FEDERAL COURT OF AUSTRALIA

Aravanis & Roy (Trustees), in the matter of Destanovic (Bankrupt) v Destanovic [2016] FCA 388

REASONS FOR JUDGMENT

Introduction

1    On 9 May 2014, a sequestration order was made in the Federal Circuit Court of Australia against the estate of Mr Meta Destanovic (“Mr Destanovic” or “Bankrupt”) and the applicants were appointed as the joint and several trustees of his bankrupt estate. The respondent is the Bankrupt’s wife (“Mrs Destanovic”).

2    Unless otherwise indicated, reference to legislation in these reasons is a reference to the Bankruptcy Act 1966 (Cth). The relevant provisions in Pt VI Div 4B subdiv J (ss 139ZQ to 139ZT) (“Subdiv J”) are set out in the attachment to these reasons.

3    By an application filed on 9 December 2015 and amended with leave on 7 April 2016, the applicants sought a declaration that a property in Cairnlea, Victoria, details of which are set out in the schedule to the application (“Property”) was subject to a charge under s 139ZR(6). The applicants also sought orders for sale of the Property and orders incidental to the sale, including distribution of the proceeds of sale.

4    The application was made to enforce a Notice dated 17 September 2015 issued pursuant to s 139ZQ by the Official Receiver. The Notice required Mrs Destanovic to pay $170,498 to the applicants within 28 days. The facts and circumstances by reason of which the applicants claimed to be entitled to that amount were set out in the schedule to the Notice (see [8] below) (“Schedule”).

5    Subdiv J provides an abbreviated procedure for recovery of property to which a trustee in bankruptcy claims entitlement under s 120 or s 121 of the Bankruptcy Act. A notice issued under s 139ZQ operates as a charge on the property under s 139ZR(1) which remains in place until either the notice is complied with or set aside. The trustee has power to sell the property over which the charge exists under s 139ZR(6) and to apply the proceeds of sale in accordance with the Bankruptcy Act: see Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio [2013] FCA 18 (Verge v Fazio) at [14]-[15] per McKerracher J.

6    Mrs Destanovic has taken no steps to have the Notice set aside under s 139ZS. Indeed, she did not file an appearance in this matter, nor did she appear at any directions hearing or at the hearing of the application originally set down for 16 March 2016 and heard on 12 April 2016 despite correspondence addressed either to Mrs Destanovic or the “occupier” of the Property by the applicants’ lawyers on 27 January 2016, 5 and 19 February 2016, 2 March 2016, and 5 and 7 April 2016. The applicants’ lawyer spoke with Ms Amina Destanovic (Mrs Destanovic’s daughter) and Mr Destanovic on 10 March 2016. They confirmed that Mrs Destanovic was aware of the proceedings. On 11 April 2016, the applicants’ lawyer also spoke with a lawyer in Victoria who said he may be engaged by Mr Destanovic to appear at the hearing on 12 April 2016, but was awaiting further instructions. I adjourned the hearing on 12 April 2016 briefly so that the applicants’ legal representatives’ could contact Mr Destanovic’s lawyer who confirmed that he had no instructions to appear. I was satisfied that Mrs Destanovic had adequate notice of the hearing and determined to proceed in her absence.

7    On 13 April 2016, following confirmation from the applicants as to the form of the orders, I made declarations and orders to the effect set out at [25] below.

Terms of the Notice

8    The circumstances forming the basis on which the Notice was issued are set out in the Schedule as follows:

SCHEDULE TO NOTICE ISSUED PURSUANT TO SECTION 139ZQ

Investigations into the financial affairs of the debtor have disclosed the following:

1.    Meta Destanovic (“the debtor”), became bankrupt on 9 May 2014 upon the making of a Sequestration Order in the Federal Circuit Court.

2.    Andrew Aravanis and Ronil Prakash Roy (“the Trustees”) are the Joint and Several Trustees of the above administration.

3.    Pursuant to Section 115(1B) of the Bankruptcy Act 1966 (“the Act”), the bankruptcy commenced on 16 October 2013, that being the act of bankruptcy determined upon the making of the Sequestration Order.

