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Certain rights retained by bankrupt trustee

On bankruptcy the bankrupt’s assets pass to the Official Assignee (Assignee).  However, when the bankrupt is a trustee matters are less clear.

The decision in Mawhinney v Environment Court highlights the complicated juxtaposition of the rights a bankrupt trustee has when the trustee wants to seek judicial review of the costs order that lead to the bankruptcy.

In Mawhinney v Environment Court Ellis J found that Mr Mawhinney’s personal interest in the cost’s debt no longer existed by virtue of his bankruptcy.  However, that was not the end of the matter. It is clear that a bankrupt has not no standing to appeal the judgment that gave rise to the bankruptcy (Heath v Tong).  This is because the right to appeal is a property right that forms part of the bankrupt’s estate that vests in the Assignee.

However, that is not the full answer to the matter as noted at [20] of the judgment:

[20] … it seems to me that Mr Mawhinney’s personal interest in the costs’ debt (which no longer exists) is different, and separate, from the interest in the debt that is at least theoretically possessed by the beneficiaries of the Trust. That discrete interest arises by virtue of the fact that the Assignee potentially has a right to be indemnified for the costs debt out of the assets of the Trust.14 And so it may be that Mr Mawhinney as trustee has a duty to protect those assets, and to represent that separate interest.

[21] For that reason I am unable to accept the proposition that, in the circumstances of this case, Mr Mawhinney’s bankruptcy precludes him from pursuing the judicial review proceedings in his capacity as trustee of the Trust.  The fact that the Trustee has no separate legal personality has no bearing on that view. Accordingly I consider that the Assignee has no say in that matter; the Trust’s assets and liabilities, and in particular the potential obligation to indemnify, remain with the Trust, notwithstanding Mr Mawhinney’s bankruptcy.



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