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Standards
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Publication No.
IGPD 9 | Standards for trustees and controlling trustees |
 | Issued December 2004 |
Standards have been introduced to ensure there is a consistent high standard of performance by practitioners under the Bankruptcy Act. These standards will provide a level of certainty for trustees and controlling trustees on how they will be measured in their performance by Bankruptcy Regulation.
The performance standards define the obligations of practitioners and provide a basis for how they will act in accordance with their powers and duties as defined in the Bankruptcy Act, Bankruptcy Regulations and practice of bankruptcy law generally.
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 committee can take into consideration a trustee’s failure to comply with a prescribed standard.
These standards will provide transparency, certainty and consistency for practitioners on the basis on which their performance will be assessed by Bankruptcy Regulation.
There are no transitional provisions that apply to the standards as set out in regulations Schedule 4A. This means that the standards relate to ALL CONDUCT by trustees and controlling trustees on or after 1 December 2004, the date when the standards came into force.
There are however transitional provisions that apply to Part X of the Act which states that the old Act and Regulations applies to pre-commencement authorities and Part X Deeds and Compositions. This means there may be some instances where the controlling trustee is unable to comply with the standards. Where there is a conflict between the two, common sense will be applied. |
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| Solicitor Controlling Trustees |
| Controlling trustees have a number of obligations, however the Inspector-General may determine that a person is not eligible to continue acting as a controlling trustee because the person has failed to meet a standard that applies under Schedule 4A. |
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| Official Trustee |
| The Official Trustee is not subject to the disciplinary provisions as controlling trustees and registered trustees are, however as a matter of course, the standards will be used by ITSA in the administration of matters conducted by the Official Trustee. As a consequence, Bankruptcy Regulation will incorporate the standards when reviewing the Official Trustee administrations in the same manner as other trustees and incorporate assessments against the standards in reports to the Inspector-General on its annual inspection of Official Trustee administrations and in reports on complaints. |
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| Application of the Standards by Bankruptcy Regulation |
there is an expectation that trustees who regularly fail to comply with the Bankruptcy Act and Bankruptcy Regulations without a reasonable explanation for their divergence from acceptable practice or their behaviour/conduct brings the integrity of the profession in disrepute that they 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; and
- 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; and
- 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. |
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| Performance Standards |
CONTENT
The standards provide a minimum standard of conduct and performance expected by practitioners. These standards are set out in five parts:
- purpose (including definitions)
- general standards applying to all trustees in dealing with bankruptcies, Personal Insolvency Agreements, deceased estates, compositions or schemes of arrangement in bankruptcy and controlling trustees:
- Honesty & impartiality;
- Conflict of Interest;
- Proper Use of information;
- Trustees employees included;
- Preliminary actions required of all trustees;
- Fundamental standards for assets, remuneration & costs;
- File maintenance and access to information;
- Meetings of Creditors; and
- Trustees accounts.
- standards for registered trustees other than controlling trustees on administering bankruptcies, Personal Insolvency Agreements, deceased estates including additional standards on:
- Reporting to creditors;
- Dealing with creditors claims; and
- Dividends
- Standards for registered trustees specifically relating to bankruptcies and additional standards on:
- Asset identification and protection; and
- Contributions
- Standards of controlling trustees including:
- Investigations required;
- Reporting to Creditors;
- Records to be maintained; and
- Determining voting rights of creditors
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| Purpose & Definitions |
| For the purpose of the standards a number of definitions have been outlined to ensure clarity of what the standard relates to. These are as follows:
administration means:
- the administration of the estate of a bankrupt; or
- the administration of an in-bankruptcy composition or scheme of arrangement under Division 6 of Part IV of the Act; or
- the administration of a personal insolvency agreement; or
- the administration of a debtor’s property that has become subject to control under Division 2 of Part X of the Act; or
- the administration of the estate of a deceased person under Part XI of the Act.
contribution assessment period, in relation to a bankrupt, has the meaning given by section 139K of the Act.