4.    The Trustees through their investigations submit that:

4.1    The debtor and his wife, Mrs Nermina Destanovic (“Nermina”) jointly purchased the property known as [street address] Cairnlea VIC 3023 described in the Certificate of Title Volume [number] Folio [number] (‘the Property’) and registered both names.

4.2    On 15 February 2012 and under instruction of Commonwealth Bank of Australia, CBRE (C) Pty Ltd conducted a valuation of the Property which indicated the market value to be $470,000.

4.3    On 15 February 2012, the Property was transferred by the debtor and Nermina to Nermina solely. The transfer document notes the consideration was “natural love and affection” (“the Transfer”).

4.4    On 24 February 2012, the debtor and Nermina executed a Binding Financial Agreement which indicates Nermina was to pay the debtor $10,000 ‘by way of alteration of property interest’. The Trustees assert that they are not in receipt of sufficient evidence to confirm the debtor received the abovementioned $10,000 or any other consideration in respect of the Transfer.

4.5    On transfer of the Property, National Australia Bank (‘NAB’) withdrew their registered mortgage (Dealing No. [number]) and registered a new mortgage (Dealing No. [number]) with Nermina as sole mortgagor. The balance of the NAB home loan account at the time of the Transfer was $149,005.

5.    On 18 May 2015, the Trustees obtained market appraisals from Ray White and Barry Plant Real Estate which indicate the market value of the Property to be $490,000;

6.    The Trustees claim that the Transfer of the Property by the debtor and Nermina to Nermina is void pursuant to Section 120 and/or 121 of the Act.

7.    Section 120 of the Act which is contained in Division 3 of Part VI of the Act, as it applies to the administration of the debtor’s bankrupt estate provides as follows:

120 Undervalued transactions

Transfers that are void against trustee

A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a)    the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and

(b)    the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.

Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.

Exemptions

Subsection (1) does not apply to:

(a)    a payment of tax payable under a law of the Commonwealth or of a State or Territory; or

(b)    a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or

(c)    a transfer of property under a debt agreement; or

(d)    a transfer of property if the transfer is of a kind described in the regulations.

Despite subsection (1), a transfer is not void against the trustee if:

(a)    in the case of a transfer to a related entity of the transferor:

(i)    the transfer took place more than 4 years before the commencement of the bankruptcy; and

(ii)    the transferee proves that, at the time of the transfer, the transferor was solvent; or

(b)    in any other case:

(i)    the transfer took place more than 2 years before the commencement of the bankruptcy; and

(ii)    the transferee proves that, at the time of the transfer, the transferor was solvent.

Rebuttable presumption of insolvency

(3A) For the purposes of subsection (3), a rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor:

(a)    had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or

(b)    having kept such books, accounts and records, has not preserved them.

Refund of consideration

The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

What is not consideration

For the purposes of subsections (1) and (4), the following have no value as consideration:

(a)    the fact that the transferee is related to the transferor;

(b)    if the transferee is the spouse or de facto partner of the transferor—the transferee making a deed in favour of the transferor;

(c)    the transferee’s promise to marry, or to become the de facto partner of, the transferor;

(d)    the transferee’s love or affection for the transferor;

(e)    if the transferee is the spouse, or a former spouse, of the transferor—the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975;

(f)    if the transferee is a former de facto partner of the transferor—the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975.

Protection of successors in title

This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property.

Meaning of transfer of property and market value

For the purposes of this section:

(a)    transfer of property includes a payment of money; and

(b)    a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

(c)    the market value of property transferred is its market value at the time of the transfer.

8.    A successful claim under Section 120 of the Act, requires:

a.    a transfer of property by the debtor prior to the date on which he became bankrupt;

b.    the transfer to have occurred in the five years prior to the commencement of the bankruptcy; and

c.    the transferee to have either given no consideration for the transfer or given consideration of less value than the market value of the property.

9.    Here, the Transfer is void pursuant to Section 120 of the Act because:

a.    the Transfer of the Property occurred on or around 15 February 2012 being prior to the commencement of debtor’s bankruptcy, 16 October 2013;

b    the Transfer of the Property occurred on or around 15 February 2012, which is within five years of 16 October 2013;

c.    Nermina gave no consideration for the transfer or given consideration of less value than the market value of the property.

