Australia: What Happens When A TPD Claimant Is Declared Bankrupt In Australia?

In Berryman v Zurich Australia Ltd [2016] WASC 196 it was decided that a bankrupt's entitlement to claim a TPD benefit under a life insurance policy is not an entitlement that is divisible amongst the bankrupt's creditors, and therefore such an entitlement does not vest in the Official Trustee in bankruptcy. Tottle J of the Supreme Court of Western Australia ruled that the bankrupt insured could continue an action in his own name to recover the TPD benefit. Life insurers may need to adjust their claims' payment practices in light of the Berryman decision. Before this decision, it was generally accepted within the industry that entitlement to TPD and income protection payments vested in the Official Trustee in Bankruptcy.


The plaintiff, Mr Berryman, was a self-employed carpenter who suffered an injury at work on 7 July 2009 when a large rock crushed his foot.

On 16 November 2009 Mr Berryman made a claim under his "Protection Plus" life insurance policy with Zurich for payment of a TPD benefit of AUD 2 million.  Zurich declined the claim. On 29 August 2014 Mr Berryman commenced an action against Zurich for damages for breach of the insurance policy. Mr Berryman was declared bankrupt on 31 August 2015.

Zurich brought an application to have Mr Berryman's proceeding dismissed on the ground that the proceeding was deemed to have been abandoned by the operation of section 60 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). The parties agreed to have this issue tried as a preliminary point.

Issues and decision

Section 58 of the Bankruptcy Act provides that when a debtor becomes bankrupt the property of the bankrupt vests in the trustee in bankruptcy. Section 60 provides that an action commenced by a person who subsequently becomes a bankrupt is stayed until the trustee makes an election to prosecute or discontinue the action. The trustee has 28 days to make an election, failing which the trustee is deemed to have abandoned the action. Zurich argued that the trustee had not made the election within the requisite time period and thus the action had been abandoned.

Mr Berryman relied on subsection 60(4) of the Bankruptcy Act, which preserves the right of a bankrupt to continue an action concerning the bankrupt's rights in various property specified in section 116(2)(g) of the Bankruptcy Act on the basis that such property is not divisible amongst the creditors of the bankrupt.

Section 116(2)(g) relevantly excludes:

any right of the bankrupt to recover damages or compensation for personal injury or wrong done to the bankrupt...and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong...

Section 60 (4) relevantly permits a bankrupt to continue, in his or her own name, an action commenced before bankruptcy "in respect of any personal injury or wrong done to the bankrupt".

Zurich contended that Mr Berryman's claim in the proceeding was for breach of the insurance contract (being a property right) rather than for personal injury and thus the claim did not fall within the scope of sections 60(4) and 116(2)(g).  

Zurich argued that the test prescribed by the High Court in Cox v Journeaux (No 2) (1935) 52 CLR 713 (Cox) should be relied upon.  Under the test in Cox, a claim in respect of a personal injury or wrong is one that is "calculated 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".

Mr Berryman instead sought to convince the Court that it should rely upon the decision in Moss v Eaglestone [2011] NSWCA 404 (Moss), in which the NSW Court of Appeal decided that a bankrupt's action against his former solicitor for damages for loss of a chance to prosecute a defamation action fell within the section 60(4) exception. The NSW Court of Appeal noted that sections 60(4) and 116(2)(g) reflected and incorporated the common law of bankruptcy, which includes the principle that the bankrupt's estate and the participating creditors "should not be swelled and advantaged by a wrong to the person or reputation of the bankrupt". 

Mr Berryman also referred the Court to the decision of Sheehan v Brett-Young (No 2) [2016] VSC 39 (Sheehan), in which a bankrupt solicitor claimed against the Law Institute of Victoria for misfeasance in public office. The bankrupt claimed, among other things, damages for loss of earning capacity. The Supreme Court of Victoria decided that the bankrupt's cause of action remained with the bankrupt. 

Mr Berryman argued that his TPD claim was analogous to the situations in Moss and Sheehan, in that the TPD claim was a vindication of his personal rights flowing from a personal injury and the common law of bankruptcy would not sanction his creditors being advantaged by receiving the TPD benefit.

Tottle J accepted that Mr Berryman was pursuing a breach of contract claim for liquidated damages. Nevertheless, the Court accepted Mr Berryman's submissions and held that the TPD claim fell within sections 60(4) and 116(2)(g) of the Bankruptcy Act.

Tottle J considered that, having regard to the common law of bankruptcy, the TPD claim should be characterised as a claim for compensation for a personal injury or wrong which was not part of the legitimate entitlement of creditors. 

The Court also  considered that a bankrupt's right to claim under a policy of disability insurance fell within the scope of section 116(2)(g) because the value of the right was entirely dependent on the insured suffering a personal injury of sufficient seriousness to meet the policy conditions.  Tottle J preferred the position in Moss and Sheehan, where a bankrupt's right that is derived from a personal injury is protected from creditors, to the more restrictive test in Cox.

Finally, the Court noted that section 60(4) was expressed to apply "in respect of" claims for personal injury or wrong. His Honour decided there was a sufficient connection between the TPD claim and Mr Berryman's personal injury such that the TPD claim was "in respect of" a personal injury. 

Accordingly, the Court refused Zurich's application for the proceedings to be dismissed.  As a result, Mr Berryman can now continue with his claim.

No reliance on section 116(2)(d) of the Bankruptcy Act

Interestingly, Mr Berryman did not attempt to rely on section 116(2)(d) of the Bankruptcy Act which relevantly excludes from property divisible amongst a bankrupt's creditors "policies of life assurance" and the proceeds of such policies received on or after the date of the bankruptcy.

There is a line of authority, summarised in NM Superannuation Pty Ltd v Young (1993) 113 ALR 39, which says that section 116(2)(d) protects only the bankrupt's entitlement to the death benefit payable under a life insurance policy. Under that line of authority, policies that provide accident and illness cover (i.e. TPD and income protection benefits) are not "policies of life assurance". Where policies provide multiple forms of cover, as is now common, section 116(2)(d) prevents the death benefit from forming part of the bankrupt estate but will not necessarily ensure that other benefits under the policy are kept separate from the estate.


We expect bankrupt insureds will now rely on the Berryman decision to retain their right to personally proceed with actions against life insurers for payment of TPD and income protection benefits.  Until this issue is conclusively decided at an appellate level, life insurers may be drawn into disputes between bankrupt insureds and the Official Trustee as to who has the right to pursue a claim and who is entitled to payment of any benefit.

The Berryman decision does not affect the rights of the Official Trustee in Bankruptcy to serve notices on life insurers under section 139ZL of the Bankruptcy Act requiring the insurer to make payments to the trustee instead of the insured.  Those notices are served where the bankrupt has been assessed as liable to pay a contribution from their income toward the bankrupt estate.

What Happens When A TPD Claimant Is Declared Bankrupt In Australia?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.