FEDERAL COURT OF AUSTRALIA

Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio [2013] FCA 18

IN THE MATTER OF: tHE ESTATE OF SAMANTHA UNDERDOWN (DECEASED) (A BANKRUPT)

THE COURT ORDERS THAT:

1.    Within 10 days the applicants file a further minute of orders reflecting these reasons for judgment.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

IN THE MATTER OF: tHE ESTATE OF SAMANTHA UNDERDOWN (DECEASED) (A BANKRUPT)

REASONS FOR JUDGMENT

INTRODUCTION

1    The applicants, as trustees of the estate of the late Samantha Underdown (a bankrupt), seek an order for sale of property occupied by the first respondent (Mr Fazio) (the residence) or, alternatively, orders directed to the second respondent (who takes no part in the proceeding) setting aside a transfer of land executed by the deceased in Mr Fazio’s favour.

PROCEDURAL MATTERS

2    Mr Fazio has also played no part in the proceedings at all. On the day of the hearing, the matter was called three times by the court officer but Mr Fazio did not appear. Mr Fazio is not totally inexperienced in the litigation surrounding the issues addressed in this judgment. The trustees proceeded with the application in his absence.

3    Orders for substituted service were sought and made. Process servers declined to serve the proceedings at the residence due to the existence of trespassing signs located at the residence in a variety of locations. The signs read: ‘Unless you are invited, you must leave the property as you are trespassing’. There was evidence that the residence was occupied but no specific evidence that it was occupied by Mr Fazio except that he is the owner of the residence by virtue of a transfer to him by the deceased prior to her death. There was proof however of the duly authorised substituted service.

4    The starting point for present considerations is that on 28 April 2010, orders were made by the Court that the estate of the deceased be administered pursuant to Pt XI of the Bankruptcy Act 1966 (Cth) (BA). The evidence reveals that the trustees liaised with a number of staff employed by Insolvency and Trustee Service Australia (ITSA) concerning the request by the trustees for the Official Receiver to issue a notice against Mr Fazio pursuant to s 139ZQ BA (the Notice).

EVENTS LEADING TO THE APPLICATION

5    ITSA issued the Notice on 17 November 2010 but was similarly unable to personally serve the notice on Mr Fazio despite numerous attempts. The Notice was reissued on 13 March 2012 and served on Mr Fazio by ordinary post the following day under reg 16.01 of the Bankruptcy Regulations 1996 (Cth) (BR). Mr Fazio failed to comply with the terms of the notice and on 7 May 2012, the Official Receiver issued a certificate pursuant to s 139ZR BA. The trustees then instructed solicitors to rely upon the certificate to register a charge against the residence. That was lodged on 14 June 2012 in favour of the trustees.

6    The Notice required payment to the trustees of $738,338 less any debt owing to the Commonwealth Bank of Australia (the Bank) under the mortgage registered over the property. $738,338 was the deemed value of the property received by him at the time of the transfer. He was given the address for payment. By the Notice, Mr Fazio was informed that failure to comply with it could render him liable for conviction and a term of imprisonment not exceeding six months pursuant to s 139ZT BA. He was also advised that he could make any submissions as to why the Notice should be revoked or the amount reduced within 28 days from service.

7    The Notice went on to spell out the grounds on which ITSA relied. In substance, they were to this effect:

    On 10 January 2007, the deceased executed transfer in favour of Mr Fazio which had the effect of gifting to him an interest in the residence;

    On 15 January 2007, the deceased was advised by a Magistrates Court order that Mrs Vincensa Passmore was, in effect, entitled to an award of costs against her.

    On or about 19 January 2007, the deceased sought from Mrs Passmore an itemised account for the costs being approximately $51,000.

    On 25 January 2007, the deceased lodged the transfer for stamping, although it was not lodged for registration until 17 October 2007.

    On 1 July 2007, the deceased died and was at that date the sole registered proprietor of the land.