10.    Section 121 of the Act which is contained in Division 3 of Part VI of the Act, as it applies to the administration of the debtor’s bankrupt estate provides as follows:

…

11.    A successful claim under Section 121 of the Act, requires:

a.    the property would probably have been available to creditors if it had not been transferred;

b.    the transferor’s main purpose in making the transfer was:

i.    to prevent the transferred property from becoming divisible to creditors; or

ii    to hinder or delay the process of making the transferred property divisible to creditors;

c.    it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.

12.    Here, the Transfer is void pursuant to Section 121 of the Act because:

a.    if the transfer of property had not occurred it would have been available to creditors;

b.    the bankrupt appears to have failed to have kept proper books and records and accordingly, the presumption of insolvency under section 121(4A) is satisfied.

The Trustees claim that Nermina is indebted to the Bankrupt Estate in the amount of $170,498 as set out below:

Narration                    Amount ($)

Current value of Property             $490,000

Less: NAB Mortgage                ($149,005)

Less: Nermina’s half interest             $170,498

Equals: Debtor’s Interest in the property         $170,498

Less: Consideration given by Nermina         NIL

Consideration to be paid:             $170,498

From the facts and circumstances set out above and having sighted prima facie evidence supporting those facts, I am satisfied that the Transfer of the Property by the debtor to Nermina is void against the Trustees pursuant to Sections 120 and 121 of the Act.

Consideration

9    The applicants relied on an affidavit sworn by Mr Dennis Domaille on 28 September 2015 in which he attests to serving the Notice on Mrs Destanovic on 24 September 2015. On 26 October 2015, the Official Receiver advised the applicants that Mrs Destanovic had not responded to the Notice. No payments have since been made to the applicants.

10    The applicants relied on the decision of the High Court in Vale v Sutherland (2009) 237 CLR 638; [2009] HCA 26 at [8], [13] and [24] for two propositions. First, by reason of s 139K, the amount which must be specified in the Notice as the “value” of the property received by the person to whom the notice is addressed is “the market value of the property when the notice is given”; this overruled Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329; [1994] FCA 1380 at 337-338 in which Olney J found that the value of the property must be determined at the time it was received by the person. Second, the jurisdictional fact which engages the power of the Official Receiver to issue a notice under s 139ZQ is satisfaction that circumstances exist in which a person received money or property as a result of a transaction which is void against the trustee in bankruptcy. Accordingly, error as to the amount payable would not render the Notice invalid but the amount payable may be subject to challenge in proceedings for recovery of the debt or to restrain exercise by a trustee in bankruptcy of the power of sale conferred by s 139ZR(6).

11    The applicants relied on the content of the Schedule to establish that s 120 applies to render void the transfer of Mr Destanovic’s interest in the Property as joint tenant to his wife for the reasons set out in paragraphs [8]-[9] of the Schedule.

12    Counsel for the applicants tendered a copy of a “Transfer of Land” document dated 28 November 2011 which notes that Mr and Mrs Destanovic transferred “my estate in fee simple” to Mrs Destanovic for a consideration which is stated to be “natural love and affection”. Such consideration is not taken into account under s 120(5)(d) of the Bankruptcy Act and the transfer must therefore be taken to have occurred for no consideration. The transfer was recorded on 15 February 2012. Counsel also tendered a copy of a “Binding Financial Agreement” dated 24 February 2012 in which recital H records that in an attempt to provide for the long term financial security of Mrs Destanovic following the deterioration of their marriage, “on 28 November 2011, some one month after separation, Meta transferred his share of the matrimonial home at [address of the Property] to Nermina”. I accept Counsel’s submission that the payment of $10,000 in relation to the alteration of property interests under clause (d) of the operative part of the Binding Financial Agreement was not consideration for the transfer of Mr Destanovic’s interest in the Property which predated the Binding Financial Agreement and need not be taken into account in determining an amount recoverable by the applicants under s 120(4).

13    On this basis, I accept that the transfer of Mr Destanovic’s interest in the Property to Mrs Destanovic was void as against the applicants under s 120(1) for the reasons specified at [8] and [9] of the Schedule.

