FEDERAL COURT OF AUSTRALIA

Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1221

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth), that the estate in fee simple in the property described as Lot 2 on Registered Plan 901527, Title Reference 50141813 (the Property), vest in the applicant for the purpose of the applicant exercising its powers as mortgagee under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgage number 710981755 (Mortgage).

2.    On the vesting of the Property in the applicant pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth) the applicant:

(a)    may, but is not bound to, deal with the Property as if it were exercising its powers as mortgagee in possession under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Mortgage, including exercising the right to sell the estate in fee simple of the Property in exercise of its power of sale and all its other rights under the Mortgage;

(b)    for the purpose of selling the estate in fee simple of the Property in exercise of its power of sale, is not required to serve:

(i)    a notice of default or demand; and

(ii)    a notice pursuant to section 84 of the Property Law Act 1974 (Qld);

(c)    is entitled to calculate the entirety of the debt secured and owing pursuant to the Mortgage as including all monies that would have been secured by the Mortgage had the trustee in bankruptcy of Elizabeth Jane McKenzie not disclaimed the Property, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Property as if it were money secured by the Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Property);

(d)    shall apply the proceeds of sale from the Property as follows:

(i)    first, in payment of any statutory charges affecting the Property, which the relevant statute provides are payable in priority to the applicant;

(ii)    secondly, in payment of all costs, charges and expenses properly incurred by the applicant as incidental to the sale, or any attempted sale, or otherwise;

(iii)    thirdly, in discharge of the debt owed to the applicant secured by the Mortgage; and

(iv)    fourthly, in payment of any subsequent mortgages (if any);

(v)    the residue (if any) of the proceeds so received shall be paid into Court in this proceeding;

(e)    must, after any sale of the Property, provide an account of its payments and receipts to:

(i)    Hugh David Ramsay as trustee of the bankrupt estate of Elizabeth Jane McKenzie;

(ii)    Elizabeth Jane McKenzie; and

(iii)    the Registrar of the Court.

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

REASONS FOR JUDGMENT

RANGIAH J:

1    The applicant, Australia and New Zealand Banking Group Limited, has applied pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) for an order that a property disclaimed by the trustee of the property of Elizabeth Jane McKenzie vest in the applicant.

2    Mrs McKenzie was the registered proprietor in fee simple of land comprised in Lot 2 on Registered Plan 901527, Title Reference 50141813, situated at 1 Topview Drive at Mons in Queensland (“the property”). On 30 August 2007, Mrs McKenzie executed a mortgage over the property in favour of the applicant, which was registered on 10 September 2007 as mortgage number 710981755 (“the mortgage”). The mortgage secured a principal amount of $2,144,974 advanced by the applicant to Mrs McKenzie and Michael Robert John McKenzie.

3    Mrs McKenzie was in default under the loan agreement because she ceased to make the scheduled repayments and became bankrupt on 15 April 2015. Mrs McKenzie filed a debtor’s petition and Hugh David Ramsay was appointed as her trustee in bankruptcy. On 14 October 2015, the trustee disclaimed the property pursuant to s 133(1) of the Bankruptcy Act.

4    The applicant wishes to exercise its power of sale over the property. It is apparent from the trustee’s correspondence that the amount of the debt owed to the applicant significantly exceeds the value of the property. Accordingly, the applicant will not realise sufficient funds from the sale of the property to discharge Mrs McKenzie’s liabilities in full.

5    Section 133 of the Bankruptcy Act provides a mechanism for a trustee in bankruptcy to disclaim property when it is burdened by onerous covenants, or is unsaleable or is not readily saleable. Section 133 provides, relevantly:

(1AA)    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.

…

(1)    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.

…

(2)    A disclaimer under subsection (1) or (1A) 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.

(3)    If a trustee disclaims property whose transfer must be registered under a law of the Commonwealth or of a State or Territory of the Commonwealth, the trustee must give notice of the disclaimer as soon as practicable to the officer who has the function of registering the transfer.

…

(9)    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.

(10)    Subject to subsection (11), where an order vesting property in a person is made under subsection (9), the property to which it relates vests forthwith in the person named in the order for that purpose without any conveyance, transfer or assignment.

…

6    In the absence of a vesting order under s 133(9) of the Bankruptcy Act, a mortgagee is precluded from taking action to realise the property the subject of the security after a disclaimer has occurred: Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75 (“Rams v Skipworth (No 2)”) at [28]-[30]; National Australia Bank Ltd v The State of Victoria [2010] FCA 1230 (“NAB v Victoria”) at [15]; National Australia Bank Ltd v State of New South Wales [2014] FCA 298 at [9].

7    The State of Queensland has been joined as a party because, upon the disclaimer, the property escheated to the Crown, subject to any charges upon the land: Re Tulloch Ltd (in liq) and the Companies Act (1978) 3 ACLR 808 (“Re Tulloch”) at 812-814; Rams v Skipworth (No 2) at [8], cf National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52 at [21]. It is the conventional view that the State should be joined in any application affecting title or the right to possession of the disclaimed property: Menzies & Anor v Paccar Financial Pty Ltd (No 4) [2014] NSWCA 210 at [101].

8    In NAB v Victoria at [15], Bennett J concluded that disclaimed property does not escheat absolutely to the Crown such as to preclude the Court’s ability to make an order vesting the title in someone else, pursuant to s 133(9).

9    In order for the Court to make a vesting order in an applicant, pursuant to s 133(9), the following must be established:

(a)    there has been a disclaimer of the relevant property pursuant to s 133(1);

(b)    the applicant claims an interest in the disclaimed property within s 133(9);

(c)    the applicant is entitled to the disclaimed property, or the Court considers it to be just and equitable that it should be vested in the applicant.

See National Australia Bank Ltd v State of New South Wales [2014] FCA 298 at [11].

10    It is apparent from correspondence from the trustee that he has disclaimed the property.

11    The mortgagee of land under the Torrens system has been held to be a person with an interest in disclaimed property who is entitled to make an application for a vesting order and to receive such an order: Re Tulloch at 814; Re Woo; National Australia Bank Ltd v Leroy [2003] FCA 862 at [7]; National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52 at [29]; NAB v Victoria at [12].

12    The applicant’s interest in the disclaimed property as mortgagee is apparent from the evidence placed before the Court. The applicant holds the first and only registered mortgage over the property. The amount owing to the applicant, as secured by the mortgage, is $2,301,118 as at 15 September 2016. Mrs McKenzie is in default and has been in default since May 2014. Accordingly, the applicant has an interest in the property within the meaning of s 133(9) of the Bankruptcy Act.

13    The applicant has satisfied the criteria in s 133(9). There is no opposition to the application. The respondent, the State of Queensland, has filed a submitting notice. The trustee in bankruptcy has been served with the application, but has not appeared. The applicant is unable to sell the property under its powers of enforcement under the mortgage unless orders are made under s 133(9).

14    In these circumstances, it is appropriate that orders for the vesting of the property in the applicant be made.

Associate:    

Dated:    14 October 2016