Upon bankruptcy any action that the bankrupt had previously commenced is stayed until the trustee has elected in writing to prosecute or discontinue the action (s. 60(2) of the Bankruptcy Act). An exception to this rule is that a bankrupt can continue an action when it relates to a personal injury or wrong to the bankrupt or their spouse (s. 60(4)). What amounts to a claim for personal injury or wrong to the bankrupt is sometimes arguable.
In the case of Wilson v State of Queensland and Anor  QSC 56, a teacher was seeking the rescission of a settlement deed resulting from a claim for unlawful termination of his employment. The claim was based on an allegation that the settlement was induced as a result of innocent misrepresentation. However, due to having subsequently become bankrupt, the teacher would have to show that the damage sustained was a personal injury or wrong if he wanted to continue the claim himself.
Jackson J in the Supreme Court of Queensland, in considering whether or not to grant leave to proceed considered three cases. Firstly, in Pelechowski v NSW Land and Housing Commission  FCA 233, Madgwick J determined that a claim for reinstatement after unlawful termination of employment was not a claim or action with respect to a person injury or wrong. Secondly, in Fletcher v Westpac  WASC 154 it was stated that to the extent that the claimed injury or wrong was directly consequential upon the interference with property rights, section 60(2) will operate to stay the proceeding. Finally, and most persuasively, Jackson J considered the meaning of personal injury or wrong in Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721 where Dixon J stated, “The test appears to be whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property”.
Relying upon the above principles, Jackson J came to the conclusion that there was no action in respect of any personal injury or wrong done to the bankrupt in this case and therefore it could not avoid being stayed in accordance with section 60(2).
RBG’s insolvency team comprises several legal practitioners with experience in advising trustees in bankruptcy. Any inquiries in this field can be directed to Greg Rodgers or Steven Muller.