14    Pursuant to his duty to the Court in the absence of the respondent, Counsel raised a question of statutory construction. Counsel observed that the statutory charge under s 139ZR(1) attaches to the property transferred by the bankrupt in the transaction avoided under s 120(1) and it appears that ss 139ZR(1) and 139ZR(6) operate on the assumption that that property continues to exist so that the power of sale relates to that property. Where a husband was a joint tenant with his wife before a transaction impugned by s 120, the act of transfer of the interests of both joint tenants to the wife has the result that her interest is enlarged and the husband’s interest, as it existed in his hands before transfer (and before he became bankrupt), ceases to exist. It might therefore be argued that s 139ZR can have no operation where the interest transferred is that held by a joint tenant.

15    I accept Counsel’s submission that this interpretation would defeat the purpose of s 139ZR and should not be adopted. The purpose to be served by ss 139ZQ and 139ZR is to provide an expeditious mechanism to return to a bankrupt estate the value of property the transfer of which is avoided under s 120. Each joint tenant is seized with an interest in all of the land which is jointly owned. Accordingly “the property” charged under s 139ZR(1) is the Property in which the bankrupt holds an undifferentiated interest. The “value” to be realised by the trustees in bankruptcy under s 139ZR(6) by sale of the Property is the value at the date of the s 139ZQ notice of the interest in the Property transferred by the bankrupt.

16    The applicants sought a number of orders to give effect to the power of sale in s 139ZR(6). I am satisfied that s 30 of the Bankruptcy Act may be called in aid of the power of sale.

17    Section 30(1) relevantly provides that the Court has full power to decide all questions, whether of law or fact, in any case of bankruptcy and that it may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as it considers necessary for the purposes of carrying out or giving effect to the Bankruptcy Act in any such case. In Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 at [91]-[93], the Full Court (Siopsis, Katzmann and Perry JJ) acknowledged that having regard to the purposes of modern bankruptcy to provide for the appropriation and equitable distribution of assets of an insolvent debtor and the breadth of the language in s 30, it should not be construed narrowly. Nonetheless, in Coshott v Prentice at [100] the Full Court found that s 30 did not provide a sufficient basis for making orders for sale of property co-owned by a bankrupt where the effect of the orders would be to destroy the interest of the co-owner who was not bankrupt, relying on the principle of statutory construction recognised by Mason CJ, Brennan, Gaudron and McHugh JJ in Coco v The Queen (1994) 179 CLR 427; [1994] HCA 15 at 437:

The insistence on express authorization of an abrogation or curtailment of a fundamental right, freedom or immunity must be understood as a requirement for some manifestation or indication that the legislature has not only directed its attention to the question of the abrogation or curtailment of such basic rights, freedoms or immunities but has also determined upon abrogation or curtailment of them. The courts should not impute to the legislature an intention to interfere with fundamental rights. Such an intention must be clearly manifested by unmistakable and unambiguous language. General words will rarely be sufficient for that purpose if they do not specifically deal with the question because, in the context in which they appear, they will often be ambiguous on the question of interference with fundamental rights

18    Having said that, in Coshott v Prentice at [95] the Full Court also acknowledged that “it can be envisaged that orders might be made under s 30(1) against a non-bankrupt where that person has failed to comply with his or her obligations under the Bankruptcy Act”. It is a criminal offence under s 139ZT for a person not to comply with a notice issued under s 139ZQ. As s 139ZR(1)(a) charges property held by a non-bankrupt with the liability to make payments to the trustee as required by the notice and s 139ZR(6) confers a power of sale on the trustee to enable the trustee to recover those payments (after deduction from the proceeds of sale of amounts required to satisfy charges with priority), there is a clear statutory intent that rights of the non-bankrupt will be affected. Accordingly, I consider that it is appropriate to make the orders that Mrs Destanovic give vacant possession of the Property, that a writ for possession may issue if she does not, that the applicants have the power to sell the Property and recover the fees and expenses necessarily incurred in effecting the sale.

19    Should it be necessary or desirable for the applicants to seek further orders, for instance, under state based property laws to which recourse might be necessary or convenient having regard to the powers conferred on this Court by s 79 of the Judiciary Act 1903 (Cth) (see, for example Coshott v Prentice at [105]-[114]) or otherwise, I have granted the applicants liberty to apply.

