If you are a creditor of a bankrupt estate, you may not be happy with the steps taken by the Bankruptcy Trustee. This can include steps taken to realise assets or investigate and pursue recovery claims.

In these circumstances you may have the right to replace a bankruptcy trustee, provided that certain conditions are met.

What are the conditions?

A bankruptcy trustee can be removed by a resolution at a meeting of creditors.

A bankruptcy trustee must convene a meeting to consider a resolution to replace himself or herself if:

• At least 25% in value of creditors direct the trustee to do so in writing; or
• Between 10% and 25% in value of creditors direct the trustees to do so in writing and have provided security for the costs for holding the meeting to the trustee prior to the meeting; or
• The committee of inspection, if any, directs the trustee to do so; or
• The creditors direct the trustee to do so by way of a resolution; or

In most cases where a bankruptcy trustee is replaced it is because a large creditor of the bankrupt (owed over 25% of total debts) has requested a meeting to do so.

What happens if a meeting is called to replace a bankruptcy trustee?

At the meeting the current bankruptcy trustee must put a motion to the meeting to replace himself or herself with an alternate trustee. If creditors vote for this motion then the current trustee will be replaced and a new trustee will be appointed.

What else do you need in order to replace a trustee?

If a creditor is looking to replace a trustee, they should request that the trustee convene a meeting to replace himself or herself. They will also need to nominate an alternate trustee.

A creditor, or creditors, will need from an alternative trustee:

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

It is also worth discussing the issues involved in the bankruptcy with a proposed trustee. They may not be able to give you any advice or assistance, but they may be able to discuss matters in a general sense including in a general sense how they may deal with any asset realisations or recovery claims.

Are there any other ways to replace a trustee?

Section 181A of the Bankruptcy Act 1966 provides a streamlined way to replace a trustee. Using this provision, the current bankruptcy trustee can agree to the replacement and simply replace himself or herself with someone else. This is subject to giving notice to creditors and there being no creditor objections.

It is also open to a creditor to make an application to Court to replace a bankruptcy trustee, however, this is an expensive and time consuming process.

How We Can Help

If you are a creditor of a bankrupt estate and would like to have a discussion in relation to this article, call us on 07 3221 0055 or by contacting our Brisbane or Gold Coast office for a free, no obligation consultation.