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Guidance – Practitioner Registration

Exemplar behaviour case studies

AFSA has published a range of case studies to showcase examples of exemplar behaviour from the insolvency sector. The case studies are real-life examples displaying best practice in culture, integrity and moral compass, and support public confidence in the personal insolvency system.

We expect to continue to build our library of exemplar behaviour case studies on this page over time.

Case study 1: Navigating sensitive issues

In 2017, a person in debt (Ms A) was made bankrupt following a sequestration order issued in the Federal Circuit Court of Australia.

At the time of bankruptcy, Ms A owned a property that was subject to a restraining order under the Confiscation Act 1997. The restraining order was granted to protect the interests of a creditor (Ms G). Ms G was the petitioning individual who was owed money under a compensation order.

Under section 58A(1) of the Bankruptcy Act 1966, as a restraining order was placed on the property, the vesting provisions of section 58(1) did not apply and the property did not vest in (or become the property of) the trustee. In order for the registered trustee to deal with the property for the benefit of Ms G, the restraining order would need to be lifted.

The matter involved sensitive legal and personal issues including negotiations about the property and how it might be realised for the benefit of Ms G. This resulted in a deed which provided for the removal of the restraining order and the vesting of the property in the registered trustee. The deed also made provisions to maintain Ms G’s priority to proceeds of the property upon the lifting of the restraining order. 

The deed specified that when the restraining order lifted, the trustee would secure and transmit the title of the property, and with Ms G’s consent, sell the property. The deed also stated that Ms G would lodge a caveat over the property to secure her interest before its sale, with the caveat withdrawn before settlement. Following the sale of the property less any costs incurred, Ms G received payment as well as penalty interest.

The trustee considered Ms G’s personal situation and used discretion to decrease his remuneration and other expenses (including legal fees) that the trustee would have otherwise been entitled too.

 Case study 2: Bankrupt individual and trustee cooperation leading to exemplar outcome for all

In 2014, a person in debt (Mr J) was declared bankrupt following a sequestration order issued in the Federal Circuit Court of Australia. Mr J was subsequently discharged from bankruptcy in mid-2017.

At the time of bankruptcy, Mr J owned a real property that consisted of two dwellings on one title. The real property had a mortgage and two caveats registered against the title of the property.

At the time of his appointment, the registered trustee assessed the real property and found that there was no equity. However, the trustee lodged a caveat against the title of the property to protect the estate’s interest in the real property.

After conducting semi-regular assessments of the value of the real property in 2020, given the significant increase in property prices, the trustee wrote to Mr J advising that he would take possession of the vacant property. The letter specified that if the real property was not vacated, legal proceedings would commence. In response, Mr J proposed subdividing the real property to create two separate titles, proposing that one lot be sold to annul his bankruptcy under section 153A of the Bankruptcy Act 1966 by payment of his creditors (who were owed money) in full, including costs and interest (if applicable).

After conducting a review, the trustee agreed and authorised Mr J to proceed with the subdivision of the real property and agreed that the costs associated with the subdivision (that were being provided by a family member), would be reimbursed upon settlement.

Following the sale of the subdivided lot, the estate was annulled in 2021 with a surplus amount paid to Mr J. In addition, Mr J was able to retain the second lot and residence. 

This was a great outcome for all involved and demonstrates a successful use of the trustee’s broad powers under Section 134 of the Bankruptcy Act 1966. The trustee listened to the debtor’s proposal, allowed Mr J to take the initiative in a step towards returning to financial security on his own behalf that ultimately resulted in an annulment.

Case study 3: Enabling positive change

A registered trustee volunteers for a domestic violence charity. The trustee was involved in a matter through the charity where a debtor (person owing money) (Ms K) had debts exceeding $315,000. The registered trustee negotiated with the creditors (who were owed money) to facilitate the writing- off of the debts on compassionate grounds. 

One creditor was owed approximately $180,000. With the assistance of the creditor’s lawyer, who was sympathetic to Ms K’s requests, they reached a settlement whereby the creditor agreed to accept a single payment of $11,600 in full and final settlement of the debt, with the funds coming from Ms K’s family and friends. All other creditors agreed to write off the debts in full. As a result, Ms K no longer faced bankruptcy.

The trustee said, ‘While I may not have received a cent for helping this individual; the reward I have received is seeing the positive change in this debtor over the last six months.’

