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BEYOND THE NUMBERS: FIDUCIARY DUTIES, SOCIAL EXPECTATIONS, AND THE ETHICAL IMPERATIVE IN BANKRUPTCY
Article reproduced with kind permission of Australian Restructuring Insolvency & Turnaround Association
Dr Lezelle Jacobs (ARITA), Jason Porter (Executive Director) and Stephen Walton (Manager) | Sydney
A panel at the 2025 ARITA National Conference explored the ethical responsibilities of bankruptcy trustees in cases of extreme human vulnerability. Presenters Jason Porter RITF and Stephen Walton RITP of SV Partners examined real-life cases to highlight the tension between legal obligations and moral imperatives, by revealing how they navigated difficult decisions where mental health, safety, and dignity intersected with statutory duties. The session raised critical questions around professional conduct and the social expectations placed on insolvency practitioners, ultimately underscoring that true fiduciary care must consider not just creditors, but the wellbeing of bankrupt individuals and practitioners as well.
The Basis for Expecting More Insolvency practice is not just about legal compliance and financial outcomes; it frequently intersects with human vulnerability, moral judgement, and social responsibility. In a compelling panel session, Dr Lézelle Jacobs RITP, Jason Porter RITF, and Stephen Walton RITP explored the ethical and professional obligations of trustees in bankruptcy, particularly when dealing with individuals facing extreme hardship. Drawing on real cases—most notably involving an elderly man living in severe squalor and falling victim to crypto scams—the session challenged the limits of legal duties, asking: What should trustees do when law and morality diverge?
As explained by ARITA Legal & Academic Director Dr Lézelle Jacobs RITP, trustees in bankruptcy act as a fiduciary. Fiduciary duties entail operating in good faith, and to properly exercise their powers towards beneficiaries, such as the creditors, the community, and the bankrupt themselves.
While Courts have at times stretched the definitions of duties and suggested the trustee in bankruptcy should consider the mental health of bankrupts, the relevant law presently does not specifically direct the trustee’s responsibilities in relation to dealing with vulnerable bankrupts. Trustees instead are required to
act in accordance with their statutory and common law duties, which only stretches the trustee’s mandate to achieving the best possible surplus for the bankrupt (where possible), which really translates to considering the bankrupt’s pocket more than their wellbeing.
Similarly, as an officer of the court, trustees are charged with assisting in the administration of justice. This does go beyond fulfilling statutory and common law obligations, and includes protecting individual rights, resolving conflicts, maintaining social order, and ensuring fairness and impartiality. Again however, as an officer of the court, little guidance is available for when a trustee is dealing with people in a vulnerable situation.
Perhaps more guidance can be found within the guiding principles of a profession. As practitioners who subscribe to certain principles within a profession, insolvency practitioners profess a commitment to competence, integrity and morality, and the promotion of public good within their domain. So, it is ultimately the professional ideal of the desire to tie knowledge and expertise to honourableness and morality that may provide moral guidance in practice.
Clearly, a commitment to morality and promotion of the public good is good in theory, but how can it be
Beyond the Numbers: Fiduciary Duties, Social Expectations, and the Ethical Imperative in Bankruptcy
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applied in practice? Can trustees practically fulfill their legal duties, while also acting with morality, especially when there seems to be a public expectation of a moral imperative?
A “Moral” Bankruptcy – Case Study
Jason Porter RITF, Executive Director at SV Partners and Stephen Walton RITP, Manager at SV Partners explored these issues through key case studies in their session. A key case involved a strata matter, with creditors claiming upwards of $50,000 in unpaid strata levies. The bankrupt in this case was an elderly male in his 80s, with no support structure around him and apparent ongoing mental health issues. He lives in highly impoverished conditions, and could be trusting to a fault, as Walton explained.
“His issues arose through Facebook. He saw an advert about all this money he could earn from cryptocurrency. Unfortunately, he clicked on the ad and … they set up what they told him was a crypto account for him,” Walton said.
“He has put hundreds of thousands of dollars into that account, and they told him it was getting all of these great returns, but it was not his account, and they took the money.”
Walton went on to explain the scammers then repeatedly targeted the man, claiming to be from “financial bureaus and government agencies,” who suggested they could recover the lost funds, only for it to result in a further loss of the gentleman’s pension.
The scams massively impacted the bankrupt’s living conditions, who had been living without power or water for a decade, with the unsanitary conditions in his home making it difficult to prevent and treat illness.
“He has an infected leg. When he showers outside, he gets old rubbish bags from the communal rubbish bins in his apartment complex and covers up his leg to avoid infection. It is not very effective,” Walton explains.
While the bankrupt owned his home unencumbered with significant equity that would allow the bankruptcy to easily be annulled, the gentleman’s lack of a support structure placed SV Partners in an ethical quandary, as Porter revealed.
“He has no family; he has no friends, and he has apparent mental health issues. He has been in and out of hospital several times since I was appointed as his trustee. My concern is that if I sell the property and give him hundreds of thousands of dollars in return, he's going to lose the lot again and be homeless,” Porter said.
“That money would ideally be used to fund a place in aged care, which is really what he needs. But I question whether that is that my job to do that? Does society require that of me? This is where the moral question comes in.
“If he is in hospital, his doctors could apply to NCAT (NSW Civil and Administrative Tribunal) and have a guardian appointed to him, and they would deal with that. [But] is it my job to do that if the hospital will not?”
