Statutory reviews of trustees’ decisions
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Inspector-General Practice Statement 12 explains statutory reviews of trustees’ decisions.
- The purpose of this document is to explain the approach taken by the Inspector-General in Bankruptcy when carrying out statutory reviews of bankruptcy trustees’ decisions, together with the Inspector-General’s expectations with respect to requests for review.
- In the course of administering a bankrupt estate, a bankruptcy trustee is required to make a number of decisions in order to carry out the duties required by law. Bankruptcy trustees include both private individuals registered to be bankruptcy trustees in Australia and the Official Trustee in Bankruptcy, the government’s bankruptcy trustee.
- The Bankruptcy Act 1966 sets out types of decisions that a bankruptcy trustee can make which may be reviewed by the Inspector-General. Officers within AFSA’s Practitioner Surveillance division, an independent division of AFSA, undertake these reviews as delegates of the Inspector-General.
- The review areas are:
- filing of a notice of objection to discharge
- issuing an income contribution assessment
- deciding on and or refusing to consider a hardship application with respect to an income contribution assessment
- using a supervised bank account to collect income contributions
- paying trustees’ remuneration and third party costs (e.g. legal costs).
- AFSA may also be requested to approve a registered trustee’s remuneration in certain circumstances upon application to the Inspector-General by the trustee. Further information on the remuneration approval process is contained in Determination of a trustee’s remuneration by the Inspector-General in Bankruptcy.
- Creditors and the bankrupt/debtor may also apply to AFSA for review of a registered trustee’s claim for remuneration in an estate. Further information on the remuneration review process is contained in Reviewing remuneration of trustees and costs of third party service providers.
- AFSA does not have the power to review other decisions that may be made by a trustee in the course of administering an estate. However, AFSA deals with complaints against bankruptcy trustees and may be able to assist in resolving disputes, particularly if the trustee’s decision or action does not comply with the law or the industry standards. The process for lodging a complaint is explained on AFSA’s Resolving complaints webpage.
- For information about how to request a review, see AFSA’s Can I appeal? web page.
General practice expectations and requirements
- Section 139ZA of the Bankruptcy Act provides a bankrupt with a right to request review by AFSA of a trustee’s decisions regarding income contribution assessments and any decisions not to adjust income contribution assessments based on hardship. Section 139ZIO provides the bankrupt with a right to request review of a trustee’s use of supervised accounts to collect contributions. These requests for review must be made in writing.
- If appropriate, AFSA will endeavour to assist in facilitating an amicable resolution between the parties where the outcome is likely to be either:
- the applicant withdraws the application, or
- the trustee withdraws their decision.
- In respect to objections lodged to extend the period of bankruptcy, the right to seek a review is provided in section 149K of the Bankruptcy Act.
- The comments in this general section apply to all types of reviews listed, apart from a trustee’s decision to claim remuneration.
How an Inspector-General review can be initiated
- An AFSA review can arise:
- if requested by a bankrupt and a delegate of the Inspector-General considers the reasons provided are sufficient to justify the review
- on Inspector-General’s own initiative, or
- if requested by the Commonwealth Ombudsman.
Request for review by the bankrupt
- The trustee is required to advise the bankrupt of reviewable decisions, the bankrupt’s right of review and the 60-day time limit for requesting a review. The 60-day period starts on the day after the date the bankrupt is notified of the decision.
- A request to review a trustee’s decision must:
- be made within 60 days of being notified of the decision
- be in writing
- be given to AFSA
- include the reason for requesting the review
- be accompanied by all relevant information and documentation, including a copy of the trustee’s decision on which review is being sought.
- A request is considered when all of these conditions are met.
- In determining whether the request is within time, AFSA requires evidence from the trustee as to when the decision and details of the review rights were provided to the bankrupt.
- A decision posted by the trustee is deemed to have been received by the bankrupt when a document would, in the due course of post or business practice, be delivered (refer to section 102 of the Bankruptcy Regulations 2021). This is by reference to the Australia Post delivery times, which can be found on the Australia Post website.
- Once a request for review meeting the prerequisite conditions is received, AFSA has 60 days to reach a decision. If a decision is not made within this time, for example if further information is not provided on request, the trustee’s original decision is deemed to be confirmed. AFSA will promptly advise the bankrupt of all decisions and further review options.
- When the conditions are not met, for example if AFSA determines that a request for review is out of time, the request is not considered valid and a review will usually not be made based on the request. AFSA will provide an explanatory letter to the bankrupt outlining the reasons and any further entitlements of the rights of appeal.
- While the determination of validity of a request is not reviewable in the Administrative Appeals Tribunal (“AAT”), a bankrupt is entitled to raise concerns with the Commonwealth Ombudsman. The Ombudsman may direct the Inspector-General to undertake a review notwithstanding it being invalid or, if there are sufficient and reasonable grounds, AFSA may undertake a review based on its own initiative. Details of both these situations are provided below.
