This Commons briefing paper provides an outline of the trustee's right of inquiry into the bankrupt's property and dealings, including his right to examine third parties.Jump to full report >>
Once a bankruptcy order has been made by the court, an official receiver or a private sector insolvency practitioner will be appointed trustee in bankruptcy (“the trustee”). As at the date of the order, the bankrupt’s estate vests in the trustee. The bankrupt’s estate essentially consists of all the assets which belongs to or is vested in the bankrupt at the commencement of the bankruptcy.
The main function of the trustee is to collect in and sell the bankrupt’s assets and to make payments to creditors in accordance with the hierarchy set out in the Insolvency Act 1986 (as amended). However, the trustee also has a duty to investigate the conduct and financial affairs of the bankrupt in the period leading up to the making of the court order to establish the causes of the bankrupt's failure. The trustee has wide powers of inquiry into the bankrupt’s dealings and property. The bankrupt also has a legal obligation to provide information to the trustee and attend at the trustee’s office as and when reasonably required.
As part of the trustee’s inquiry into the causes of the bankruptcy, the trustee can also ask third parties for information. Significantly, the trustee can apply to the court for an order for the private examination in court of the bankrupt’s spouse, partner or any other “connected” third party.
Individuals are often aggrieved to be asked to disclose detailed information and documentation about their financial affairs to a trustee or to a court in respect of another person’s bankruptcy. They question the legal basis on which the trustee in bankruptcy is entitled to investigate their financial affairs, and whether there should be evidence of a financial connection with the bankrupt before the trustee is entitled to examine their finances.
This briefing paper provides an outline of the right of inquiry of a trustee in bankruptcy. In the process, it also summarises the trustee’s general aims and statutory powers. The information contained in this paper applies only to England and Wales; Scotland has its own separate legal procedure for individual insolvency called “sequestration”.
Commons Briefing papers SN05819
Author: Lorraine Conway