Federal Court of Australia

Allen (Trustee), in the matter of Riak v Anyar [2022] FCA 819

ORDERS

THE COURT ORDERS THAT:

1.    The respondents, within 42 days, are to deliver up vacant possession of the property known as 23 Woodland Rise, Harkness, Victoria 3337, more particularly described in certificate of title volume 10776 folio 018 (the Harkness Property).

2.    In the event that the respondents fail to deliver up vacant possession of the Harkness Property within 42 days, a warrant for possession shall issue forthwith in favour of the applicant.

3.    The Applicant be appointed as trustee for sale of the Harkness Property, with all the obligations and privileges pertaining thereto, including:

(a)    signing for and on behalf of the first respondent any contract for the sale of land and any transfer; and

(b)    determining the price at which the Harkness Property is to be sold, and the method of sale.

4.    Upon completion of the sale of the Harkness Property, the proceeds of sale be distributed in the following manner and priority:

(a)    first, in discharge of any valid encumbrance over the title to the Harkness Property;

(b)    second, towards all statutory levies, rates and charges payable on settlement of the sale of the Harkness Property;

(c)    third, one half of the remaining balance to the first respondent;

(d)    fourth, in payment of the commission and other fees or expenses of any real estate agent employed by the applicant;

(e)    fifth, towards the remuneration, costs and expenses of the applicant incurred in acting as trustee for sale of the Harkness Property; and

(f)    finally, to the applicant.

5.    The applicant shall serve a copy of this order on the registered mortgagee of the Harkness Property forthwith.

6.    The registered mortgagee of the Harkness Property has leave to make any application in this proceeding concerning the orders made within 28 days service of the order.

7.    The first respondent is to pay the Applicant’s costs of this proceeding on a party and party basis, to be assessed in default of agreement in accordance with the court’s costs practice note (GPN-COSTS).

8.    The applicant’s costs of this application are otherwise deemed to be proper costs of administering the second respondent’s bankrupt estate.

9.    The parties have liberty to apply on 3 days’ notice.

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

REASONS FOR JUDGMENT

Ex tempore

(Revised from transcript)

SNADEN J:

1    The applicant is the trustee of the second respondent’s bankrupt estate. The first respondent is the second respondent’s husband. By an amended originating application (for the filing of which leave was granted on 13 July 2022), the applicant seeks orders in relation to two properties, including one in which the respondents presently reside. Specifically, he seeks orders to require that the respondents deliver to him vacant possession of the properties, and to permit him to oversee their sale and the distribution of the proceeds thereof.

2    For the reasons that follow, the applicant is entitled to the relief (or the alternative form thereof proposed when the matter was brought on for hearing) for which he moves. Orders largely (although not entirely) in the form that he proposes shall be made.

3    The matter pertains to two properties, namely:

(1)    6 Killarney Drive, Melton, Victoria (more particularly described in certificate of title volume 10616, folio 965—hereafter, the “Melton Property”); and

(2)    23 Woodland Rise, Harkness, Victoria (more particularly described in certificate of title volume 10776, folio 018—the “Harkness Property”).

4    The respondents presently reside at the Melton Property.

5    Prior to the commencement of the second respondent’s bankruptcy in 2019, both of those properties were owned jointly by the respondents. Upon his appointment as trustee, the second respondent’s interests in the properties vested with the applicant: Bankruptcy Act 1966 (Cth) (the “Act”), s 58. Those interests were subsequently formalised: relevantly for present purposes, he became on 9 November 2020 the registered proprietor as tenant in common of 1 of 2 equal and undivided shares in the Harkness Property.

6    The second respondent is indebted to various unsecured creditors in the sum of approximately $285,000.00. Over the three-year period of her bankruptcy, additional fees have been incurred that place the estimated total sum necessary to annul her bankruptcy now at in excess of $645,000.00. There is not presently any challenge to any of the constituent figures that comprise that total estimated sum.

7    The two properties are estimated to be worth approximately $1.5 million combined. Mortgages (or other securities) totalling approximately $700,000.00 attach to them. The debts of the second respondent’s estate well exceed what is estimated to be half of the net realisable value of each property. For that reason, the applicant initially sought orders in relation to both of them. That was revised over the course of the hearing and the orders that are now sought concern only the Harkness Property.

8    As is to be expected, the applicant has engaged with both of the respondents concerning the relief for which he has applied. Initially, there was some attempt by them to explore ways of refinancing their commitments so as to annul the second respondent’s bankruptcy. However, no such measures have been realised.

