Re: Students that surpass their sensei
Now who takes over class that is a separate more interesting question.
I regularly have two people two dan ranks above me join my dojo. They are also sempai. I still give the class but of course use their knowledge well. Depending on what I want/need to do they get periods of time, groups of students, etc. Of course when our collective teacher comes - the whole class is his.
Bowing all depends on how much more of a sempai he is and how much more you outrank him. If at all unsure - bow equally.