I made a new law!
It was a rare privilege to be the applicant in a case establishing a new legal precedent in the bankrupt estate of Christopher Williams to vest property previously disclaimed by the former bankruptcy trustee.
The facts in this case are unusual in the extreme, and though we may never see a similar factual matrix in other cases, the decision in my matter established that a bankruptcy trustee can “claim an interest” in disclaimed property under section 133(9) of the Bankruptcy Act 1966 and that the court has discretion to make an order vesting disclaimed property in the bankruptcy trustee.
Background
In 1994, Mr Williams and his spouse purchased property subject to a mortgage with NAB. In 2006 NAB obtained orders for possession and in 2009 Mr Williams became bankrupt. Mr Williams has never lodged a Statement of Affairs, and so remains bankrupt to this day.
My former business partner, Nick Malanos, was appointed as bankruptcy trustee and determined the value of the property would not discharge obligations to the mortgagee and so disclaimed the estate's interest in the property pursuant to section 133 of the Bankruptcy Act.
Fast forward several years to 2017 and the bankrupt’s spouse and the property’s co-owner also became bankrupt.
My colleague and dear friend, Mr Malanos, retired in 2020 and sadly passed away a few months later in November 2020.
On 11 January 2021, NAB notified parties that its order for possession expired and that it intended to discharge its mortgage. So, the property became unencumbered and Mr Williams' interest in the property, having been disclaimed, vested in the State of NSW.
I became the trustee of the estate on 30 April 2021.
The Claim
As the newly appointed trustee of the estate, I found myself contemplating a disclaimed and unsecured asset—now with significant value—that if realised would likely result in a great outcome for creditors. I determined that I had an obligation under section 19 of the Bankruptcy Act to take all reasonable steps to determine if I could realise that asset. Accordingly, I made an application pursuant to section 133(9) seeking vesting of the disclaimed property in me.
At Paragraph 22 of his judgement, his honour stated:
“Section 133(9) provides the Court with a discretion to make various orders concerning the vesting or delivery of disclaimed property. There are several conditions which must be satisfied before the discretion is enlivened:
1) there must be disclaimed property;
2) there must be an application by a person either: (a) claiming an interest in the disclaimed property; or (b) under a liability not discharged under the Bankruptcy Act in respect of the disclaimed property; and
3) the Court must have heard such persons as it thinks fit.”
There was no debate as to conditions one and three above. In relation to condition two, his honour considered whether the new trustee could “claim an interest” in circumstances where the former trustee had disclaimed the property. He found that the jurisdiction conferred by section 133(9) of the Bankruptcy Act is satisfied by a person claiming an interest, and not by the vindication of the interest.
Having determined that the conditions were satisfied to enliven the Court’s discretion, his honour concluded that it was just and equitable to make an order that a half share in the tenant in common property vest in me in my capacity as trustee of the bankrupt estate.
The circumstances of this matter are unique, and for that reason I don’t think there will be any great rush of applications by bankruptcy trustees trying to reclaim previously disclaimed property, nor do I think they should disclaim then reclaim property as a matter of convenience. It does provide clarity however, that if circumstances change resulting in previously uncommercial property becoming commercially viable, then if the Court is satisfied that it is just and equitable has the discretion to vest previously disclaimed property.
Case Reference: Lucan (Trustee) v State of New South Wales, in the matter of the Bankrupt Estate of Williams [2022] FCA 751 (29 June 2022)
I also made a video about this case for my YouTube channel, The Ride to Work. Here is a link to the video if you are interested: https://youtu.be/aOQTMUoDEqk
