Recently one of the Worrells trustees joined with the bankrupt’s spouse in selling their jointly owned family home. On completion, after paying all mortgages $270,000 was available to the joint owners.
The spouse’s solicitor advised the trustee that his client would be happy to accept $135,000 being one half of the net proceeds. But the trustee rejected that proposal because he knew that the spouse was entitled to a greater share.
The husband was a sole shareholder and director of a small company and prior to the start of the bankruptcy had caused the wife to join him in re-drawing $80,000 on their mortgage so that those funds could be lent to his business. Because of the doctrine of exoneration* rule the bankrupt estate was obliged to bear the full responsibility for the repayment of the $80,000 from the bankrupt’s share of the sale proceeds.
Trustees in bankruptcy are obliged to conform to Performance Standards promulgated by the Inspector General in Bankruptcy. One of those standards states:
‘In determining the ownership of, or an interest in, an asset that is part of divisible property, the trustee must act reasonably and claim only the amount that fairly represents the interest in, or value of, the asset.’
The duty to act fairly and to claim only the true amount due to the bankrupt estate overrides any duty to maximise the return to creditors.
*Doctrine of Exoneration (definition)