Insolvency Made Clear: A Guide for Debtors

Insolvency Law Made Clear – A Guide For Debtors
2.5 Review of the conduct of the bankrupt
Another aspect of the Trustee’s role is to examine the conduct of the bankrupt
and see if they have committed any bankruptcy offences. These relate to deliberately
defrauding creditors and are examined in more detail in Chapter 7.
The Trustee is likely to review the bank accounts of the bankrupt to look for
unusual transactions, and they are likely to interview the bankrupt again if
they find anything suspicious. It is a criminal offence for the bankrupt to lie to
the Trustee. The Trustee can also apply to the court to summon the bankrupt’s
spouse or business partners to give them evidence about the bankrupt’s affairs.
A Trustee is likely to contact any lawyers instructed by the bankrupt to be able to
understand their affairs properly. Trustees are entitled to read private legal documents
which no other person would be entitled to read. The only documents
they do not have access to would relate to a claim the bankrupt might make
against the Trustee themselves. Examinations are discussed in Paragraph 2.16.1.
If the Trustee believes that the bankrupt has absconded or is about to, or is
likely to remove or conceal important property or documents, the court may
issue a warrant for the bankrupt’s arrest (s364 of the Act). The purpose is not
to punish the bankrupt, but to compel them to comply with their obligations as
a bankrupt.
2.6 Increasing the asset pool
A Trustee will have all the powers of the bankrupt to sue for debts owed to the
bankrupt. If the bankrupt were themselves owed money by some third party,
the Trustee would demand that it gets repaid. Creditors of the bankrupt will not
escape paying because of the bankruptcy order, although the Trustee may strike
a deal to ensure prompt payment of the debts owed.
However, the powers of a Trustee go much further than those of the bankrupt.
A Trustee can apply to the court to undo certain transactions. The two most
common are:
1. Transactions at an undervalue: s339 of the Act. Where the bankrupt has
‘at a relevant time’ entered into a transaction at an undervalue, the Trustee
can apply for an order for the court to restore the position to what it would
have been had the transaction not happened. A transaction at an undervalue
includes a gift, or when the amount received is significantly less than the
value given by the bankrupt. An example of a transaction at an undervalue
is when a car with a street value of £10,000 is sold for £5,000.
The ‘value’ of an object is, in practice, subjective. A car may achieve
£10,000 if the seller is diligent in finding a purchaser, but only £5,000 if
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