One of the most important, yet often misunderstood, roles of a bankruptcy Trustee is not simply to administer estates, but to investigate conduct.
Bankruptcy is not a “get out of jail free” card, and the public interest demands that misconduct is identified, reported, and, where appropriate, prosecuted.
Section 271 of the Bankruptcy Act 1966 (Cth) is a perfect example. It addresses “gambling or hazardous speculations” behaviour that, in many cases, directly erodes the value available to creditors. AFSA’s guidance makes it clear: while vulnerability is recognised and support is encouraged, there is a point where personal accountability takes priority.
From my perspective, three themes stand out.
The duty to investigate is non-negotiable
The Australian Financial Security Authority (AFSA) is the government regulator responsible for the administration and regulation of the personal insolvency system. AFSA acts through the Inspector-General in Bankruptcy and has both regulatory and enforcement functions. When a trustee identifies potential offences under the Bankruptcy Act, our statutory obligation is to report the matter to AFSA.
AFSA then decides whether to investigate further and, if appropriate, refer the matter to the Commonwealth Director of Public Prosecutions (CDPP). The CDPP, not AFSA or the trustee, makes the decision whether to prosecute. If proven, offences under section 271 of the Bankruptcy Act can carry a custodial sentence of up to 12 months.
The Bankruptcy Act places a statutory obligation on trustees to refer evidence of offences to the Inspector-General in Bankruptcy. This is not discretionary. Even if the practitioner suspects problem gambling or addiction, the obligation remains.
This is vital for maintaining integrity in the system. If trustees fail to investigate or report, the deterrent effect evaporates. Creditors lose faith in the process. And worst of all, repeat offenders learn they can act with impunity.
Vulnerability is not a shield for reckless conduct
At Worrells, we recognise that gambling harm often co-exists with mental health, addiction, or family stress. Where possible, early intervention and referrals to support services are essential. But the presence of gambling harm does not immunise someone from prosecution.
We recently encountered a bankrupt who disclosed in his Statement of Affairs that he transferred his equitable interest in a jointly owned property to his spouse shortly before bankruptcy. The consideration received for this transfer was approximately $80,000. Shortly after this transaction, but still prior to bankruptcy, the bankrupt withdrew $80,000 in cash from his bank account. It was determined that a significant portion of these funds was spent at a local horse racing event. In my view, this was not a mere lapse of judgment, but a deliberate action that materially disadvantaged creditors. In such cases, prosecution is not only justified it’s necessary to send a clear message to the community.
Repeat offending demands stronger repercussions
The AFSA guidelines are clear: where an individual has previously been cautioned for gambling-related offences and reoffends, escalation to prosecution is likely.
From an industry perspective, this is a crucial safeguard. Without it, we risk creating a cycle where habitual offenders see bankruptcy as a financial reset button rather than a serious legal process with lasting consequences.
Why this matters beyond the profession
Public confidence in the bankruptcy system hinges on the belief that trustees act impartially, investigate thoroughly, and that misconduct carries real consequences.
If we overlook deliberate gambling that strips value from the estate, we not only fail creditors – we weaken the integrity of the entire insolvency framework.
In the end, insolvency is about people as much as it is about assets. Every investigation we conduct, every offence we report, and every enforcement action we support sends a message about what the system stands for.
It tells creditors they can have confidence in the process. It tells the community that bankruptcy is a serious legal mechanism, not a loophole to exploit. And it tells debtors that while compassion is available for the honest but unfortunate, accountability is non-negotiable for those who choose to act recklessly.
At Worrells, we do not judge. We treat everyone with empathy, while recognising that actions can carry consequences.
If you know anyone who requires support with problem gambling, they can seek help through:
Gambling Help Online - Gambling Help Online | Gambling Help Online
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Or by calling the National Gambling Helpline on 1800 858 858.