Review carried out on the Inspector-General’s initiative
- AFSA has the discretion to undertake a review of a trustee’s decision at any time. AFSA will exercise this discretion reasonably based on the merits and circumstances of each case.
- Examples for instances where reviews may be carried out on the Inspector-General’s initiative are:
- Intervention is required in order to maintain the credibility of the personal insolvency system. For example, if it was considered that the decision made was a misuse of power by the trustee.
- It appears that a trustee’s decision was deemed to be a breach of fiduciary duties or otherwise contrary to law.
- Natural justice should be applied. For example, where the request was received by AFSA outside the time frame allowed because the bankrupt had not been advised of their right of review or had not been advised of the time limit within which to make such a request and it appears there may be some merit in undertaking a review. AFSA may become aware of a trustee’s decision that should be reviewed using this discretion when performing other regulatory functions, such as during the annual inspection program or during the investigation of a complaint.
- AFSA will advise the trustee of the basis of any cases where this discretion is invoked and it has been decided to review the trustee’s decision.
- Where a decision to exercise the discretion is based on a request by the bankrupt, it is expected that the bankrupt will provide their reasons for requesting a review and will provide all relevant information and documentation in support of the request.
- Although the Bankruptcy Act does not specify a timeframe within which such a review decision must be made, AFSA will endeavour to complete the review within 60 days of accepting the review application.
Request for review by the Commonwealth Ombudsman
- AFSA must conduct a review when requested to do so by the Commonwealth Ombudsman.
- Examples of when this might occur are where the Commonwealth Ombudsman considers that an administrative error has occurred in the process or there is an issue of natural justice that has not previously been considered.
- Although the Bankruptcy Act does not specify a timeframe within which a review must be completed in this situation, AFSA will endeavour to complete the review within 60 days of receiving the request from the Commonwealth Ombudsman.
How AFSA conducts a review
- When AFSA determines that a review will be conducted, notification will be sent to the bankrupt and the trustee. The trustee will be advised of the reasons for the decision to undertake the review or the basis of the bankrupt’s request. Further information may be requested from the bankrupt and/or the trustee if necessary.
- It is expected that information requested will be provided by the bankrupt and/or the trustee within the time specified by AFSA.
- Where additional evidence is provided that will be relied upon by AFSA in making a decision or where existing evidence has been challenged, parties will be given the opportunity to respond to the fresh evidence or issues raised.
- Once the review is completed, AFSA will provide a written determination to the bankrupt setting out the decision, the material upon which the decision was based and the reasons for the decision. A copy of the decision will also be provided to the trustee.
- An AFSA review can arise:
Income contribution reviews
- A trustee is required to undertake periodic assessments of a bankrupt’s income to determine if there is a liability to contribute to the bankrupt estate. A decision resulting in a bankrupt’s obligations to make contributions is reviewable by AFSA on request by the bankrupt.
- AFSA expects that the trustee will conduct proper enquiries to assess the bankrupt’s contribution liability and that the trustee will provide sufficient information to enable the bankrupt to understand how the liability was determined and inform the bankrupt of the review rights.
- AFSA has the power to review an entire income contribution assessment and is not restricted to considering only the areas of the assessment that the bankrupt disputes.
- In commencing a review, AFSA will initially consider the details of the trustee’s assessment and the information provided by the bankrupt in order to determine whether the trustee has correctly applied the contribution regime.
- This process can involve a review of the bankrupt’s income, the treatment of the liability for income tax purposes and consideration of the number of dependants the bankrupt has.
- The possible outcomes of the review are that AFSA can:
- confirm the trustee’s assessment, or
- issue a fresh assessment that either increases or decreases the contribution liability.
- Where a bankrupt receives notice of an income contribution assessment, an application can be made by the bankrupt to the trustee if the bankrupt believes that financial hardship will be suffered if required to pay that contribution.
- The grounds on which hardship can be claimed are set out in subsection 139T(2) of the Bankruptcy Act. These are the only grounds on which hardship can be claimed and neither the trustee nor AFSA has the discretion to make an allowance and reduce the contribution liability on any other basis.
- Where the bankrupt is not satisfied with the decision made by the trustee in relation to the claim for hardship, the bankrupt can ask for that decision to be reviewed by AFSA.
- In seeking a review in order to establish hardship it is necessary for a bankrupt to:
- outline which of the hardship ground(s) in subsection 139T(2) apply
- provide adequate evidence in support of the ground(s)
- quantify the amount of hardship relating to the relevant hardship ground(s)
- demonstrate that financial hardship will be experienced if required to pay the assessed the contribution.
