What does a Trustee in Bankruptcy have the power to seize?

What does a Trustee in Bankruptcy have the power to seize?

Trustees in Bankruptcy are insolvency specialists appointed to administer the assets of bankrupts (now referred to as regulated debtors). The Bankruptcy Act 1966 (“the Act”) confers Bankruptcy Trustees with a broad range of duties which they are to perform by using the powers granted upon them by the Act. Primarily, these powers relate to the identification, seizure, and sale of regulated debtors’ property. Pursuant to Section 58, the appointment of a Bankruptcy Trustee means that most of a regulated debtor’s assets now vest in and are administered by the Bankruptcy Trustee.

However, section 116 of the Act, specifies exactly which of a regulated debtor’s assets Bankruptcy Trustees can seize and sell. Upon being appointed as Trustee of a regulated debtor estate, Bankruptcy Trustees will undertake a variety of searches to confirm whether a regulated debtor has any proprietary interest in assets. The assets that are usually identified includes: vehicles, tools of trade, and cash at bank.

Real Property

Usually, Bankruptcy Trustees will conduct searches with the Land Titles Office to confirm whether a regulated debtor has an interest in any real property. The types of interest most commonly identified are either sole proprietorships (where the regulated debtor is the only registered owner of a property) or joint proprietorships (where the regulated debtor is one of the registered owners of a property – usually being a half owner together with their spouse).

Upon identifying that a regulated debtor holds a proprietary interest in real property, Bankruptcy Trustees will confirm whether there is any equity in it. This means that the Bankruptcy Trustee will obtain a valuation of the property and confirm whether its current value is greater than its current outstanding mortgage or other debts. Should there be sufficient equity in the property, the Bankruptcy Trustee will likely either:

• Initiate possession proceedings whereby the Bankruptcy Trustee will obtain a court order for possession of the property – this order requires the regulated debtor to vacate the property to allow the Bankruptcy Trustee to take possession and sell it;
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• Enter into an agreement with the regulated debtor’s spouse, whereby the spouse agrees to purchase the Bankruptcy Trustee’s vested half of the property over a period of time; or
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• Enter into an agreement with the regulated debtor and spouse to sell the property.

What is the role of the Sheriff?

An amendment to the 1986 SupremeCourt Act which came into effect on 1 August 1998, has provided that the Sheriff must not seize any property from a debtor that a Bankruptcy Trustee would not have access to under the Act. More specifically:

• A regulated debtor’s household property prescribed by the regulations (pre-bankruptcy);
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• Property used by the regulated debtor to generate income (such as tools of trade with a value of less than $3,800*); and
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• Property used by the regulated debtor as a primary means of transport (such as vehicles with a value of less than $8,100*).

Considering the above, it may be possible that the Sheriff could seize property that has sentimental value as this requires creditor approval after bankruptcy (e.g Brownlow Medal, Olympic Medal, War Medal).

If you are trying to collect a debt and need advice relating to the above or for bankruptcy in general, do not hesitate to contact our Litigation and Insolvency team.

*Indexed regularly – please see https://www.afsa.gov.au/insolvency/how-we-can-help/indexed-amounts-0 for the latest threshold amounts.