contributions liability, in relation to a bankrupt, means the contribution that a bankrupt is liable to pay in respect of a contribution assessment period, calculated in accordance with section 139S of the Act.
controlling trustee means a registered trustee or a solicitor who is controlling the property of a debtor under an authority given under section 188 of the Act.
deceased person means a deceased person in respect of whose estate an order for administration under Part XI of the Act has been made.
divisible property:
- in relation to a bankrupt, means property divisible among his or her creditors within the meaning of section 116 of the Act; and
- in relation to a debtor, means property divisible among his or her creditors within the meaning of section 187 of the Act; and
- in relation to a deceased person, means the divisible property of that person’s estate as defined by subsection 249 (6) of the Act.
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| General standards |
Duty to act honestly & impartially in their dealings and disassociate themselves from documentation that is false or misleading. The trustee should not insert any clause disclaiming the trustee's responsibility for a document's authenticity as a guise.
Conflict of Interest. If during the administration it becomes apparent that the trustee has an actual or potential conflict of interest in any given administration, the trustee is obliged to notify the creditors and others, depending on the circumstances of the conflict of interest and take the necessary steps to avoid the conflict.
Proper Use of information. A trustee needs to comply with section 16A of the Privacy Act 1988, when dealing with information associated with a given administration.
Note: Section 16A of the Privacy Act 1988 provides that an organisation must not do an act, or engage in a practice:
- that breaches an approved privacy code binding the organisation; or
- to the extent (if any) that the organisation is not bound by an approved privacy code — that breaches a National Privacy Principle.
The National Privacy Principles are set out in Schedule 3 to the Privacy Act 1988.
A trustee needs to ensure that their employees also comply with the standards. Preliminary actions required of all trustees. Each trustee has an obligation to conduct preliminary enquiries and activities a the commencement of each administration including:
- informing the bankrupt, debtor, legal personal representative in a deceased estate of their obligations under the Bankruptcy Act and the consequences of failing to comply
- obtaining and reviewing the statement of affairs for each administration
- where matters need clarifying in the statement of affairs conduct an interview of the bankrupt, debtor or legal personal representative in the case of a deceased estate
- identify and realise assets where it is assessed the realisation will provide a return to creditors on a cost-benefit basis or contribute towards payment of costs and fees of the administration or are able to be realised in accordance with terms of a Personal Insolvency Agreement
- assess a bankrupt's liability to contribute
- conduct appropriate searches to determine any interest in real or registered property a debtor, bankrupt or estate of a deceased person may have
- when ownership of an asset is established, the trustee can only claim the amount that fairly represents the interest in or value of the asset. This includes assets that have more than one owner eg real property in joint names
- it is important for a trustee to obtain independent advice about the value and/or interest in assets and the extent to which it can be realised. The trustee needs to act independently and impartially in the disposal of that interest.
- where it appears full disclosure has not been made, make enquiries of third parties to establish any interest and where no enquiries are made, explain to the creditors the reason why no action was taken.
- enquire into antecedent transactions
- respond to reasonable requests for information by the Inspector-General
- investigate matters that will affect the outcome of the administration and provide creditors with information on the outcomes of such enquiries
- in the decisions made by a trustee, a record needs to be maintained on identification, protection, realisation and write off of significant assets that have a material impact on the administration and return to creditors
Fundamental standards for assets, remuneration & costs.
- trustees need to ensure that only costs necessary and reasonable in administering a matter are incurred. As a part of this they need to compare the value and complexity of the issue and the cost to be expended.
- moneys received by a trustee for remuneration whether by the debtor, bankrupt, creditor or third party need to be properly account for in accordance with the Bankruptcy Act.
- in considering the billing arrangements, a trustee needs to ensure that the task is billed at an appropriate rate for the level of employee that would reasonably be expected to perform the task and not at a higher or inflated rate
- accurate records need to be maintained to reflect the time spent on work undertaken including a clear description of the work and whether monies were recovered under s161B(2) of the Bankruptcy Act.