- Where AFSA determines, after considering the above factors, that hardship will be suffered by the bankrupt, AFSA may vary the contribution assessment to lower the contribution liability.
Review of supervised account notices
- Where a bankrupt is issued with an income assessment and fails to make the required payments, the trustee can issue a supervised account notice to the bankrupt. The effect of the notice is that the bankrupt must open a bank account into which all of the bankrupt’s income is deposited and withdrawals can only be made from the account with the trustee’s permission.
- The main factors that AFSA considers when reviewing the notice are:
- whether the bankrupt was liable to pay a contribution
- whether the bankrupt was given effective notice of the contribution liability.
- whether amounts due have been paid
- whether the bankrupt has failed to pay a lump sum or instalments due by a particular time
- whether the bankrupt has been given an opportunity to comply voluntarily
- whether the issue of the notice was an abuse of power or breach of fiduciary duty to act fairly and impartially.
- In undertaking a review of a supervised account notice, AFSA can:
- confirm the decision
- vary the decision
- set aside the decision, or
- set aside the decision and make a decision in substitute of the decision that is set aside.
- These provisions do not apply to the situation when the bankrupt disagrees with the contribution assessment on which the supervised account notice is based. A request for review of the contribution assessment can be made as set out above and the conditions outlined above apply. If the conditions are not met, for example the request is out of time, AFSA may still exercise discretion to review the basis of the contribution assessment alongside the review of the supervised account notice if the circumstances warrant this.
Objections to discharge reviews
- A bankrupt who submits their Debtor’s Petition is generally entitled to receive an automatic discharge from bankruptcy 3 years and 1 day after the date on which the petition was accepted.
A debtor who is made bankrupt by a sequestration order is generally entitled to receive an automatic discharge from bankruptcy 3 years and 1 day after the date a bankrupt files a statement of affairs that we accept.
This period can be extended if the trustee files an objection to discharge with the Official Receiver before these times.
- A bankruptcy trustee must lodge an objection to a bankrupt’s automatic discharge from bankruptcy pursuant to section 149B of the Bankruptcy Act when the trustee believes:
- that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged
- that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged.
- The trustee must also determine that at least one of the grounds of objection, as set out in subsection 149D(1) of the Bankruptcy Act, applies. The notice must be lodged with AFSA’s Official Receiver, and a copy of the notice must be provided to the bankrupt.
- Where an objection is lodged with AFSA on or before the due date for discharge, the period of bankruptcy will be extended to either 5 or 8 years from either the date the debtor’s petition was accepted or, for a sequestration order, when the bankrupt filed a statement of affairs which was accepted. The period of bankruptcy will depend on which ground(s) of objection the objection is based.
- Generally, a ground of objection that results in an 8-year bankruptcy is referred to as a “special ground”. Ordinary grounds of objection, referred to as “non-special grounds” in the legislation, generally give rise to a 5-year period of bankruptcy.
Information that a notice of objection must contain
- A notice of objection must include the following:
- details of the ground(s) the trustee relies on to lodge the objection and the ground(s) must be specified in subsection 149D(1) of the Bankruptcy Act
- the evidence or other material upon which the trustee relies
- where a non-special ground is relied on, a statement of the trustee’s reasons for filing a notice of objection on that ground. (For special grounds, the trustee is not required to state the reason for objecting on that ground.)
- AFSA’s expectation is that the trustee will clearly set out all the above information in the notice of objection and that the copy of the notice will be given to the bankrupt within 7 days after the filing of the notice with AFSA. The bankrupt must be advised of the review provisions and the timeframe for seeking a review.
- If the notice is deficient in any one or more of these requirements, it may be cancelled by AFSA or declared invalid by the court. If there are material deficiencies with the trustee’s notice of objection, AFSA may request that the trustee consider withdrawing the notice.
How AFSA conducts an objection review
- AFSA will review the decision to object and the notice of objection to ensure compliance with the requirements of the Bankruptcy Act. AFSA can ask the bankrupt and/or the trustee for further information to assist with the review process. In appropriate circumstances, AFSA may seek to facilitate a resolution of the issues in dispute between the trustee and the bankrupt.
- When conducting the objection review, AFSA will consider the following:
- Is the ground(s) of objection on which the objection was made a ground(s) specified in subsection 149D(1) of the Bankruptcy Act?
- Is there sufficient evidence to support the existence of the ground(s) of objection?
- Where the objection is based on a non-special ground, do the reasons given for objecting on that ground(s) justify the making of the objection?
- If AFSA is not satisfied as to one or all of the elements above, the objection must be cancelled.
- Where additional evidence is provided that will be relied upon by AFSA in making a decision or where existing evidence has been challenged, parties will be given the opportunity to respond to the fresh evidence or issues raised as a matter of natural justice.
