regulated debtor was or is involved in significant corporate or trust activity, the registered trustee must take appropriate steps to identify the assets of the debtor that will be subject to control under Division 2 of Part X of the Act, including making inquiries of third parties (for example, solicitors, accountants, creditors, associated entities and financial institutions) to establish whether there is any divisible property or antecedent transactions.

42‑225  Report to creditors

                   A registered trustee’s report under section 189A of the Act must also include the following:

                     (a)  information about each matter mentioned in subsection 188A(2) of the Act;

                     (b)  the basis on which the regulated debtor’s property has been valued;

                     (c)  the kind of investigations the controlling trustee has carried out and whether any other matters need to be investigated;

                     (d)  the reasons for the registered trustee’s opinion about whether creditors’ interests would be better served by accepting the debtor’s proposal for dealing with the debtor’s affairs under Part X of the Act or by the bankruptcy of the debtor.

Official Trustee

The Performance Standards apply to registered trustees, however the Official Trustee will, where appropriate observe these standards.