20    I was also satisfied that it was appropriate that the applicants be appointed as the trustees for sale and be remunerated for the conduct of the sale. Section 139ZR(6) confers the power of sale on the applicants in any case. Further, the applicants proposed orders that the power may only be exercised where the sale price is at least 85% of the value of the Property as determined by a valuer instructed by the applicants. This serves to protect the interests of the respondent in achieving an appropriate sale price having regard to her right to receive the proceeds of sale after the charge and priority claims have been satisfied. It would be usual for a person who conducts a sale to be remunerated, and I do not see why the applicants should not be paid for performing that work. The amount of the applicant’s remuneration for conducting the sale, but no amounts referable to the administration of the bankrupt estate, should be deducted from the sale price before payment of the residual amount is made to the respondent. I did not consider it appropriate to make an order that the applicants be paid remuneration in relation to the conduct of the sale “at normal hourly rates”; there was no evidence of the rates and in the circumstances it is appropriate that the amount be subject to approval by a Registrar of this Court.

21    As to the amount payable by Mrs Destanovic specified in the Notice, that amount and the basis on which it was calculated is unchallenged. Section 139ZQ(8) provides that the amount payable by a person under s 139ZQ is recoverable by a trustee as a debt. It is therefore appropriate to make an order that judgment be entered in an amount of $170,498.

22    The applicants sought a declaration that the Property was subject to a charge to secure both the amount payable under s 139ZQ and their costs of these proceedings.

23    I am satisfied that the circumstances of this case justify a declaration as to amounts payable under the Notice having regard to the language of s 139ZR(1) and that the applicants have the power of sale conferred by s 139ZR(6), however it does not warrant a declaration in relation to an award of costs, since s 139ZR(1) states that “the property is charged with the liability of the person to make payments to the trustee as required by the notice” (emphasis added).

24    Nonetheless, the Court has power to award costs in bankruptcy proceedings under s 32 of the Bankruptcy Act and I considered that it is appropriate to order that the respondent pay the applicants’ costs of these proceedings (as agreed or taxed) and that that amount be paid out of the proceeds of sale.

Declaration and orders

25    On 13 April 2016, I made a declaration that the Property was subject to a charge under s 139ZR(1) in favour of the applicants to secure the payment to them of $170,498 pursuant to the Notice and that the applicants have the power to sell the Property conferred by s 139ZR(6). I also made orders that:

(1)    The respondent give vacant possession of the Property to the applicants by 12 May 2016 and a writ of possession may issue on or after 13 May 2016.

(2)    The Property be sold, free of all encumbrances, by the applicants.

(3)    The respondent execute all documents and do all things as are necessary to enable the applicants to effect the sale of the Property failing which a Registrar of the Court is authorised to do so.

(4)    Such sale:

(a)    May be by auction or by private treaty or by tender; and

(b)    May be for cash or on such terms as the applicants may think suitable but subject to a reserve of 85% of the value of the land as determined by a registered valuer employed by the applicants.

(5)    The applicants apply the proceeds of sale of the Property as follows:

(a)    In payment of amounts properly due to any mortgagee of the Property or for unpaid land tax or other encumbrances on the Property accrued as at the date the sale is completed to the extent that no allowance is made in any contract of sale;

(b)    In satisfaction of the costs and expenses of the sale of the Property, including reasonable remuneration payable to the applicants in respect of acting on the sale, such remuneration to be calculated at hourly rates and be in an amount approved by a Registrar of this Court;

(c)    In payment of the amount of the judgment debt (see (6) below), being the amount which the respondent was required to pay pursuant to the Notice;

(d)    In satisfaction of the costs order (see (7) below); and

(e)    The balance, if any, to be paid to the respondent.

(6)    Judgment be entered in favour of the applicants against the respondent in the sum of $170,498.

(7)    The respondent pay the applicants’ costs of these proceedings as agreed or taxed.

(8)    Liberty to apply.

Associate:

Dated:    18 April 2016

Attachment

Subdivision J—Collection of money or property by Official Receiver from party to transaction that is void against the trustee

139ZQ Official Receiver may require payment

(1)    If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:

(a)    if the Official Trustee is the trustee—on the initiative of the Official Receiver; or

(b)    if a registered trustee is the trustee—on application by the trustee;

may require the person, by written notice given to the person, to pay to the trustee an amount equal to whichever of the following is applicable:

(c)    if:

(i)    the transaction is void against the trustee under section 128B or 128C; and

(ii)    the transaction is by way of a contribution to an eligible superannuation plan for the benefit of a person (the beneficiary) who may or may not be the bankrupt; and

(iii)    the beneficiary is a member of the eligible superannuation plan;

whichever is the lesser of the following:

(iv)     the money or the value of the property received;

(v)    the beneficiary’s withdrawal benefit in relation to the eligible superannuation plan;

(d)    in any other case—the money or the value of the property received.