This is a great example of a registered trustee undertaking public interest work for a domestic violence charity.

For further information concerning domestic violence volunteering, please contact Helen Joyce (Registered Trustee) on h.joyce@bluestoneadvisory.com.au

Case study 4: Making mental health a priority

By Shabnam Amirbeaggi, Registered Trustee & Registered Liquidator.

Board Member, Association of Independent Insolvency Practitioners

I am delighted that our profession continues to improve its focus on the mental health of those impacted by financial hardship and insolvency.

For too long we have focused on the numbers, and not on the people behind the numbers. 

The statistics in 2020 show that 1 in 3 small business owners in Australia were diagnosed with a mental health issue arising from financial stress. This is an enormous problem facing our stakeholders as a whole.

I completed the Counting On U mental health aid course last year, and I am now a certified Mental Health First Aider. The course has given me more confidence to have the conversation when mental health issues are identified, and know what options are available for debtors and creditors who are seeking help.

It feels good to have added this skillset to the service I provide as a registered trustee. I encourage our profession to continue to improve our offering in this area for those we help daily.

Case study 5: State of disrepair

In a bankruptcy administration, the petitioning creditor was the Owners Corporation of a strata plan where a person in debt (Mr D) lived. The total debt Mr D owed to the Owners Corporation was $76,072, related to unpaid strata levies and debt recovery costs. One other unsecured creditor was identified in Mr D’s estate, a debt of $3,496 related to unpaid electricity and gas fees.

The trustee had difficulty contacting Mr D via phone or post. Within 1 month of the sequestration order, Mr D visited the trustees’ office unannounced as he was unable to access his bank account and the bank referred him to the trustee. The trustee discovered that he had no contact with next of kin or close friends and had ignored the various demands and claims served against him from the Owners Corporation.

Shortly after the visit, the trustee inspected the strata property and found that it was in a significant state of uncleanliness.

Mr D had his assets tied up in the strata property and his only source of income was a government pension. Mr D had no means to pay out his creditors without realising the equity available in the property.

In conjunction with Mr D, the trustee made enquiries on alternative finance and provided him with contacts to seek advice on the options available to him. Mr D decided to take up residence in an aged care village. The trustee provided the aged care facility assurance that there would be sufficient funds available to pay accrued rent and to provide for the purchase price of the aged care residence following the sale of the strata property.

The trustee’s staff assisted Mr D to pack and move personal items. Mr D expressed his gratefulness to the trustee for the assistance he was given. 

AFSA is working to raise awareness of the seriousness of using the insolvency system for unpaid debts, particularly debts accrued through strata arrangements and other Owners Corporation models. Read more on the AFSA website.

Case study 6: Catching fraud

Prior to bankruptcy, the person in debt (Mr M) was a professional person. Mr M was charged and found guilty of several counts of fraud and was subsequently sentenced to jail. Soon after Mr M went to jail, he entered into Family Law Consent Orders with his former partner to distribute the vast majority of the matrimonial assets - including a 100% interest in the jointly owned matrimonial home.

Mr M was subsequently declared bankrupt by sequestration order following an application filed by one of the victims of his fraud.

The trustee’s investigations identified that a significant amount of funds had been fraudulently obtained by Mr M, especially from elderly clients. As a result, the trustee and his solicitor visited Mr M in jail to conduct an interview. They also interviewed several of the victims of Mr M’s fraud to obtain further information.

The trustee then conducted public examinations in the Federal Court of Australia of Mr M, his former partner, the former solicitor who was acting on the Family Law Consent Orders and others. This process also included the trustee issuing ‘Notices to Produce’ to various financial institutions and other parties to obtain documentation relating to Mr M’s affairs, assets and financial transactions.

The former partner then sold the former matrimonial home and moved interstate. Accordingly, the trustee commenced proceedings to have the Family Law Consent Orders set aside and successfully obtained a freezing/preservation undertaking. After extensive negotiations, the matter was settled on a commercial basis at a Court Mediation.

As a result of the settlement, a dividend was available for the unsecured creditors of the bankrupt estate, including the victims of Mr M’s fraudulent activities. However, and largely due to the amount of time that had expired, some of the correspondence addressed to creditors had been returned to the trustee’s office.