- Where an objection is cancelled by the AFSA, the cancellation does not take effect until either:
- the end of 28 days from the date that the bankrupt and the trustee receive the Inspector-General’s decision, being the period within which an application can be made for a review of that decision to the A AAT, or
- if such an application is made, the date the decision of the AAT is given.
- AFSA Practitioner Surveillance will advise the AFSA Official Receiver where an objection has been cancelled so that the National Personal Insolvency Index can be updated.
- Once an objection based on a certain set of circumstances has been cancelled, a trustee is unable to lodge a fresh objection based on the same ground and circumstances.
Considerations for special grounds
- Where a ground of objection is a special ground, a trustee is not required to state the reason(s) for the objection.
- AFSA may cancel a special ground of objection where:
- the ground(s) and/or evidence is/are not established, or
- the ground(s) and evidence have been established but the bankrupt has satisfied the Inspector-General that there was a reasonable excuse for the conduct or failure that gave rise to the special ground.
- AFSA will consider the information and evidence provided by the bankrupt and rely on case law as appropriate to determine whether or not the excuse offered is “reasonable”. The trustee will be given details of the bankrupt’s information and evidence, as well as the opportunity to provide comments and evidence refuting the bankrupt’s claim to have a reasonable excuse. Consideration will be given to the conduct of the bankrupt and the circumstances of the administration of the bankrupt estate.
- If the bankrupt establishes that they had a prior reasonable excuse for failing to discharge the duty on which the notice is based but that, despite subsequent opportunity, they are still to remedy the conduct giving rise to the objection, it is unlikely that the excuse provided will be accepted as sufficient reason for the failure to comply with a particular ground.
- AFSA Practitioner Surveillance has no power to cancel the objection based on special grounds simply because the bankrupt has remedied the conduct and/or circumstances that led to the objection. However, in cases where the conduct that gave rise to the objection has been remedied, it is AFSA’s expectation that the trustee will withdraw the objection unless there is some future benefit to the objection remaining in place.
- In the situation where an objection was lodged on more than one ground, it cannot be cancelled if one special ground is established.
Considerations for non-special grounds
- Where an objection is lodged on an ordinary or non-special ground, the trustee must specify a reason for the making of the objection on that ground. The objection must not be lodged to punish the bankrupt but must set out what purpose it seeks to achieve. It must state how the extension of the period of bankruptcy will provide a utility not otherwise available were the bankrupt to be discharged from bankruptcy.
- The courts have considered the following examples to be valid reasons demonstrating utility in certain circumstances:
- to provide the bankrupt the opportunity to co-operate more fully with the trustee in the administration of their estate and to comprehensively meet their obligations to be forthcoming and frank in the information provided to the trustee, particularly when their obligation of full disclosure and duty to assist the trustee to the utmost of their power would be significantly reduced if they were to be discharged from bankruptcy
- as a matter of public interest by ensuring that a bankrupt meets their requirements of transparency and candour under the Bankruptcy Act, so as to assist the trustee to the utmost of their power.
- Guidance for trustees on the proper use of the objection to discharge provisions is available in Objections to discharge from bankruptcy.
- A bankrupt who submits their Debtor’s Petition is generally entitled to receive an automatic discharge from bankruptcy 3 years and 1 day after the date on which the petition was accepted.
Review of the Inspector-General’s decision
- Following the review of a decision by AFSA Practitioner Surveillance, the bankrupt or trustee can apply to the AAT for review if dissatisfied with the outcome.
- If an application for review is made within time, but AFSA refuses to perform a review, this decision is also able to be reviewed by application to the AAT.
- The application must set out a statement of reasons for the application and be made within 28 days of receipt of AFSA’s decision.
- The role of the AAT in the review process is to review the decision based on the law and the evidence available to the AAT and arrive at its own decision which may include:
- affirming the decision
- varying the decision
- setting aside the decision and substituting a new decision or
- remitting the decision to the decision-maker for reconsideration.
- The proceedings are not adversarial in nature and AFSA’s role is to assist the AAT by providing the information required to allow it to determine the correct decision in the circumstances.
- Further details of the process involved in making an application to the AAT can be obtained from the AAT website. The AAT appeal process requires an application to be made in writing in accordance with the prescribed application form, which is also available on the AAT website.
- The AAT does not have the authority to review other administrative decisions made by AFSA. If a bankrupt is otherwise aggrieved, for example by the refusal of AFSA to accept an application as a valid request to review a decision or the refusal to exercise the discretion to review a trustee’s decision, the bankrupt has the right to complain to the Commonwealth Ombudsman. The bankrupt may also be able to apply under the Administrative Decisions Judicial Review Act 1977 for a review of any decision made by an Australian public servant.