On the occurrence of bankruptcy, the trustee must take immediate possession or control of the bankrupt’s property, as that property is now “available” to the trustee for the benefit of creditors generally and vests in the trustee for that purpose. However, a bankrupt may not always co-operate with his or her trustee and will often refuse to deliver up property to the trustee or even allow the trustee on to the premises where the property is held.
A relevant example
In a recent matter, a trustee was appointed to the bankrupt estate of a person trading a car dealership business as a sole trader. The bankrupt refused to provide the trustee with access to the premises or to allow the trustee to seize the assets of the business, mainly consisting of the motor vehicles on the car lot. The bankrupt told the trustee that he intended to continue selling the motor vehicles and running the business despite his bankruptcy. As a result, the trustee had to consider taking further action to take possession of the bankrupt’s property before the assets were dissipated.
Property subject to a Search Warrant
Property, whether in the bankrupt’s possession or in the possession of someone else, may be discovered by search and/or seized by a person acting under a warrant. The trustee is enabled by section 130 of the Bankruptcy Act (“the Act”) to apply to an eligible judge for the issue of a warrant if the trustee has a reasonable ground for suspecting that there is relevant property on the premises, being:
- the bankrupt’s property;
- property relating to the bankrupt’s examinable affairs; or
- books (including books of an associated entity of the bankrupt) relevant to the bankrupt’s examinable affairs.
How does the trustee apply for a warrant?
The application must be made to “an eligible judge”. That term is defined in section 5(1) of the Act to mean a judge of the Federal Court declared by the Minister to be an eligible judge under section 129A(2) of the Act. The Federal Court Registry holds an up to date list of eligible judges. An application to an eligible judge may be made ex parte: that is in the absence of the person against whom the warrant is to be issued.
The eligible judge has power to issue a search warrant to be valid for up to a period not exceeding 7 days, provided the pre-conditions have been met and “the judge is satisfied that there are reasonable grounds for issuing the warrant”. (Section 130(3)(c) of the Act.)
Powers under a warrant
Section 130(2) of the Act provides that a warrant gives power:
- to enter on or into the premises, using such force as is necessary for the purpose and is reasonable in the circumstances;
- to search the premises for relevant property;
- to break open, and search for relevant property, any cupboard, drawer, chest, trunk, box, package or other receptacle, whether a fixture or not, on or in the premises;
- to take possession of, or secure against interference, any relevant property found on or in the premises; and
- to deliver to the trustee, or to a person authorised in writing by the trustee for the purpose, any property of which possession is taken under the warrant.
Execution of a warrant
The warrant must be executed by a “constable”, which is defined in the Act to mean a special member of the Australian Federal Police or a member of the Police Force of a state or territory. Section 130 is designed to recognise the fact that the trustee in bankruptcy, or a person connected with the trustee, will normally know most about the case, but that person is likely to need support from a Police officer to conduct a search. Accordingly, the constable can be accompanied by another person, provided that other person is named in the warrant.
In this case, the trustee successfully obtained a warrant from an eligible judge of the Federal Court and, with the assistance of the New South Wales Police, carried out a search of the bankrupt’s business premises, which resulted in the seizure of a number of motor vehicles and numerous books and records of the car dealership business.