    On 2 July 2007, Mr Fazio executed a survivorship application in respect of the land in favour of himself. That application, however, was not lodged until 17 October 2007.

8    Between 15 January 2007 and 1 July 2007, on her death, the deceased knew that Mrs Passmore had an unpaid claim against her and was aware that the amount Mrs Passmore claimed was approximately $50,000. Further, Mr Fazio knew that Mrs Passmore had an unpaid claim against the deceased’s estate (Mrs Passmore’s costs were taxed at $49,757.59).

9    Mr Fazio and the deceased were married on 24 March 2006. He was, therefore, a related entity of the deceased at the time of execution of the transfer on 10 January 2007 within the meaning of s 5 BA.

GROUNDS FOR THE APPLICATION

10    The trustees rely upon the content of the schedule to the Notice which spelt out and advised Mr Fazio of the effect of the transaction referred to above.

11    The Notice indicates that when an order is made by the Court under s 244 BA, the effect of s 247A(1)(b) BA is that if the deceased was on the day of her death unable to pay her debts as they became due from her own monies, but had not committed any act of bankruptcy within the period of six months immediately preceding the day on which she died, administration of her estate shall be deemed to have relation back to, and to have commenced, at the time of her death. It follows, the trustees argue, that the administration is therefore deemed to have relation back to and to have commenced on 1 July 2007, being the date of the deceased’s death. By virtue of s 248 BA, ss 117-130 inclusive apply to administrations under Pt XI BA. The evidence was, and Mr Fazio was advised, that on 28 July 2010 a kerbside appraisal of the residence conducted by a licensed real estate agent fixed the value of the property at $738,338.

12    As the transfer was for no consideration, the trustees rely upon s 120 and s 121 BA. In relation to s 120(1) BA, the transfer was undervalued and void against the trustees as it took place in the period beginning five years before the commencement of the administration and the transferee, Mr Fazio, gave no consideration for the transfer. Section 120(5)(d) BA provides that ‘love and affection’ is not a consideration for the purposes of s 120(1) BA. Mr Fazio was, at the time of the transfer, a related entity of the deceased debtor. By virtue of s 120(1) BA the transfer was a transfer to defeat creditors and void as against the trustees because without the transaction, the residence would have become part of the deceased debtor’s estate and thereby available to her creditors and the deceased debtor’s main purpose in making the transfer was to prevent the residence from becoming divisible amongst her creditors or to hinder or delay the process of making the residence available for such division.

13    The evidence was that the only substantial asset of the deceased was the residence. The transfer was not for market value. Mr Fazio was aware of and a participant in the proceedings taken by the deceased against Mrs Passmore, and was therefore aware of the inherent risk of a costs award in favour of Mrs Passmore who was legally represented in the proceedings if he was unsuccessful. There was, according to the trustees, effective concealment of the transfer because it was not registered until 17 October 2007, a date subsequent to which the debt of $51,775 due to Mrs Passmore had crystallised and an appeal from the Magistrates Court order had been dismissed. There is affidavit evidence from Mrs Passmore supporting the facts on which ITSA and the trustees rely.

CONSIDERATION

14    On the uncontroverted affidavit evidence, I am satisfied as to the following matters:

    On 14 March 2012 the Official Receiver sent a Notice, being a written notice pursuant to s 139ZQ, to Mr Fazio stating that the transfer to him on 10 January 2007, and lodged 17 October 2007, is void against the trustee in bankruptcy. The Official Receiver required that Mr Fazio pay to the trustees the money or value of the property he received within 28 days.

    The Notice was sent to both the deceased’s personal representative (the trustees, by their solicitors) and to the sole beneficiary under her will (Mr Fazio, by postal service, reg 16.01 BR). The validity of the Notice has not been called into question.

    The Notice was registered with the Registrar of Titles on 14 June 2012 and is recorded as a charge on the residence.

