Bankruptcy Trustee claims an interest in property previously disclaimed by prior Bankruptcy Trustee

Bankruptcy Trustee claims an interest in property previously disclaimed by prior Bankruptcy Trustee

By James Daniel, Founder and Principal on 23/06/2022 [SOURCE]

On Wednesday, I posted on Linkedin a case note regarding the recent decision of Makhoul v NSW which was an application under s133(9) of the Bankruptcy Act (Act) by a co-owner for vesting of a ½ share interest in land previously disclaimed by a bankruptcy trustee.

In the matter of Lucan v State of NSW, an application was also made under s133(9) of the Act. However the application was brought by a bankruptcy trustee in circumstances where his predecessor previously disclaimed the property.

The disclaimer was issued by his predecessor given that the secured creditor of the property obtained an order for possession and it did not appear that there would be a surplus upon sale. The order for possession was not acted upon and the secured creditor later discharged its mortgage (but not its debt) and became an unsecured creditor.

Goodman J, remarked that there does not appear to be a case decided in the same circumstances.
However, he was satisfied to grant the vesting order, nothing that:

  1. There was no suggestion that the bankruptcy trustee’s predecessor acted improperly by disclaiming the interest due to the circumstances at the time;
  2. Given the change in circumstances with the secured creditor, if the vesting order was made there would likely be a significant return to creditors;
  3. Taking steps to recover property is consistent with the bankruptcy trustees duties under s19(1)(f) of the Act;
  4. If the order was not made then the creditors of the Estate would likely not receive a dividend but the State of NSW would receive a windfall.

Point of interest: An applicant has to establish that they are claiming an ‘interest’ in the property (or liability not discharged) under s133(9) of the Act. The word ‘interest’ is not defined in the Act, however, Goodman J considered that it should not be construed narrowly. He compared the similar provision under s568F of the Corporations Act as well as referring to the matter of Vision Forklifts, in which Gleeson J was satisfied that a liquidator who previously disclaimed a forklift met the description of a ‘person who claims an interest in property’ under s568F of the Corporations Act in receiving surplus funds from the sale of the forklift. The word ‘interest’ is also not defined in the Cth Acts Interpretation Act (although it is in Qld State legislation in respect to land). It appears that in circumstances where the disclaimed property is also real property, the word ‘interest’ in s133(9) of the Act appears to be wider than the conception of an interest in real property as we know it in State legislation and at common law. Therefore, the threshold is lower to prove an interest in disclaimed real property under s133(9) of the Act.

This publication is provided for information purposes only and is not (and should not be relied upon as) legal advice. Each individual circumstances differ. Please contact us if we may help you with your circumstances.

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