Bankruptcy module 2 (2.3 trustee in bankruptcy)

Question 1

When can an IP be appointed as trustee?

Answer 1

A trustee may be appointed:
 By the court when it hears the petition (e.g. the supervisor of an IVA)
 Subsequently – when an application is made to replace an existing trustee
 By the creditors, in a decision procedure
 By the Secretary of State, on the application of the Official Receiver

Question 2

How can a trustee be appointed by decision making proceedure?

Answer 2

Appointment of trustee by a decision procedure
S298(4) – 25% of the bankrupt’s creditors can request that the OR convene a decision procedure to appoint a trustee other then the OR
R10.70.—(1) In the case of a decision on the appointment of a trustee—
(a) if on any vote there are two nominees for appointment, the person who obtains the
most support is appointed;
(b) if there are three or more nominees, and one of them has a clear majority over both or all the others together, that one is appointed; and
(c) in any other case the convener or chair must continue to take votes (disregarding at each vote any nominee who has withdrawn and, if no nominee has withdrawn, the nominee who obtained the least support last time) until a clear majority is obtained for any one nominee.
(2) In the case of a decision being made at a meeting, the chair may at any time put to the meeting a resolution for the joint appointment of any two or more nominees.

Question 3

When can trustee be appointed by SoS?

Answer 3

Appointment of trustee by Secretary of State - s296

Where a majority of creditors support an appointment, the OR will generally avoid the cost of a decision procedure, and alternatively, will make an application to the Secretary of State under s296:
(1) At any time when the official receiver is the trustee of a bankrupt’s estate by virtue of any provision of this Chapter he may apply to the Secretary of State for the appointment of a person as trustee instead of the official receiver.
(4) Where the trustee of a bankrupt’s estate has been appointed by the Secretary of State …. the trustee shall give notice to the bankrupt’s creditors of his appointment or, if the court so allows, shall advertise his appointment in accordance with the court’s directions.
(5) In that notice or advertisement the trustee shall explain the procedure for establishing a creditors’ committee under section 301.
TheORmaydeclinetomakeanapplicationwhereanannulmentapplicationispendingor there are sufficient assets to pay creditors in full

Question 4

What are the functions of an IP trustee?

Answer 4

General functions of a trustee – s305(2)
 The function of the trustee is to get in, realise and distribute the bankrupt’s estate in accordance with the following provisions of this Chapter;
 and in the carrying out of that function and in the management of the bankrupt’s estate the trustee is entitled…to use his own discretion.

Question 5

What happens if a bankrupt or creditors or any other person is dissatisfied by the trustee’s actions?

Answer 5

General control of trustee by the court – s303
(1) If a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt’s estate, he may apply to the court; and on such an application the court may confirm, reverse or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit.
(2) The trustee of a bankrupt’s estate may apply to the court for directions in relation to any particular matter arising under the bankruptcy.

Question 6

When/ how is a trustee personally liable for his actions?

Answer 6

Liability of trustee – s304
(1) Where on an application under this section the court is satisfied—
(a) that the trustee of a bankrupt’s estate has misapplied or retained, or become accountable for, any money or other property comprised in the bankrupt’s estate, or
(b) that a bankrupt’s estate has suffered any loss in consequence of any misfeasance or breach of fiduciary or other duty by a trustee of the estate in the carrying out of his functions,
the court may order the trustee, for the benefit of the estate, to repay, restore or account for money or other property (together with interest at such rate as the court thinks just) or, as the case may require, to pay such sum by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.

Question 7

What are the powers of the TiB?

Answer 7

 Entitlement to exercise discretion
 Apply to court for directions
 Make inquiry into the bankrupt’s dealings and property - s366
 Exercise the power listed in Schedule5 of the Act
 Appoint the bankrupt to:
 Superintend the management of his estate or any part of it
 Carry on business for the benefit of his creditors
 Assist in any other respect in administering the estate in such manner and on such terms as the trustee may direct
 Seek a decision from the creditors Apply for the suspension of the bankrupt’s discharge s279(2 )

Question 8

What are the schedule 5 powers of a TiB?

