Broadly a bankruptcy trustee’s job is to gather in the divisible assets and to use these funds to pay creditors. In many estates the position is straight forward and may involve the trustee in little more than a number of standard searches, a quick review of the available books and records and a brief interview with the bankrupt.
On the other hand in some estates the picture is far less clear. The bankrupt may have attempted to hide assets in trusts, companies or in other people’s names. When this happens the level of cooperation received by the trustee from the bankrupt and related parties is generally not over whelming. To discover the true position it becomes necessary for the trustee to conduct an investigation under S19AA of the Bankruptcy Act
An investigation under S19AA extends to the bankrupts “examinable affairs”. The definition of “examinable affairs” includes the financial affairs of an “associated entity” to the extent that they are relevant to the bankruptcy. “Associated entity” is defined to include private companies, natural persons, partnerships or trusts.
Thus, the trustee has the capacity to make wide spread inquiries of many parties with a view to completing the bankruptcy investigation. But what assistance does the Bankruptcy Act provide to the trustee in investigating the financial affairs of a bankrupt? It turns out that there are a hierarchy of potentially usefully sections being:
1. Section 77
2. Section 77A
3. Section 77 AA
4. Section 77C
5. Section 78
6. Section 81
The following points briefly describe how these sections work.
This section requires a bankrupt to:
- Deliver to the trustee all his or her books and records and the books of any related entity which are in his or her possession
- Attend the trustee whenever the trustee reasonably requires
- Give the trustee any information about the bankrupts affairs as the trustee requires
- Tell the trustee about divisible property that the bankrupt acquires before discharge
Pursuant to section 77A a trustee can issue a notice requiring an associated entity to:
- Produce such books as it holds being books that in the trustees opinion are relevant to the investigation
- Explain any entry in such books
- Disclose where such books are or were, if they not in the associated entities possession.
This section allows the Official Receiver (who may be accompanied by a registered trustee) to full and free access to all premises and books, at all reasonable times, for the purposes of the Act and to:
- Remove relevant books
- Copy or take extracts from such books
Pursuant to section 77C the Official Receiver may give written notice to a person to:
- Give the Official Receiver such information as is required for the Official Receiver or a trustee to carry out their duties, and or
- Attend before the Official Receiver to produce books and give evidence regarding relevant matters.
Where a Court is persuaded (usually by the trustee) that a bankrupt has concealed, or, without the permission of the trustee, has removed any of the property of the bankrupt the court may:
- Issue a warrant for the arrest of the bankrupt
- And commit him or her to gaol until the Court otherwise orders
This section provides power for the trustee (or a creditor) to ask the Court to conduct a public examination of:
- The bankrupt
- An examinable person (subject to a wide ranging definition)
And to require the person to be examined to produce such documents as are required.
Clearly it is no easy matter for bankrupts and related entities to hide information from trustees.