Practice interview questions for RT registration applicants

Take precautions and don’t build up expenses unnecessarily in case the bankrupt is successful in having the bankruptcy set aside. See Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44 (20 January 2006)

“42. It seems to me that a trustee who administers a bankrupt estate, in the knowledge that the bankrupt is challenging the validity of the sequestration order, must exercise caution when incurring expenses whilst the status of the bankruptcy remains uncertain.”

• Confirm ownership and check for encumbrances (bills of sale etc.), ascertain lease details.
• Check inventory, take control of banking and cash.
• Meet with bankrupt/and employees.
• Insurance.
• Valuation.
• GST registration.
• Urgent assessment of whether to trade on or not.
• Send notice to creditors ASAP advising of appointment and decision on whether to trade on or not.
• Rule 42-30 of the Insolvency Practice Rules (Bankruptcy) 2016 (‘the Rules’) “Preliminary inquiries and actions”.

To secure your interest as registered trustee:

1. Protect your interest in the property by lodging a caveat on the title or filing a transmission application in respect of the bankrupt’s interest in the property.
2. Insure the property.

Action required when considering realising the property for the benefit of creditors:

1. Ascertain value of the property that the trustee owns (e.g. does the bankrupt own more or less than half?).
2. Confirm the sum owing to the mortgagee.
3. If there is sufficient equity, consider either:

a) Joining in a sale with the solvent proprietor, Bill, to share the net proceeds.

b) Invite Bill to make an offer for the trustee’s interest based on a valuation.

c) Where Bill refuses to co-operate with the trustee, instituting legal proceedings by making an application to the Court for an order for partition and sale.

If it was disclosed, the sixth anniversary of the day on which the bankrupt is discharged. See Section 129AA(3) of the Act. However, under section 129AA(4) of the Act, the trustee can provide a bankrupt a written notice to extend the revesting time. It must be provided to the bankrupt before the current revesting time, and there is no limit on the number of extension notices that the trustee may give.

If it was not disclosed, then a trustee can only make a claim within 20 years from the date on which a person became a bankrupt, see section 127 of the Act.

1. Yes, it is divisible property. Relevant provision is section 116(2)(d)(iv) of the Act.
2. The answer would be different. It would not be property divisible amongst creditors.

• Phone/interview the debtor.
• Approach the Official Receiver to apply for a section 139ZL of the Act notice.
• Consider objection to discharge for continued non-compliance.
• Consider supervised account regime under section 139ZIC of the Act.

Yes, see section 139WA of the Act.

Consider if the estate can be annulled under section 153A of the Act by determining full costs, charges and expenses of the estate, including remuneration.

Determine any interest payable on interest bearing debts. This interest accrues from the date of bankruptcy up until the date the dividend is paid.

A discharged bankrupt cannot propose a composition (Quinn, Geoffrey Frank Michael v Official Trustee in Bankruptcy [1996] FCA 443), so urgency may be needed.

Consider: ·

• Is the proposal bona fide? Is it sufficient in detail and of underlying commercial substance that it should be put to a meeting of creditors? See Labocus Precious Metals Pty Ltd v Thomas [2003] FCA 1154
• Are there significant outstanding investigations completed so that the trustee can indicate if the proposal would benefit the bankrupt’s creditors generally?
• Is there adequate provision for payment of approved remuneration that is owing (but not yet paid) at the time the proposal is lodged? See rule 75-175(3) of the Rules.
• Is there enough time for notice to be sent to creditors for a meeting? Notice of meeting to be given not less than 10 business days before the day of the meeting (rule 75-20 of the Rules) and the report must be sent at least 5 business days before the day of the meeting (rule 75-175 of the Rules)

Since there is no expectation for further dividends in the administration and the creditor has not met the required timeframe under the legislation, they have accordingly foregone their right to participate in a dividend.

Had, at the time ABC submitted their proof of debt, there been available money in the hands of the trustees, then ABC Bank is entitled to be paid out their dividends before that money is applied to the payment of a future dividend. Otherwise, they are not entitled to disturb the distribution of dividends already declared prior to submitting their proof.

See section 144 of the Act:

“Right of creditor who has not proved debt before declaration of dividend

A creditor who has not proved his or her debt before the declaration of a dividend is entitled to be paid, out of any available money for the time being in the hands of the trustee, dividends that he or she has failed to receive before that money is applied to the payment of a future dividend, but he or she is not entitled to disturb the distribution of a dividend declared before he or she proved his or her debt.”

Realisations charge for 2019-2020 financial year was 7% - Applicable rate can be found on the AFSA website here.

Calculation for artworks – 7% of $30,000 = $2,100

Calculation for boat – 7% of ($20,000 - $15,000) = $350

1. Undervalued transaction based on section 120 of the Act – recover the shares or their value from the husband. Issue demand for payment, apply to OR for issuance of 139ZQ notice, apply to court (if necessary) Possible transfer to defeat creditors? Further queries should be made to determine if the bankrupt was insolvent or about to become insolvent, at the time.
2. No longer caught by section 120 of the Act as the transfer took place more than 4 years before the commencement of bankruptcy (Section 120(3) of the Act). Possible transfer done with intention to defeat creditors under section 121 of the Act, but would need to show bankrupt’s main purpose at the time of making the transfer was to defeat creditors (see paragraph 121(1)(b) of the Act), or alternatively, the bankrupt was insolvent or about to become insolvent.

1. No. Requires a resolution (not special resolution). The voting results in a ‘stalemate’ or ‘no result’ as the resolution is not passed by majority in number and value.
2. Trustee may consider exercising a casting vote.

Rule 75-115(5) of the Rules – poll requested by trustee or creditor, then the trustee can exercise a casting vote in favour of the resolution, in which case the resolution is passed. Otherwise, the resolution is not passed.

NB: the trustee cannot exercise a casting vote against the resolution to have them removed as a trustee.

See section 19 of the Act – Trustees have a duty to consider and refer offences committed by a bankrupt.

But also consider if there is sufficient evidence to support the allegations or if the offending is considered minor or inconsequential. See Inspector-General Practice Statement 14 - Referring offences against the Bankruptcy Act 1966 to the Inspector-General or contact AFSA Enforcement directly on.

Refer to ARITA Code of Professional Practice: Insolvency Services section 6.10:

“A Member must not accept an Appointment or perform an Administration that involves:

(a) referral or other commissions, or monetary or non-monetary benefits;

(b) spotter’s fees;

(c) understandings or requirements that work in the Administration will be given to a referrer; or

(d) any other such arrangements that restrict the proper exercise of the Member’s judgement and duties.”

Also see APES 330 at paragraph 3.26

“3.26 A Member in Public Practice shall not accept an Appointment or perform an Administration that involves:

(a) referral or other commissions, or monetary or non-monetary benefits;

(b) spotter’s fees;

(c) understandings or requirements that work in the Administration will be given to a referrer; or

(d) any other such arrangements that restrict the proper exercise of the Member’s judgement and duties