FEDERAL COURT OF AUSTRALIA

McMillan v Bidmonta Pty Ltd, in the matter of the bankrupt estate of David Robert McMillan [2013] FCA 865

THE COURT ORDERS THAT:

1.    By consent, the State of New South Wales be joined as a party to the proceeding.

2.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the one-half undivided share as tenant in common of David Robert McMillan, a bankrupt, in the land comprised in folio identifier 11/227211, being the land known as 565 Tizzana Road, Ebenezer, in the State of New South Wales, vest in the applicant, Bobette Lee McMillan.

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

REASONS FOR JUDGMENT

(DELIVERED EX TEMPORE)

1    The only matter remaining for determination in this proceeding is the applicant’s application for a vesting order under s 133(9) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) in respect of land at 565 Tizzana Road, Ebenezer, New South Wales (being the whole of the land described in folio identifier 11/227211) (the Ebenezer property).

2    In her application as originally filed, the applicant sought declarations and an order for the removal of a caveat that had been lodged by the first respondent in respect of the Ebenezer property. That aspect of the proceeding has been resolved. On 12 July 2013, the applicant filed, with the first respondent’s consent, a notice of discontinuance of her claims against the first respondent, on certain terms.

Background

3    The applicant is the estranged wife of David Robert McMillan. A sequestration order was made against Mr McMillan’s estate on 23 March 2012. The Official Trustee in Bankruptcy (the Official Trustee) was appointed as Mr McMillan’s trustee in bankruptcy.

4    The applicant and Mr McMillan are registered as joint tenants of the Ebenezer property. However, the effect of Mr McMillan’s bankruptcy was to sever the joint tenancy and to impose an obligation on the applicant and Mr McMillan to hold the land in trust for the Official Trustee and the applicant as tenants in common in equal shares: s 58 of the Bankruptcy Act; Sistrom v Urh (1992) 40 FCR 550 at 556.

5    The applicant and Mr McMillan purchased the land in 2003 for $465,000. The land is subject to a mortgage in favour of Perpetual Trustees Victoria Limited (Perpetual). The applicant and Mr McMillan are co-borrowers under that mortgage. The current level of indebtedness relating to the mortgage is approximately $500,416. Until about 2009, the applicant and Mr McMillan contributed approximately equally to repaying the loan. However, since 2009, the applicant has been solely repaying the loan and complying with the obligations under the mortgage. Her repayments since 2009 have amounted to approximately $192,962.37.

6    The applicant resides at the Ebenezer property with her two children, who are minors, and her mother, for whom the applicant cares.

7    In about September 2009, the applicant and Mr McMillan decided to end their relationship and separate. On 23 December 2011, they entered into a binding financial agreement in relation to property matters arising from their marriage. Under the agreement, Mr McMillan agreed to transfer to the applicant all of his right, title and interest in the Ebenezer property and the applicant agreed, amongst other things, to refinance Perpetual’s secured loan.

8    On 28 May 2013, the Official Trustee gave notice pursuant to s 133(1AA)(a) of the Bankruptcy Act that it disclaimed Mr McMillan’s one-half interest in the Ebenezer property, as being land burdened with onerous covenants. In short, the Official Trustee had formed the view that the Ebenezer property was over-encumbered, based on the amount of the liabilities charged on the property and two market appraisals it had sought as to its value.

9    The applicant has given notice of this proceeding to Perpetual. Perpetual has not sought to appear. The second respondent, the Registrar-General, has filed a submitting appearance.

Consideration

10    Section 133(1AA) of the Bankruptcy Act provides:

Where any part of the property of the bankrupt consists of:

(a)    land of any tenure burdened with onerous covenants; or

(b)    property (including land) that is unsaleable or is not readily saleable;

subsection (1) applies.

11    Section 133(1) provides:

Subject to this section, the trustee may, notwithstanding that he or she has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation to it and notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her, at any time disclaim the property.

12    Section 133(2) relevantly provides:

A disclaimer under subsection (1) … operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.

13    The usual position upon the disclaimer of onerous property is that the disclaimed property escheats to the Crown – in this case, to the Crown in right of New South Wales – subject to any charges: see, for example, Ex parte Cleland and Teesdale Smith [1960] SASR 199; Re Middle Harbour Investments Ltd. (in liq.) and the Companies Act [1977] 2 NSWLR 652; National Australia Bank Ltd v Leroy & Ors, in the matter of Woo & Ors [2003] FCA 862; Re Condobolin Bila CDEP Ltd (deregistered) (ACN 197 790 246) Commonwealth v New South Wales (2006) 59 ACSR 682; RAMS Mortgage Corporation Ltd v Skipworth and Another (No 2) (2007) 239 ALR 799.

14    However, s 133(9) provides:

The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.

15    I am satisfied that this is an appropriate case in which to make the vesting order that is sought. In this connection, I am satisfied that the applicant has standing to seek such an order. She is a co-owner of the Ebenezer property and, as a co-borrower under Perpetual’s secured loan, she is, for the purposes of s 133(9), a person under a liability not discharged by the Bankruptcy Act in respect of that property. A similar situation arose in McVey v State of New South Wales, in the matter of McVey (Bankrupt) [2012] FCA 455, where a vesting order was made in favour of a co-borrower under a secured loan affecting disclaimed property. Furthermore, by virtue of Mr McMillan’s agreement to assign his interest in the Ebenezer property to the applicant under the binding financial agreement, the applicant is a person claiming an interest in the disclaimed property.

16    In my view, it is plainly just and equitable that the disclaimed property vest in the applicant, having regard to the terms of the binding financial agreement; the fact that, since 2009, she has been solely repaying Perpetual’s secured loan; the significant repayments she has made in respect of that loan; and the fact that she and her dependent children and mother reside at the Ebenezer property.

17    Importantly, the State of New South Wales has agreed to be joined as a party to the proceeding and consents to a vesting order in favour of the applicant.

Disposition

18    Orders will be made accordingly.

Associate:

Dated:    26 August 2013