Hearts can change; nothing lasts forever, even disclaimers
Lucan (Trustee) v State of New South Wales, in the matter of the Bankrupt Estate of Williams [2022] FCA 751 (29 June 2022)
Goodman J allowed an application by a bankruptcy trustee to enable previously disclaimed property to re-vest in him as trustee.
Disclaimers can be undone, particularly where circumstances change and there would be a benefit to creditors in doing so.
Mr and Mrs W were registered proprietors of a property as tenants in common in equal shares. In 1996, the National Australia Bank (NAB) obtained orders for possession of the property.
In 2009, before NAB sought to enforce those orders, Mr W became a bankrupt.
In 2011, Mr W’s bankruptcy trustee disclaimed Mr W’s interest in the property as onerous given that NAB had orders for possession and there would not be any surplus proceeds after NAB satisfied its own debt. As a result of the disclaimer, Mr W’s interest in the property reverted to the State of NSW which became the registered proprietor of Mr W’s interest in it.
In 2021, after NAB’s orders for possession had expired, NAB discharged its mortgage over the property. NAB then submitted a proof of debt to Mr W’s bankruptcy trustee for its debt. By this time, the property was worth more, and a return for creditors was likely if the property were to be sold.
By this time, Mrs W had also become a bankrupt and her bankruptcy trustee sought to obtain orders under s 66G of the Conveyancing Act for appointment of trustees to sell the property.
Mr W’s new bankruptcy trustee (after the earlier trustee who had disclaimed the property had died) made an application under s 133(9) of the Bankruptcy Act to allow Mr W’s interest in the property to now vest in him as bankruptcy trustee.
Section 133(9) allows the Court to make orders as it considers just and equitable in relation to the vesting or delivery of claimed property.
Goodman J considered that the pre-conditions specified in s 139(9) for the exercise of the power were met, namely that:
there existed disclaimed property;
there was an application by a person (in this case, Mr W’s bankruptcy trustee) to claim an interest in the property; and
all appropriate persons had been given the opportunity to be heard on the issue – indeed the State of NSW and Mrs W’s bankruptcy trustee did not oppose the application.
In finding that the second condition was met, his Honour observed that s 133(9) had not been considered in circumstances where the applicant for a vesting order was a trustee (or the successor to a trustee) who had earlier disclaimed the property.
His Honour was guided by a decision of Gleeson J in In the matter of Vision Forklifts Pty Ltd (in liq) [2020] NSWSC 243 which concerned s 568F of the Corporations Act, being the rough equivalent of s 133(9) of the Bankruptcy Act. In that case, the liquidator disclaimed a forklift that was the subject of a security interest. The security holder sold the forklift, achieving a surplus upon sale. Gleeson J held that the surplus funds could vest in the liquidator pursuant to s 568F(1). His Honour said that although as consequence of the disclaimer, the company’s property, rights, interests and liabilities in the forklift, were terminated:
… the person in whom it is appropriate that the surplus from the disclaimed property be vested, is the liquidator of the company which was the owner of the property up until the time the disclaimer took effect.
The pre-conditions under s 133(9) having been met, Goodman J then agreed that he should exercise his discretion to order that Mr W’s interest in the property re-vest in him as trustee. His Honour had regard to several factors, including the changed circumstance that NAB’s discharge of the mortgage meant that a dividend to Mr W’s creditors would now be likely, which was preferable to the State of NSW receiving a windfall gain.
