Insolvency Made Clear: A Guide for Debtors

Insolvency Law Made Clear – A Guide For Debtors
The role of the Trustee is, under s305 of the Act, to ‘get in and realise (i.e. sell)
the estate of the bankrupt’. It is helpful to discuss the estate of the bankrupt and
the process of ‘realising’ it separately.
2.2 The estate of the bankrupt
The ‘estate’ of the bankrupt is the property which a Trustee in Bankruptcy is
entitled to sell. The definition of ‘property’ is very wide, and it includes property
held overseas, shares, and goodwill of the bankrupt’s business.
The property of the estate automatically ‘vests’ (i.e. belongs) to the Trustee. The
role of the Trustee is to sell that property to distribute the proceeds to the creditors.
To give an example: before a debtor becomes bankrupt, they have unrestricted
access to their own bank account. After the bankruptcy order is made,
the Trustee is entitled to make payments out of that account, and the bankrupt
is no longer able to. It is contempt of court not to deliver up to the Trustee all
the property, books and records which they are required to take control of: see
s312 of the Act. A bankrupt is not allowed to sell property they once held without
the permission of the Trustee. One of the first acts of the Trustee is likely to be
to contact all the bankrupt’s banks to request that no further transactions take
place from the account without their permission, or to transfer the money into
a separate account controlled by the Trustee.
2.2.1 Exceptions
Not all property which belongs to the bankrupt gets automatically transferred
to the Trustee. Most of it does. The only property which does not get transferred
to the Trustee is set out in s283(2) of the Insolvency Act:
• such tools, books, vehicles and other items of equipment as are necessary to
the bankrupt for use personally by them in their employment, business or
vocation;
• such clothing, bedding, furniture, household equipment and provisions as
are necessary for satisfying the basic domestic needs of the bankrupt and
their family.
The first exception means that if the bankrupt is, for example, a builder then
they can keep the main items of equipment needed for their job such as a vehicle
with a large boot or a valuable collection of drills. This exception is limited
because the Trustee has the power to replace an expensive item with a less expensive
item which will perform a similar purpose. To give an extreme example,
if the Trustee decides that the bankrupt does not need a Jaguar car, but can
perform their job with a Skoda, then the Trustee can sell the expensive car, buy
the cheaper one, and distribute any profit to the creditors. In practice, a Trustee
14