When exercising their commercial judgment during the COVID-19 pandemic, Registered Trustees in Bankruptcy walk a fine line between fairness to bankrupt individuals and maximising returns to creditors.
The economic turbulence triggered by the COVID-19 pandemic has caused our Government to put buffers in place to delay the potential onset of bankruptcy.
Where bankruptcy has already occurred, these buffers allow leniency to be afforded, in circumstances where the bankrupt has been affected by COVID-19.
These safeguards have coined the phrase, “mothballing bankruptcy”, however, they are looking to be phased out by 31 December 2020. The gatekeepers responsible for implementing these changes are the Registered Trustees in Bankruptcy.
The Inspector-General in Bankruptcy has come up with guidelines for Bankruptcy Trustees regarding the level of leniency appropriate in the present circumstances.
An important consideration is keeping the needs of creditors in mind, as being too lenient on bankrupt individuals to the detriment of creditors can potentially have an insolvency contagion effect. Smaller creditors may be relying on dividends from bankrupt estates to keep their businesses operating or to pay household bills and may become insolvent during the process.
The above has formed part of the Inspector-General’s guidelines for Bankruptcy Trustees during COVID-19:
- Administration of estates in a timely manner
It is expected that a “business as usual” approach will be taken with respect to the efficient and timely administration of bankrupt estates, however, there may be some estates that cannot be progressed for a number of COVID-19 related reasons.
If this is the case for a Trustee, they are required to provide sufficient reasoning and evidence for the delay of the administration, to be made available for inspection by interested parties and upon the request of the Inspector-General.
2. Moratorium on evicting renters
Following the Government’s announcement that a moratorium will be placed on evicting renters suffering financial hardship specifically due to COVID-19, Trustees are encouraged to avoid evicting parties from properties for the purpose of sale.
3. Hardship relief
In the event that a bankrupt is not maintaining their income contribution payments, Trustees are expected to communicate with the bankrupt to ascertain whether:
- a re-assessment of income in light of the impacts of COVID-19 needs to be performed;
- hardship relief under s. 139Tof the Bankruptcy Act 1966 should be afforded; or
- there should be leniency afforded in the renegotiation of payment schedules.
4. Hardship considerations
Trustees have been directed to consider the following as circumstances of hardship due to COVID-19:
- where a bankrupt is overseas and may not be able to return to Australia for the purpose of employment;
- where a bankrupt’s income is reduced or ceased due to the impacts of COVID-19 on Australia’s economy; or
- where a bankrupt is required to work from home because they, or a dependant, has COVID-19.
5. Evidence of hardship
In the event where Trustees require evidence from the bankrupt of their hardship with respect to leniency of income contribution payments, Trustees must consider that evidence may not be readily available.
For instance, the bankrupt may be in isolation, and their documents and records could potentially be stored at another location.
6. Objections to discharge from bankruptcy
Trustees have been encouraged to consider the appropriateness of lodging objections to discharge during COVID-19. Namely, it is expected that Trustees will avoid lodging objections where the bankrupt has been legitimately affected by COVID-19, in a manner that impacts the bankrupt from discharging their obligations.
7. Securing property/assets
Trustees are expected to take the necessary steps to secure the property and assets of the bankrupt estate, but only to the extent that doing so will not expose their staff to a risk of infection.
If securing property and assets proves too difficult or risk, Trustees are required to carefully document their decisions.
The additional expectations placed on Bankruptcy Trustees during COVID-19 all require one key trait – sound judgement.