Willoughby v Official Trustee in Bankruptcy

The case of Willoughby v Official Trustee in Bankruptcy involves the applicants, who were twice declared bankrupt, challenging the decision of the Official Trustee in Bankruptcy to sell their cause of action against Clayton Utz to Lawcover, a professional indemnity insurer. The applicants argue that the sale was not in their best interests and contend that the Official Trustee and Lawcover colluded to the detriment of the applicants and other creditors. The legal issues before the Court were whether there was any fraud or collusion in the sale, and whether the applicants' offer was better than that accepted by the Official Trustee from Lawcover.

The Court found that the Official Trustee's decision to sell the cause of action was properly open to review and intervention under section 178 of the Bankruptcy Act 1966. The Court considered the reasoning of the Full Court in Citicorp Australia Limited v Official Trustee in Bankruptcy and held that the sale was an act whereby the applicants may be aggrieved. The Court found that the Official Trustee's decision should be reviewed on other grounds and did not need to consider the issue of fraud or collusion further. The Court concluded that it was just and equitable to make orders in the circumstances.

The orders of the Court were that the applicants' application for review be allowed and that the parties file and serve a draft of proposed orders by noon on Monday, 25 June 2001.