Background
The Inspector-General in Bankruptcy brought proceedings to remove Ross Stephen Thomson as the trustee for a large number of bankrupt estates. Mr. Thomson was employed by Bankruptcy Advisory Centre Pty Ltd (BAC). Following a “falling out” with a director at BAC, Mr. Thomson was denied access to the firm’s systems, including the electronic records and bank accounts necessary to administer the estates.
The Inspector-General presented evidence of numerous complaints from bankrupts and creditors who were affected by the disruption. For example, Mr. Thomson was unable to pay dividends to creditors because he was “locked out” of the estate bank accounts. The evidence also showed that Mr. Thomson had failed to set up the bank accounts in the names of the individual estates, instead holding them in BAC’s name, which led to his loss of control. While Mr. Thomson consented to his removal, he did not admit to the specific allegations against him.
The Court’s Holding
Justice Jackson granted the orders removing Mr. Thomson as trustee. The court affirmed its supervisory role in bankruptcy matters, explaining that even when a trustee consents to their own removal, the court must be independently satisfied that the action is in the best interests of the creditors, the bankrupts, and the proper administration of the estates. The court cannot simply “rubber-stamp” a consent agreement.
Based on the uncontested affidavit evidence from the Inspector-General, the court found that Mr. Thomson was not faithfully performing his duties as required by the Bankruptcy Act 1966 (Cth). His inability to access records and funds prevented him from fulfilling his obligations, which could damage public confidence in registered trustees. Consequently, the court ordered his removal and, by operation of s 160 of the Act, the Official Trustee in Bankruptcy was appointed to take over the administration of the estates.
Key Takeaways
- The court’s supervisory jurisdiction requires it to ensure that removing a bankruptcy trustee serves the best interests of the administration, even when the removal is by consent.
- A trustee’s failure to maintain secure and independent access to the books, records, and bank accounts of an estate constitutes a serious failure to perform their duties.
- An inability to perform fundamental tasks, such as paying dividends to creditors, is a significant factor that justifies a trustee’s removal to protect creditor interests and public confidence in the insolvency system.
Why It Matters
This decision reaffirms the court’s essential oversight role in Australian bankruptcy proceedings and highlights the high standards expected of registered trustees. It serves as a stark reminder to insolvency practitioners that they hold a position of public trust and must ensure they have direct and unfettered control over all estate-related records and assets. The case demonstrates that operational dependencies on an employer or third party that compromise a trustee’s ability to perform their duties will not be tolerated and can lead to their removal from the administration.