A s 139ZQ Notice is an administrative aid to a trustee in bankruptcy who seeks to recover property to which he claims he is entitled pursuant to s 120 or s 121 BA: Lin v Official Trustee in Bankruptcy (2001) 187 ALR 220 (at [12]) per Raphael FM. The effect of the Notice is to provide an administrative shortcut where the necessity for protracted proceedings under s 120 and s 121 BA can be circumvented: In the matter of Rose, a bankrupt; Godfrey v Whitton [2006] FCA 823 (at [24]) per Graham J. The Notice acts as a charge which remains in place either until it is complied with or set aside: Sutherland v Vale [2007] FMCA 1617 (at [45]).

15    Section 139ZR BA provides that a s 139ZQ Notice given to a person in respect of any property acts as a charge over that property. The trustee has power to sell the property over which the charge exists and to apply the proceeds of sale in accordance with the BA.

16    Compliance with the Notice was required by 16 April 2012 (28 days after service in according with reg 16.01(2)BR) and may have been by:

    Paying to trustees $738,338, less any debt owing to the Commonwealth Bank of Australia under mortgage Dealing No. J425861 as at 10 January 2007; or

    Transferring to the trustees the interest of the deceased in the residence.

17    Mr Fazio has failed to comply with the Notice in any way.

18    It follows in my view that the trustees are entitled to have a direction pursuant to s 134(4) BA to exercise a power of sale pursuant to s 134(1)(a) BA or, alternatively, s 139ZR BA. That relief is sought in terms of orders providing for vacant possession, for the trustees to have conduct of the sale and authority to execute the transfer of land document required to effect the sale, for the proceeds to be paid to the trustees to be dealt with in accordance with their obligations, for Mr Fazio to execute all documents necessary and do all such things necessary to enable the trustees to effect the sale, for Mr Fazio to surrender any duplicate certificate of title for the residence, and liberty to apply for further orders as to the working out of such orders. The trustees also seek costs.

19    The trustees also pursue alternative orders, namely a declaration under s 30 BA that the transfer to Mr Fazio on 10 January 2007 and lodged 17 October 2007 of the residence was void against the trustees by reasons of s 120 and s 121 BA. In that regard and in that alternative, the trustees also seek ancillary orders that the transfer and the survivorship application executed by the deceased and Mr Fazio respectively be set aside, that the Registrar of Titles be directed to cancel the instruments effecting the transfer, that Mr Fazio surrender to the trustees any duplicate certificate of title, and incidental orders and costs.

20    The trustees have not sought any particular set of orders in preference to the other. The same evidence appears to support either form of relief. One consideration which should be addressed in the orders is the interests of the mortgagee if the transfer is void as I have so found. For that reason, while either form of relief as appropriately modified is open, I consider that the first form of relief is preferable, subject to the trustees first giving the mortgagee notice of the further minute of proposed orders that I will so direct them to file.

Declaration pursuant to section 30

21    Section 30(1) BA relevantly provides that the Court has power to decide all questions, whether of law or of fact, in any case of bankruptcy and may make such orders (including declaratory orders) as it considers necessary for the purposes of carrying out or giving effect to the BA in any such case. The provision is not to be construed narrowly or in a confined or limited way: Re Bilen; Ex parte Sistrom (Neaves J, 11 April 1985, unreported).

22    Having regard to the evidence, the circumstances of this case call for the making of a declaration pursuant to s 30(1) BA in the terms sought by the trustees: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 (at 582).

CONCLUSION

23    As indicated, the trustees did not indicate a preference as to the alternative forms of relief. I will make orders in the first alternative as amended with liberty to the mortgagee to apply within 10 days after service of the trustees’ further minute of orders. Costs will follow the event and be in favour of the trustees. I will direct that within 10 days the trustees file a further minute of orders reflecting that conclusion and these reasons. The final orders will be made in open court on a date to be advised.

Associate:

Dated:    17 January 2013