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Bankruptcy: trustee’s right of inquiry
- Nov 2, 2021
- Latest News
People are often aggrieved to be asked to disclose detailed information and documentation about their financial affairs to a “trustee in bankruptcy” or to a court in respect of another person’s bankruptcy. They question the legal basis on which the trustee 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.
Bankruptcy is a legal procedure under the Insolvency Act 1986 (IA 1986) (as amended) and the Insolvency (England and Wales) Rules 2016 (IR 2016). Once a bankruptcy order has been made by the court, the appointed “trustee in bankruptcy” (either an official receiver or a private sector insolvency practitioner) is given wide powers of inquiry into the bankrupt’s affairs.
As at the date of the bankruptcy 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 according to the hierarchy set out in the IA 1986. However, the trustee also has a duty to investigate the conduct and financial dealings of the bankrupt in the period leading up to the making of the order.
The trustee in bankruptcy has wide powers of inquiry into the bankrupt’s property, including obtaining accounts and other relevant documents. Importantly, the trustee can apply to the court for an order for the private examination in court of the bankrupt’s spouse, partner, connected third party, or any other individual who is able to give information about the bankrupt’s dealings, affairs or property.
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 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”.