A better understanding of what trustees do in their day-to-day work may help credit and finance professionals appreciate some of the complexities of the bankruptcy process.
Bankruptcy trustees are often painted as the bad guys. Creditors sometimes think that trustees sell assets at bargain-basement prices for a quick result, or that they're only in it for the fees.
But the role of a bankruptcy trustee is very challenging, involving and rewarding – not to mention highly regulated. Their work affects the lives and livelihoods of both creditors and debtors.
Perhaps a better understanding of what trustees do will help credit and finance professionals appreciate some of the complexities of the bankruptcy process.
So what does a particular work day look like for a bankruptcy trustee?
It's varied when you consider the following true cases: the bankrupt that stole a whole bunch of materials from building sites in Queensland and shoved them all through his house to thwart the trustee.
The brothel owner who transferred her house worth millions of dollars to a related entity to avoid detection, but was dobbed in.
Or the entertainment executive who told the bankruptcy trustee he worked in a post office selling stamps, but was the head of a large, listed company. The trustee uncovered the details from the company's annual report – including a photo of the executive.
Anyone can end up a bankrupt whether they be a wage earner or a director of a substantial business operation, says Kate Barnet, head of Bentleys' insolvency team in Sydney.
The insolvency profession is a relatively small one in Australia with about 720 registered liquidators (corporate insolvency) and 250 registered trustees (personal insolvency AKA "bankruptcy") nationwide.
According to AFSA, the total personal insolvencies in Australia in the December quarter 2017 increased by 7.4 percent with all types of personal insolvencies increasing: bankruptcies up by 1.3 percent, debt agreements by 15.3 percent and personal insolvency agreements by 14 percent.
Courtney Jones principal Matt Gollant says there are defining differences between the two aspects of the profession – corporate and personal insolvency. He says both have their nuances, but he's happy working in either environment.
"There's more of a pattern about personal insolvency. You learn the principles and how they impact the Bankruptcy Law Act and away you go. Bankruptcy law has been around longer than corporate law so most base principles are settled.
"Corporate work is affected by changes to statute and case law. We've had significant changes to the Corporations Act, including the interactions with the Personal Property Security Register. The law is constantly evolving, and you are more likely to go to lawyers to clarify issues in corporate than you are in bankruptcy," Gollant says.
Bankruptcy trustees are regulated by AFSA which also acts as a trustee of last resort. According to the Australian Restructuring Insolvency and Turnaround Association's Policy and Education Director Kim Arnold, "AFSA does the majority of 'consumer' bankruptcies – people who have run up credit card or personal loan debt, and can't pay it back. They have no assets or substantial income, just consumer debt. Most of those bankruptcies are done by AFSA as the Official Trustee."
Arnold says trustees in private practice tend to work on the more substantial personal insolvency appointments.
A career as a personal bankruptcy trustee
So, what is so attractive about working in insolvency and why would you choose to become a personal bankruptcy trustee?
Gollant says personal insolvency work is varied. There's the opportunity to work in different organisations and professional services firms, and travel to interesting places. His 25 years as an insolvency specialist has seen stints at Mann Judd, PWC, EY and two years with the regulator AFSA.
His work with EY led to a five-year contract in Bahrain working in both personal and corporate insolvency.
"I worked for an investment bank – Bahrain International Bank – on an assignment worth billions of dollars in assets and $500 million in creditor recoveries. It's the biggest job I've ever done.
"While the professional services firm life is similar worldwide, the environment on the street is quite different – with 55 degrees Celsius in summer, you don't see many people walking around in that heat. Sharia law was applicable there.
"My wife and three girls all under 10 years of age were there with me in compound living. My wife taught remedial English part-time. We found the local people friendly, and we made many friends and went to their weddings. It was very much an expat lifestyle."
Gollant says his work in Bahrain was a contractual receivership under English law as, he says, corporate insolvency is not commonly used in that part of the world. "There was a bankruptcy statute on the books in Bahrain, but it was rarely used as Sharia law doesn't recognise bankruptcy per se."
As a registered liquidator and trustee, Bentleys partner Kate Barnet says she chose to do insolvency work as it is "never run of the mill".
"My first job was at Bentleys as a graduate. I was recruited to go into the firm's tax division in early mid-90s at a time when the insolvency market was getting busier. I was then offered a spot in the insolvency team, and I took it because it sounded way more exciting than tax.
