Appointment of trustee in bankruptcy
A trustee in bankruptcy, who must be a licenced Insolvency Practitioner, can be appointed in one of the following ways:
- By way of meeting between the bankrupt’s creditors. The Official Receiver must decide within 12 weeks of the bankruptcy order whether to summon a meeting of creditors. Notice of not less than 14 days must be given to every creditor known to the Official Receiver and the court must be notified. If the Official Receiver decides against calling a meeting, creditors holding not less than 25% of the debts in value can require him or her to do so, subject to paying a deposit to cover the cost of the meeting. Once convened, the meeting can appoint a trustee, a creditors committee and settle the basis of the trustee’s remuneration.
- By the Secretary of State. This can occur where there is a creditor holding the vast majority of the debt and wants a specific Insolvency Practitioner.
- By the court. This may occur when bankruptcy arises following the failure of an Individual Voluntary Arrangement (IVA) and the IVA supervisor is appointed trustee or where the court appoints the Insolvency Practitioner.
The purpose of the trustee in bankruptcy is to obtain, realise and distribute all available assets in the bankrupt’s estate in accordance with the law. Supported by the various provisions in the Insolvency Act 1986, the trustee is entitled to exercise their own judgement when carrying out their function and during the management of the bankrupt’s estate.
In order to do this effectively, the trustee will usually investigate the bankrupt’s affairs with a view to ensuring creditors receive the returns that are properly due to them. This duty to investigate includes looking at the circumstances of transactions that occurred before the bankruptcy to see whether any of these transactions are open to challenge and might be set aside or otherwise adjusted for the benefit of the creditors.
These transactions include:
- Any transactions at an undervalue;
- Preferential treatment of creditors;
- Excessive pension contributions;
- Extortionate credit bargains;
- Assignment of book debts; and
- Transactions defrauding creditors.
For more information on the above mentioned transactions please visit our Antecedant transactions page.
The Trustee’s powers
The trustee has a wide range of powers including:
- To carry on the business of the bankrupt for the purpose of winding it up for the benefit of the unsecured creditors;
- To bring or defend legal proceedings in relation to any claim by or against the bankrupt;
- To apply to the court for possession and sale of the bankrupt’s home; and
- To apply to the court to sell or otherwise deal with property or assets belonging to the bankrupt.
Some of the trustees’ powers can only be exercised with the sanction of the Secretary of State or, if there is one, the Creditors Committee. The Creditors Committee oversees the administration of the bankruptcy and it can give approval for certain actions which would otherwise require the permission of the court.
Any act, omission or decision of the trustee is open to challenge by the bankrupt or any creditor. The court may confirm, reverse or modify the situation or give directions as to what steps should be taken to resolve the situation.
Duties and responsibilities of the trustee:
- To advertise their appointment. The trustee must give public notice of their appointment in the London Gazette and in such other manner as the trustee thinks fit.
- To assist the Official Receiver. The trustee is under a duty to provide the Official Receiver with such information as may reasonably be required from time to time.
- To realise any assets belonging to the bankrupt for the benefit of creditors;
- To report to the Financial Conduct Authority. Where the bankrupt was regulated by the FCA, there is a duty on the trustee to report any misconduct on the part of the bankrupt.
- To use the Insolvency Service Account. The trustee is required to pay all sums received over £5,000 into the government’s account. An ‘ad valorem duty’ is deducted from monies paid into this account, which reduces the amount available to creditors.
- To keep records. A trustee is required to keep separate accounts for each bankrupt.
- To investigate. The requirement to get in the assets for the benefit of the creditors normally leads to an investigation of one kind or another.
If the bankrupt or the creditors are dissatisfied with any aspect of the trustee’s conduct of the bankruptcy, an application can be made to the court. However, the court will not intervene as a matter of course and they would need to evidence that the trustee was acting unreasonably before the court will interfere with the trustee’s discretion. The trustee can ask the court for directions in any situation where he or she is unsure as to the best course to take.
The appointment of a trustee in bankruptcy and the performance of this role may have a significant bearing on the outcome of the bankruptcy. Our solicitors are able to provide advice on the many issues that can arise in this area. For more information, please email litigation@grantsaw.co.uk or contact our insolvency experts on 020 8858 6971.
Meet the Appointment and role of the trustee in bankruptcy team
