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How to replace a Bankruptcy Trustee: New laws for creditors explained

Are you owed money by a bankrupt and looking for advice on your rights as a creditor? What about when it comes to how to replace a bankruptcy trustee?

In a recent article aimed at creditors of companies in liquidations, we explained how creditors could replace an initially appointed liquidator thanks to the introduction of new insolvency laws. In this article, we will be covering what powers creditors have available when it comes to considering replacing a bankruptcy trustee.

New amendments to laws regarding replacing a trustee.

Amendments to the Bankruptcy Act 1966, contained in the Insolvency Practice Schedule (Bankruptcy) 2016 and the Insolvency Practice Rules (Bankruptcy) 2016, have made it easier for creditors to change bankruptcy trustees. They have also provided a range of additional powers aimed at boosting creditor confidence in the insolvency process.

Some of these powers, and how they relate to replacing a bankruptcy trustee, are explained below.

When would you consider replacing a bankruptcy trustee?

Let’s say a dispute arises with a bankruptcy trustee from a proposed asset realisation strategy or intended actions in respect of legal recovery claims. Or perhaps, you’re concerned about a lack of independence following the trustee’s appointment by the bankrupt.

New laws give creditors the right to request a bankruptcy trustee to call a meeting to consider their replacement at any time, as well as further powers to request information from the trustee.

What is the process to replace a bankruptcy trustee?

A proposed resolution on the replacement of a trustee can only be considered and passed at a meeting of a bankrupt’s creditors.

For the resolution to be successfully passed, the vote requires a majority of creditors, in both number and value, to vote in favour.

What do you need in order to replace a trustee?

A creditor, or creditors, can request that the bankruptcy trustee calls a meeting of creditors to consider a resolution regarding their possible replacement. In addition, the creditor or creditors will need from an alternative trustee:

  • A Consent to Act
  • A Declaration of Independence, Relevant Relationships and Indemnities (DIRRI)

Who can request the trustee to call a meeting?

Under the new laws, a trustee will be required to call a creditors’ meeting to consider their replacement when:

  1. Creditors pass a resolution directing the trustee to call a meeting. A resolution of this kind would be proposed by the trustee, either in correspondence, or at a meeting of creditors.
  1. A creditor, or creditors request the trustee to do so at any time, if:

a. The creditor or creditors represent at least 25% of total creditors

b. The creditor or creditors represent 10 to 25% of total creditors and in addition, will provide security for the cost of holding the meeting

What other new powers for creditors have come into effect?

The new laws cover more than the process of replacing a trustee. Creditors also have increased powers to request certain information from a trustee, which the trustee must provide within five business days (unless another timeframe is agreed upon). Creditors can act on this provision when:

  1. The information/documentation sought is relevant to the bankruptcy.
  2. Providing the information does not result in the trustee breaching their duties.
  3. It is reasonable for the trustee to provide the information.

How are the new powers as a creditor best utilised in bankruptcy?

Before you make the decision to replace your trustee, it’s important to remember that changing a trustee may not always be the silver bullet creditors are hoping for. Above all, a trustee has a duty to act independently and impartially. The availability of funds can be a constraining factor and replacing a trustee will likely further increase costs.

In our opinion, it’s best to use these new rules in a structured way, as follows:

  1. First, request particular information from the trustee.
  1. If the response received is unsatisfactory, consider discussing your concerns with other creditors before you approach the trustee to call the requisite meetings to consider their replacement

If you are a creditor in a bankruptcy, it’s important to know your rights under the new laws. If you have any queries regarding this subject or others, start chatting through the chat window below or get in touch.

 

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