Answer 8

 The trustee has the power to:
 carry on the business of the bankrupt
 bring or defend any legal proceedings concerning any property in the bankruptcy estate
 bring proceedings for transactions at an undervalue, preferences and transactions to defraud creditors
 make an arrangement or compromise in relation to any bankruptcy debts
 sell property in the bankruptcy estate
 compromise or make an arrangement with regards to any claim arising out of the bankruptcy estate
 deal with property vested in the bankruptcy estate
 enter into contracts
 employ an agent

Question 9

When can/ must a TiB seek a decision from creditors?

Answer 9

Seek a decision from the creditors – s314(7)
 the trustee may, if he thinks fit at any time seek a decision on a matter from the bankrupt’s creditors.
 …he shall seek a decision on a matter if he is requested to do so by a creditor of the bankrupt and the request is made with the concurrence of not less than one-tenth, in value, of the bankrupt’s creditors (including the creditor making the request).

Question 10

What are the TiB’s duties to acquire control?

Answer 10

Duty to acquire of control – s311
 The trustee has a duty to take possession of all books, papers and other records which relate to the bankrupt’s estate or affairs and which belong to him or are in his possession or under his control
 including any which would be privileged from disclosure in any proceedings
 the trustee has the same rights as the bankrupt to transfer ownership of any
stock or shares
 Where any part of the estate consists of things in action, they are deemed to have been assigned to the trustee
 Where any goods comprised in the estate are held by any person by way of pledge, pawn or other security the trustee may serve such a notice requiring inspection of the goods
 and may exercise the bankrupt’s right of redemption

Question 11

What are the duties of a TiB?

Answer 11

Duties of the TiB
 Be appropriately authorised–be licensed and hold a bond
 Comply with expected standards of professional conduct
 Cooperate with the OR in the performance of the OR’s functions
 Take possession of the bankruptcy books, papers and other records
 Provide information to any creditors’ committee
 Report annually to the creditors on progress and at the conclusion of the administration
 Provide reasonable additional information to creditor’s about their fees
 Maintain statutory and financial accounting records
 Bank receipts into the Insolvency Services Account

Question 12

What are the TiB’s duties in relation to the creditors’ committee?

Answer 12

Duties in relation to the creditors’ committee
 S291 A requires trustees to notify creditors of their right to form a creditors’ committee
 S314 requires the trustee to give notice to the creditors’ committee (if there is one) if he:
 Disposes of any estate property to an associate of the bankrupt
 Employs a solicitor
 R17.23 places a duty on the trustee to report to the committee not less than every 6 months
 If there is a creditors’ committee, they will be tasked with approving the trustee’s remuneration

Question 13

When must a TiB produce a progress report?

Answer 13

 The trustee is required to prepare ap rogress report in a bankruptcy to cover each 12 month period from the date of their appointment
 The periods for which progress reports are required are unaffected by any change in the trustee
 Where a trustee ceases to act, the succeeding trustee must ASARP, deliver a notice to the creditors of any matters about which he thinks the creditors should be informed
 the trustee must deliver a copy of the progress report to the creditors within two months of the end of the period covered by the report

Question 14

What records should a TiB keep?

Answer 14

 Statutory Record – required by Reg 13 IP Regs 2005
 Cash book – required by Reg 24 Insolvency Regs 1994
 Case files – necessary to meet regulatory expectations
 Diary System – to meet statutory timescales in Act and Rules
 AML Requirements

Question 14

How long must the statutory case record be retained?

Answer 14

 Must be preserved for which ever is later:
 6th anniversary of vacation or release
 6th anniversary of date on which security expires or ceases to have effect

Question 15

How often must the cash book be updated?

Answer 15

Must record receipts and payments on a daily basis

Retained for 6 years from vacation or release

Question 17

How often must an IP pay funds into the ISA?

Answer 17

 The Insolvency Regulations 1994 also require ORs and IPs to pay into the Insolvency Services Account monies received by them in the course of their administration of bankruptcies
 Reg 20 provides that the sum should be credited to the account:
 Every 14 days
 Or forthwith if £5,000 of more has been received

 Reg 22 provides that the trustee shall be paid all necessary disbursements made by him or expenses properly incurred out of any money standing in credit
 Reg 23 provides that every dividend payment shall be paid from the account