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Bankruptcy: assets that pass to the trustee

Once a bankruptcy order has been made by the court, an official receiver will be appointed trustee in bankruptcy (“the trustee”) unless there are sufficient funds to appoint a private sector insolvency practitioner. As at the date of the order, the “bankrupt’s estate” vests in the trustee. The person made bankrupt loses any rights to their property (with some limited exceptions). Importantly, creditors can no longer pursue the bankrupt for payment; payment becomes the responsibility of the trustee.

The bankrupt’s estate consists of all property which belongs to or is vested in the person made bankrupt at the commencement of the bankruptcy. Property is defined widely in bankruptcy proceedings; there is no geographical restriction on the property which forms the bankrupt’s estate. The function of the trustee is to collect in and sell assets and to make payments to creditors in accordance with a strict hierarchy set out in the IA 1986.

There are two principal ways in which the trustee can increase assets within the bankrupt’s estate:

• First, the trustee can claim any ‘after-acquired’ property, assets that becomes available to the bankrupt after the commencement of the bankruptcy order but before their automatic discharge.

• Secondly, the trustee can apply to the court to set aside any ‘antecedent transactions’ (transactions at an undervalue or preference).

Subject to certain time limitations, after-acquired property may be claimed by the trustee for the benefit of the creditors. The trustee has a wide range of powers under the IA 1986 to investigate events which took place prior to the bankruptcy. The trustee’s investigations may lead to a court application to overturn transactions at an undervalue or preference.

This briefing paper considers those assets that pass to the trustee to form the bankrupt’s estate, and steps that might be taken by the trustee to protect and secure assets. In particular, it considers the trustee’s treatment of the bankrupt’s pension, family home, and any surplus income.