"I discovered very early on that insolvency is such a diverse field; you can be running a business on a cattle property in West Queensland one day and be running litigation in the NSW Supreme Court the next. The diversity of the role really attracted me."
Barnet says people choose to go into the profession for different reasons. One of her staff members is hooked on the investigative nature of his role.
"He loves finding things about people; it's that forensic investigation side that he loves."
A typical working day for a trustee
No one day is the same, according to Barnet. With 22 years' insolvency expertise under her belt, she says 20 percent of her work is personal insolvency and 80 percent corporate.
"We only do bankruptcies that have assets in them, so a typical working day would be the sale of assets. Sometimes the assets aren't in the best condition, such as abandoned properties, where we need to do remediation work."
Gollant says daily insolvency work is a "challenging technical caper" made up of investigations and complying with the regulations and the creditor enquiries. He says it's rewarding when you get results in that environment.
He says trustees are required under the Bankruptcy Act to identify any major issues in a file in the first 90 days and report to creditors.
"We have our 'day one pack' which is filling in statutory notifications to the authorities including the sheriff's office, tax office and then all the banks.
"A big issue is getting the bankrupt to lodge a completed Statement of Affairs, where they have been made bankrupt on a creditor's petition. Technically the bankruptcy lasts forever if it is not lodged. I have seen bankrupts inherit significant assets – for example, $500,000 – 10 years later, and then try and do a deal. Unfortunately, creditors can claim interest for the ensuing period, and the payout amount is more than doubled. Bankrupts shouldn't stick their head in the sand."
Gollant says a typical work day is anything from reviewing creditor reports to assessing a bankrupt's house equity or income contributions, and discussing issues with staff. He says this can involve a title search to discover property in the bankrupt's name, and engaging a lawyer to put a caveat on that property.
"Eighty percent of bankruptcy matters are non-business and just relate to consumer debt, overloaded credit cards, unemployment, etc. A lot of our files are archived in the first six months, and then you get some cases which can go on for 10 years," he says.
How many personal insolvency administrations in a year?
Barnet says her firm only works on complex bankruptcy matters and will have about 20 to 25 bankruptcy files at a time.
"We probably get in five to 10 new cases a year depending on economic conditions," she says.
Depending on the activity in a given year, Gollant says he has anywhere between 30 to 50 active files. He works on about five to 10 files in any given day, and his firm gets about 20 calls a day on creditor enquiries.
"Twenty to 30 percent of those files deal with income contributions. Another 20 to 30 percent might be investigations into various matters. Then house equity matters for the other 40 or so percent.
"Up to the turn of the century most people who went bankrupt had negative equity in their houses, but now people in the capital cities, in particular, have substantial equity in their properties. A portion of the bankrupt's respective interests are in those properties," Gollant says.
Some quirky appointments
There's never a dull day as a personal insolvency trustee when you track down hidden assets such as the brothel owner who transferred her house worth millions to a related entity or the million-dollar debtor who stashed cedar furniture worth $100,000 in a house in undisclosed assets.
Gollant says the cedar furniture find came about after a robbery, a raid by Australian Federal Police (AFP) and the seizing of major assets. This was one of the most satisfying jobs for him when he was working for ASFA in the mid-90s.
"We had AFP officers embedded within AFSA enabling us to progress matters. The bankrupt hadn't disclosed assets. There had been a robbery at the bankrupt's house and we interviewed the police that attended the premises. They told us what was inside the house, we were able to get the warrants to execute a search on that property and seize the assets and sell them for the benefit of creditors."
He says "getting a result" for people is the most rewarding aspect of his job.
Barnet says the most common way to hide assets is to put them in different names or in corporate entities and putting a spouse or partner as the director and shareholder. She says these cases are hard to prove as a trustee.
It's family law matters that can be the most interesting for a trustee, according to Barnet.
"Often we have to appear in the Family Court representing creditors to get back as much as we can for them. Usually the family home is the big asset and the Court has to consider other interests, such as the other spouse who's not bankrupt and who is entitled to some of the house."
Gollant concurs there's always increasing tension around what the position is with the family home.
"We need to continue to get the best advice on the best way to go around property equity, but that's always been at the crux of the matter because you cannot spend $100,000 to recover $50," he says.
Trustees need to take varied approaches in recovering such assets requiring technical and non-technical skills to get a result, says Barnet.
"It's the mix of skills in this profession that makes the work interesting.