File maintenance and access to information. For every administration conducted by a trustee, a separate file must be maintained. A record of material decisions made and supporting documentation relied upon in making the decision should be placed on this file. This will provide clarity of the basis in which decisions have been made. Where a creditor reasonably requests information about a personal insolvency agreement, a deceased estate or a composition/scheme of arrangement associated with a bankruptcy, the trustee is obliged to provide access.
Trustees need to decide when a Meeting of Creditors should be held face to face by the nature of the issues to be dealt with or by a 'virtual meeting' conducted through correspondence whereby creditors express their views in writing. Some meetings are more cost effective to be held by correspondence, especially when there is one issue to be dealt with. Creditors can still require a face to face meeting when a trustee uses the correspondence method.
Some of the issues that a trustee needs to take into account when forming a view on the best course of action to take are:
- they type of meeting to be held based on the Bankruptcy Act and Bankruptcy Regulations;
- the location of the creditors - are they local to the trustee or debtor, primarily in one location interstate or disbursed;
- the ability for creditors to return proxies and statements of their debt; or
- complexity of the issues to be considered warranting a face to face meeting
There are a number of duties that at President who is appointed to preside over the meeting must adhere to. These include:
- ensuring the proper procedures for a meeting are followed;
- the requirements for meeting as set out in the Bankruptcy Act and Bankruptcy Regulations, are adhered to;
- that all persons entitled to ask questions of the parties have adequate opportunity to do so;
- the minute secretary meets the requirements of taking the minutes in accordance with the legislation;
- take the necessary steps to be satisfied that there is sufficient evidence to support creditors statements concerning their liability to enable voting
- allow the Inspector-General or his delegate to attend and participate in any meeting of creditors.
Trustees accounts need to include a record of all receipts and payments for each administration detailing the source of receipts and supporting vouchers/invoices for payment. Where a single bank account is maintained by the trustee for 2 or more administrations, the trustee must on a monthly basis reconcile the records for each administration. Where transfers occur between estates, documentation needs to be maintained to verify validity and purpose of the transactions. Cash books should also be regularly reconciled as against the bank records commensurate with the level of activity in the administration. |
| Trustees other than controlling trustees |
These standards apply to trustees who have carriage of a bankruptcy, personal insolvency agreement or an administration based on a deceased estate.
- When reporting to creditors, the trustee has obligations to disclose specific information to enable creditors the ability to correctly identify the debtor/bankrupt from their own records. To assist creditors any notification needs to include the following:
- the name, date of birth, address and occupation;
- business name(s), name(s) of associated entities or related entities including corporate;
- the date and type of administration eg personal insolvency agreement, bankruptcy or proposal;
- information about the level of income of the bankrupt and the contribution liability that may be paid;
- matters investigated by the trustee up to the date of the report and any other matters the trustee considers needs to be investigated
- At some point in time, a trustee will require creditors to submit a Proof of Debt, especially when a distribution is planned or imminent. Following receipt of the proofs of debt, the trustee needs to establish where the claim needs to be placed, especially if there is a joint and one or more separate estates within the administration. The trustee needs to clearly establish which estate the claim by the creditor is attached to, record whether the claim is admitted, rejected or rejected in part, the amount and the reason for the determination.
To establish the liability and the estate to which the claim should be properly allocated to, the trustee may ask the creditor to give evidence in writing including copies of contracts, deeds, guarantees and the like. In some circumstances the trustee may obtain a statutory declaration as a means of determining the validity of the liability.
In determining whether additional information is warranted, the trustee will take into account the expected dividend rate and materiality of requiring additional supporting information.
- One of the factors in determining when to distribute monies held to creditors by way of a dividend is whether creditors want the trustee to apply monies held in conducting further investigations associated with the administration. Creditors may outline to the trustee that they would prefer for a distribution in preference to investigating further based on information provided by the trustee and making a commercial decision.
