When onerous property becomes valuable  – Vesting Orders of previous disclaimed property.

By James Daniel, Founder and Principal – [SOURCE]

In the recent judgement of Makhoul v State of New South Wales, the applicant sought a vesting order of under s133(9) of the Bankruptcy Act for a ½ share interest in property that had been disclaimed under s132(2) by the bankruptcy trustee and now vested in the State of New South Wales. Section 133(9) includes a requirement that it be ‘just and equitable’ to make the order. In applying the principles set out in the case of Aprile v State of Qld, Justice Halley was satisfied that it was ‘just and equitable’ to make the vesting order (subject to existing mortgage and caveat remaining registered on the property). Halley J had regard to:

1. The limited interest in the property as a whole and that the applicant did not consent to the co-ownership upon the disclaimer;
2. The applicant is burdened by repayments of the mortgage over the whole of the land, even though she only holds a ½ interest;
3. There was no opposition by the respondents (including the caveator who may have a competing interest under a resulting trust) and no other competing claims; and
4. If the order is granted the applicant would be able to sell the property.

Interestingly, in this matter, despite disclaiming the ½ interest 11 years earlier as onerous property, by the time the application was brought, the value of the property had increased significantly and upon a sale of the whole land, the applicant would be entitled to a significant surplus.

Take away: An application by a tenant in common for vesting of an interest in disclaimed land under s133(9) of the Bankruptcy Act is not merely a mechanical application. The applicant will need to satisfy the court that it is just and equitable to do so having to regard to the circumstances of the matter. Regard can be had to the principles set out in Aprile.