(2)    The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.

(3)    The notice may:

(a)    require the amount to be paid at a time or within a period set out in the notice; or

(b)    require the amount to be paid at such times, and in such instalments, as are set out in the notice.

(4)    After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by a further notice given to the person, revoke or amend the first‑mentioned notice.

(5)    If the Official Receiver gives a notice under this section, the Official Receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee.

(6)    A notice to be given under this section to the Commonwealth, a State or a Territory, or to an authority of the Commonwealth, of a State or of a Territory, is taken to be duly given if it is given to a person who, by any law, regulation, appointment or authority, has the function of paying, or in fact pays, money on behalf of a Department of the Commonwealth, of that State or of that Territory, or on behalf of the authority, as the case may be.

(7)    If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.

(8)    An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction.

(9)    For the purposes of subparagraph (1)(c)(ii), disregard a benefit that is payable in the event of the death of a person.

(10)    In this section:

contribution has the same meaning as in Subdivision B of Division 3.

eligible superannuation plan has the same meaning as in Subdivision B of Division 3.

member of an eligible superannuation plan has the same meaning as in Subdivision B of Division 3.

withdrawal benefit has the same meaning as in Subdivision B of Division 3.

139ZR Charge over property

(1)    If a notice under section 139ZQ is given to a person in respect of any property:

(a)    the property is charged with the liability of the person to make payments to the trustee as required by the notice; and

(b)    if the person makes the payments or transfers the property to the trustee, the property ceases to be subject to the charge.

(2)    Subject to subsection (3), a charge under subsection (1) has priority over any existing or subsequent mortgage, lien, charge or other encumbrance over the property in favour of an associated entity of the bankrupt, and has that priority despite any other law of the Commonwealth or any law of a State or Territory.

(3)    A charge under subsection (1) does not have priority over a mortgage, lien, charge or other encumbrance in favour of an associated entity of the bankrupt if that entity satisfies the Court that that mortgage, lien, charge or other encumbrance arose from a transaction that was entered into at arm’s length and for valuable and adequate consideration provided by that entity and is not void against the trustee under Division 3.

(4)    If any property being land is subject to a charge under subsection (1), the Official Receiver may certify by signed writing that the land is subject to a charge under that subsection and may lodge the certificate with the Registrar‑General, Registrar of Titles or other proper officer of the State or Territory in which the land is situated.

(5)    The officer with whom the certificate is lodged may register the charge as nearly as practicable in the way in which mortgages over land are registered under the law in force in the State or Territory in which the land is situated.

(6)    The trustee has power to sell any property over which a charge exists under subsection (1) and, if the property is so sold, then, subject to any charges that have priority over the first‑mentioned charge, the proceeds of the sale are, to the extent of the charge, to be applied in or towards the discharge of the liability to make a payment or payments to the trustee of the person to whom the notice was given.

139ZS Power of Court to set aside notice

(1)    If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.

(1A)    The application must be made:

(a)     not later than 60 days after the day the notice under section 139ZQ was given to the applicant; or

(b)    if the applicant is another interested person—not later than 60 days after the day the applicant became aware that the notice has been given.

(2)    A notice that has been set aside is taken not to have been given.

139ZT Failure to comply with notice

(1)     A person who refuses or fails to comply with a notice under section 139ZQ is guilty of an offence punishable upon conviction by imprisonment for a period not exceeding 6 months.

(2)    If a person is convicted of an offence against subsection (1) in relation to the refusal or failure of the convicted person or another person to comply with a notice under section 139ZQ, the court that convicted the person may, in addition to imposing a penalty on the convicted person, order that person to pay to the trustee an amount not exceeding the amount, or the total of the amounts, that the convicted person or the other person, as the case may be, refused or failed to pay to the trustee in accordance with the notice.