- It is important to distribute the estate funds in a timely manner. This is determined by the complexity of the administration, the amount of funds currently held available, the need to retain funds to meeting existing or expected commitments, the agreement by creditors to investigate further. As a general rule, a trustee should make interim distributions where it is reasonable to do so.
- At the time of distributing funds, the trustee has an obligation to indicate whether further funds are expected for another distribution or whether the administration is finalised.
- A record of each dividend distribution needs to be maintained, detailing:
- the name of each creditor receiving a payment
- the amount of each admitted claim (proof of debt detailing amount of liability)
- the amount of the distribution made to each creditor.
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| Administrations by trustees of bankrupt estates (including deceased persons) |
- Identification of assets. Appropriate steps need to be taken to identify the assets that the trustee can realise for the benefit of creditors. It is important to obtain and review the statement of affairs, consider the size of the deficiency, outline the areas that warrant further investigation to establish ownership of assets, potential transfers and undervalued transactions. The trustee will consider the activities and circumstances of the debtor or bankrupt and whether they were similar to the expected activities of a similar occupation. Where the activities are outside the norm, the trustee will make further enquiries. Where there is involvement with one or more companies, trusts, further enquiries of third parties will be warranted. As an example the trustee may contact the bankrupt or debtor's solicitor, accountant, creditors, associated entities or financial institutions in an effort to establish a clear picture of all divisible property including preferential payments to creditors and/or undervalued transactions.
- Once a trustee has established the assets, steps need to be take to protect to the market/commercial value. The trustee may decide to insure the asset, take possession, lodge a caveat, freeze a bank account or perfect legal ownership by transferring ownership.
- In a bankruptcy, the trustee will as soon as possible make an assessment of the bankrupt's income for a contribution assessment period and determine the quantum a bankrupt is liable to pay for that period. The amount to be paid will depend on a number of factors eg number of dependants, level of income, fringe benefits and other employer paid benefits.
It is important for the trustee when determining the time period in which the liability assessed is to be paid is reasonable and commensurate with the bankrupt being able to pay prior to discharge without hardship. In some circumstances the trustee may extend the period to pay, depending on when information on the income was received and the level of cooperation by the bankrupt.
It is essential that the trustee provides the bankrupt with 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.
The trustee has a monitoring role to play once a contribution assessment has been issued to ensure the bankrupt's contribution liability is discharged, and where the bankrupt is tardy or does not make the required payments, take appropriate steps to recover. This may include garnisheeing the bankrupt's income.
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| Controlling trustee standards |
Controlling trustees do not have the same obligations of a trustee, however some are the same.
- Notification of administration. A controlling trustee still has an obligation to notify creditors of a Personal Insolvency Agreement proposal, the name of the debtor, their date of birth, address and occupation.
- Obligations include investigating a debtor's property and income. This needs to be carried out immediately following a s188 authority becoming effective. Where a debtor's property includes significant real estate, company structures of motor vehicles, it is important to search the appropriate registries and obtain advice from an independent expert on the value of such property.
In the case of significant activity by the debtor in corporate or trust structures, the controlling trustee needs to take steps to identify the assets of the debtor that will be subject to the Personal Insolvency Agreement, the divisibility of that property and whether there are any likely antecedent transactions that should be subject to the agreement.
- There is a need to report to creditors on findings of any investigation, searches or enquiries undertaken, how property has been valued, whether there is need for further investigations to be undertaken and the reasons for the controlling trustee's opinion that creditors interests would be better served by accepting the Personal Insolvency Agreement proposal offered by the debtor or whether bankruptcy would be the better option.
- It is important for good records to be maintained including bank accounts and transactions. These records need to be kept separate from any subsequent administration that may result from creditors resolutions.
- When deciding on the entitlement of creditors to vote at a meeting of creditors, the controlling trustee must have regard to the merits of the creditor's claim and act impartially, independently without regard for the debtor's wishes.
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