The trustee then conducted further searches, including death notices searches, which identified several of the victims of Mr M’s fraud who had since passed away. Accordingly, he wrote to the funeral homes that conducted the funerals and requested the details of the next of kin or the solicitors of the deceased.

The executors of the deceased estate subsequently contacted the trustee’s office and after obtaining appropriate supporting evidence, the trustee updated the creditors’ information. A dividend was declared and paid to all proved creditors including the deceased estates. The executors and beneficiaries of the deceased estates provided positive feedback on the work undertaken by the trustee and his staff in this matter, including successfully locating the creditors to pay them their dividends.

Case study 7: Being mindful of individual circumstances

A person in debt, Ms R was a professional person, married with two children. It soon became apparent from initial investigations that while she was asset rich, Ms R had minimal savings and struggled to cope with a large debt arising from a failed managed investment scheme.

Upon realizing Ms R’s circumstances, the trustee put investigations on hold and provided a short window for her to arrange funds to pay her creditors in full. In addition, the trustee suggested she pay the funds from a third (related) party via a section 73 composition, providing a better outcome for her. Processes were put in place to ensure no new credit was incurred in her existing business in line with the Bankruptcy Act 1966, but at the same time to allow the business to continue to operate. 

Given the quick dividend process and willingness of Ms R to resolve the bankruptcy, the trustee elected to cap their total fees to provide certainty for everyone involved.

The outcome was a report to creditors providing a section 73 proposal to pay all debts in full (inclusive of interest). That proposal was accepted by all creditors and the section 73 finalised.

Case study 8: Importance of co-operating with a practitioner

An individual, Ms T, was made bankrupt on a creditor’s petition with the Official Trustee appointed. The file was transferred from the Official Trustee to a registered trustee.

Ms T had a number of health issues that affected her ability to drive or even walk short distances and relied on limited family to obtain mail and everyday supplies.

The trustee gave Ms T extensions so she could obtain independent advice on her rights and to assist her to meet her obligations. The trustee referred Ms T to mental health support groups and lawyers to help her understand bankruptcy and her obligations.

As there was significant equity in Ms T’s residential property, assistance was given to help her relocate, including:

  • contacting social welfare to support Ms T and deferring the property realisation until she was ready to cope with the move
  • contacting financial counsellors to assist Ms T understand what was happening and what were her rights and obligations
  • engaging property professionals with experience in dealing with individuals having special needs to understand Ms T’s circumstances and find alternative living arrangements to suit her needs and budget
  • Paying for Ms T’s relocation costs

While the property realisation was delayed by 18 months, it allowed for Ms T’s needs to be considered and also provided an opportunity for the trustee to improve the property, increasing its value.

Case study 9: Supporting vulnerable clients

A husband and wife (Mr and Mrs G) were made bankrupt on a low-value debt. Prior to bankruptcy, they sought assistance from a credit repair agency who did not assist them in their bankruptcy proceeding.

Mr and Mrs G owned their own home which was in a very poor condition. There were only 2 debts identified – the small debt owed to the petitioning creditor and another debt of $2,500.

Mr G operated a small business on limited income and Mrs G was unemployed. After a long period in bankruptcy and at a time when a sale of the property was being considered, the trustee learned of significant health challenges in the family. Mrs G was significantly mentally unwell with a considerable documented list of mental illnesses and independent professional assessments indicated real risk of self-harm. In addition, the couple had 3 autistic children. The family was also in receipt of counselling services and voluntary legal assistance. 

The trustee identified the extreme vulnerability of Mr and Mrs G, noting that there were significant emotional, mental and personal risks associated with the usual bankruptcy process of having a family removed from their home in order for the property to be sold. In this matter, the trustee responded by providing additional support and by taking a more holistic view in delivering a fair and equitable outcome to all stakeholders through a process involving compromise by all parties.

The trustees assisted Mr and Mrs G by:

  • negotiating a monetary contribution into the bankrupt estate from a third party which would not ordinarily be sufficient to annul the bankruptcy
  • working with the petitioning creditor who agreed on compassionate grounds to accept 100% of its costs as petitioning creditor and approximately 30% of its debt
  • applying for relief from paying realisation charges
  • engaging with the other creditor, which agreed to withdraw its proof of debt for approximately $2,500

The trustees were able to annul Mr and Mrs G’s bankrupt estates, helping a vulnerable couple start afresh.