"Much of what we do is stakeholder and people management, so soft skills are crucial in negotiating and solving complex and personal matters. Then you have the technical accounting skills and forensic and bankruptcy knowledge thrown into the mix.
"These are the type of skills that can be transferred into a CEO role later in your career," Barnet says.
When emotions takeover in difficult cases
From an accountant's perspective, having to deal with a bankrupt's raw emotions is sometimes difficult because you're dealing with people who are upset, angry or unwell, says Barnet.
"I had a job a few years ago where the bankrupt had some mental health issues. In the end, he was sending threatening emails to me and my solicitors. You get it from time to time, but it's pretty uncommon."
Gollant says he's been in situations where people have chased him off site or become aggressive, grabbing files, etc.
"Generally, I don't like to put myself or my staff in situations like that. As a group we seek to avoid such conflict. If you're warned not to go onto a property, then you probably shouldn't go there. Again, if you have a valid warrant, and you have five AFP officers with you, you're in a better position because they're all armed and if the person resists, they're entitled to cuff them and take them away.
"I saw this during my AFSA days working with AFP officers, executing warrants. You are enabled to open doors and seize assets and documentation. The bankrupt or other people at the premises have to cooperate. I try to be as calm as possible when I'm doing those activities.
"Often the bankrupt is going through divorce proceedings. We basically work through those as best we can. Sometimes the partner isn't aware of the difficulties of the bankrupt," he says.
New talent one of greatest challenges for profession
The perception that personal insolvency is too hard because of the need for stakeholder management and because of the family interplay is a real challenge, Barnet says.
"I think that's why most people don't want to get involved, they have a perception that it's too hard.
"I think attracting good quality people into the industry is a real issue. It goes through phases. Insolvency isn't the sexy industry that it was at the start of the GFC when everyone wanted to be in it. It's cyclical."
Barnet says the industry also needs to address recruiting women to a profession where only 10 percent of insolvency partners are female.
"There aren't many female partners who are liquidators and trustees, which is a bit of an issue.
"The nature of personally 'owning' and managing personal bankruptcy files makes it difficult to hand over files when women need to take timeout to have a family, unlike insolvency firms in some other countries where firms are responsible for each personal bankruptcy case."
However, Barnet says, firms and the Australian Restructuring Insolvency and Turnaround Association (ARITA) provide valuable support and education programs to help all trustees in management positions.
Law reform and the one-year discharge of bankruptcy
Law reform in personal insolvency has led to the Federal Government's decision to reduce the period of bankruptcy from three years to one – legislation is currently in the Senate and expected to be passed.
ARITA's Kim Arnold says there's much debate in the profession about the impact of this legislation.
"We see a lot of bankrupts who manipulate the system. The large, high-profile difficult bankruptcies are now entitled to a one-year bankruptcy just like your average consumer bankrupt.
"The trustee has the power to extend the bankruptcy by making objections, but they will only have 12 months to assess and lodge objections. Twelve months is not a long time if you have a complex bankruptcy and difficult bankrupts," Arnold says.
Gollant says the new legislation will force trustees to do as much as they can in the first 12 months. "You'll find there will be an increase in objections to discharge."
The 12-month window is fine for the majority of consumer credit-type bankruptcies, says Barnet, but will prove challenging for her cases because of their complexity.
"These insolvencies involve investigations and recovery of assets and can take some time to resolve," she says.
What's the secret to success?
So, what makes a good trustee and how to you make a success out of the personal insolvency game?
Good technical skills, professionalism, a flair for investigation and being able to deal with difficult people are prerequisites.
Barnet says the key to being successful is understanding which approach, in each unique circumstance, is going to generate the best outcome for the estate.
"You need to be able to adapt and tailor your approach to each set of circumstances. Trustees need to be compassionate and empathetic when dealing with people who may feel that they have lost everything. Other circumstances may require a more robust approach," Barnet says.
Gollant says there are numerous obstacles sent to try a trustee, from missing out on a job to a competitor to not getting fees approved by creditors. Nevertheless, the profession for him has provided opportunities to travel, work in large organisations, and finally to set up his own practice.
The secret to his success? Patience, optimism and resilience.
*Karin Krueger is a freelance finance and business writer.
A version of this article first appeared in the Australian Restructuring Insolvency and Turnaround Association Journal.
July 2018 - FNSCRD501 - Respond to personal insolvency situations - FNS51520 Diploma in credit management