Despite their best efforts to help and educate the bankrupt and provide relevant resources, he kept falling victim to the scams, and because of his willingness to continue to engage with scammers, the gentleman was also threatened to be ‘debanked’ by his financial institution. This obviously added another layer of ethical complexity for the trustees, as “that's where his pension goes. How does he survive if he is not getting his pension?” Walton asked.
After gaining possession orders from the court to move the man out from his premises, SV Partners attended the property and were confronted with the shocking living conditions of a hoarder. When the man could not be located, a police welfare check was then enacted, with the situation clearly confronting for a junior staff member who attended the property with Walton.
The bankrupt also refused to provide his doctor’s details, stymying attempts to move him into hospital out of the common area car park, while creditors are currently agitating for their funds to be returned and property owners demand his removal due to the devaluing effect his apartment is having on their own property.
Simultaneously, this case also reflects an additional ethical dilemma for trustees: When dealing with bankrupts, who are often vulnerable people at the lowest point in their life, how do trustees manage and protect their own emotional wellbeing?
“I guess you learn to have a thick skin, which is probably the simple answer,” Walton suggests.
“It's hard because you need to be compassionate and empathetic, but also a bit detached. You cannot bring it home with you because it's too heavy for that sort of thing. So, it's all about the support structures that we have, one in the office and also personally.”
For example, SV Partners have taken steps to protect their own staff with wellbeing initiatives such as mental health training and support, as well as an Employee Assistance Scheme. Some cases were so criminally traumatic that Porter would not allow his staff to read the judgments in detail as they were too disturbing, even for seasoned practitioners, yet alone junior staff.
The Financial Implications of Going Above and Beyond
Further complicating matters are financial considerations, with trustees again needing to strike a balance between realising assets for the benefit of creditors, looking after their own remuneration for work done reasonably and necessarily, while concurrently considering the situation of the bankrupt.
“The quandary I have got here is that I need to protect the surplus for him at the end of the day, because I know that he is probably going to lose it all,” Porter states.
“But my mind asks me, can I in good conscience put him out on the street? We have the possession orders. [But] because we did not know that he was so unwell at the time we got the orders, I have held back from enforcing them
until we try and work out how we can help him get the care and accommodation he needs.
“If the hospital or I can assist him into care, that would be a good result all round.”
Porter similarly reflected on how they dealt with fees in relation to the necessary work done that extends beyond the norm, saying, “The clock’s ticking away, and yes, we record all the time that we have spent.” However, the SV Partners Executive Director also conceded that given the sensitivities of the case, he may need to get directions from the Court on what they can eventually change for, and added, “no doubt we will write off some of it, because I think that is probably the morally right and ethical thing to do.”
Porter and Walton also provide examples where positive outcomes have been achieved by adhering to their ethical and moral beliefs. In one case, the trustees were forced to commence proceedings to obtain possession of a house when the bankrupt refused to respond initially to the bankruptcy process. However, once court orders were obtained, the bankrupt began to engage, at which point, “We encouraged her to seek financial advice because she wanted to keep the house, because she had kids and she wanted them to stay in that house,” Walton explained.
“There seemed to be a sufficient equity for her to annul [the bankruptcy] if she refinanced, so we adjourned the proceedings for three months, so that she had time to seek a possible refinance.”
The bankrupt successfully refinanced the home with the trustee’s consent, and her finance advisers provided SV Partners with exceptionally positive feedback about their professionalism and sensitive handling of the case.
The trustee also went above and beyond what would be required by law in another case, where SV Partners were appointed as trustee for an elderly gentleman involved in another strata matter. After their appointment, the bankrupt was taken to hospital where the Public Trustee and Guardian was also appointed to him, before he was moved into a nursing home.
Unbeknownst to SV Partners, the gentleman passed away and lay unclaimed in the morgue for six months unbeknownst to the trustee. Upon learning of his death from the NSW Police, Porter reveals they began the arduous process of arranging a funeral and cremation, and tracking down relatives overseas.
“We discovered a distant relative over in Austria … We engaged them in the process, and obtained their consent about what to do with him and his assets. They did have a very old copy of a Will that he had, but the executor had passed away, which had been his elderly brother,” Porter said.
“When we tracked him down, the lawyer in Australia who drafted [the Will] had retired and wanted nothing to do with it. So, that became a process of selling those properties to monetise the assets and because there was no Statement of Affairs, [and] I needed to make a court application for section 146 approval to pay a
dividend to creditors. I addition I need to engage a separate specialist Deceased Estate lawyer to apply for letters of administration.
“There will be 100 cents in the dollar dividend to creditors and a sizeable return to the family overseas. It has certainly extended my knowledge about what to do in that sort of situation.”
The Road Ahead – Paved With Good intentions
The role of a trustee in bankruptcy extends far beyond statutory duties and fiduciary obligations; it often demands a deeply human response to situations of acute vulnerability. As highlighted through Jason Porter and Stephen Walton’s real-life experiences, insolvency practitioners are increasingly confronted with complex ethical dilemmas where compassion and professional judgment must align.
While the law may not explicitly mandate care for the vulnerable, social expectations and professional morality compel trustees to act. Ultimately, the true measure of practice lies not only in creditor returns, but in the quiet, often unseen efforts to uphold dignity and humanity amidst financial collapse.
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