9    The application was listed for hearing on Wednesday, 6 July 2022. At that point, the first respondent was the only respondent to the action. He and his wife had refrained from communicating with the applicant for approximately two years and he was in default of various procedural orders that the court made by way of case management.

10    Nonetheless, at the hearing on that day, the first respondent appeared by his solicitor, Mr Mayek. Mr Mayek indicated to the court that he had received instructions to act for the first respondent (then the only respondent) only that morning and asked that the matter be adjourned. That was opposed and, for reasons given at the time, the matter was not adjourned.

11    Thereafter, the court had occasion to engage with counsel for the applicant as to two matters, following which it was agreed that the matter should be adjourned so that the applicant might take instructions about making an application to join the second respondent to it. Unsurprisingly, the first respondent, having earlier failed in his own quest to adjourn, did not object to that course. The hearing was adjourned to Wednesday, 13 July 2022.

12    On Thursday, 7 July 2022, the applicant indicated that he intended to make the foreshadowed application to amend the originating application so as to join the second respondent. A draft amended originating application was prepared and subsequently served on both respondents.

13    On Wednesday, 13 July 2022, I granted the applicant leave to file the originating application in the form proposed. That course was not opposed. The substance of the amendments are straightforward: they contemplate that orders might be made against both respondents requiring that they deliver up vacant possession of the two properties to the applicant, so that he might then take steps to have them sold. As has been stated, that was revised at the hearing such that possession and sale is now sought only in respect of the Harkness Property. It may be that further steps are taken later in relation to the Melton Property, if necessary.

14    Mr Mayek obtained instructions to appear also for the second respondent and did so at the hearing that resumed on Wednesday, 13 July 2022. He sought to oppose the relief that the applicant sought on the basis that “…it would not be ‘just and fair’ for the Melton Property to be sold in circumstances where the Harkness Property has an average realisable value…sufficient to repay the Second Respondent’s unsecured creditors”.

15    It is by no means clear that that proposition will hold true, at least not insofar as the total estimated cost of annulling the second respondent’s bankruptcy—now well above the initial value of the debt that occasioned it—is considered. Nonetheless, the respondents’ position is that they should have time—which is to say additional time, over and above the very substantial period that they have already had—to explore the possibility of refinancing their commitments on the Harkness property in such a way that might avoid the need for the sale of the other or possibly both properties.

16    The respondents also sought to have the court make orders requiring the refinancing of their loans on the two properties. It was not clear what form such an order might assume. To the extent that it was envisaged that the court might make orders requiring that loan facilities be amended, extended or executed, it was quite unclear to me how or in what circumstances the court might entertain such measures. Even assuming that the court might possess the power to make such orders, I do not consider that they should here be made. Refinancing of the respondents’ obligations is a matter for them. In the present circumstances, I do not consider it appropriate to require that the applicant—or anybody else—submit to any obligation that refinancing might envisage, as the submission appeared to contemplate.

17    The court’s jurisdiction to make orders requiring that the respondents deliver vacant possession of the two properties was (and is) not in doubt. Insofar as concerns the second respondent, that jurisdiction is conferred by s 30(1)(b) of the Act; and, more particularly, by its interaction with the obligations imposed upon bankrupts by s 77 of the Act. Insofar as concerns the first respondent, it arises at least by means of accrual: see Federal Court of Australia Act 1976 (Cth), s 32(1).

18    There is also little doubt as to the court’s power to grant the other relief for which the applicant moves. Some complication arises in that regard from the fact that relief is sought against the first respondent, who is not a bankrupt. Sec 30(1)(b) of the Act does not confer upon this court a power to interfere with the property interests of non-bankrupts: Coshott v Prentice (2014) 311 ALR 428, 435 [20] (Siopis, Katzmann and Perry JJ). To the extent that the applicant moves the court for orders to facilitate the sale of the properties to which this application relates—and, thereby, to interfere with the interests therein that the first respondent possesses—an alternate source of power is required.

19    It is to be found in the form of Part IV of the Property Law Act 1958 (Vic). In identified circumstances, those provisions empower the Supreme Court of Victoria to make orders for the sale of co-owned property: Property Law Act 1958 (Vic), ss 228, 234C(4) and 234D. In circumstances such as the present, equivalent powers are conferred upon this court by s 79 of the Judiciary Act 1903 (Cth): Pekar v Holden [2017] FCA 596, [43]-[47] (Tracey J).

20    I am satisfied that it is appropriate to exercise those powers in the present matter. The respondents have, to date, not taken any steps (and certainly none of any sufficiency of which the court was made aware) to assist the applicant to discharge his statutory obligations as trustee of the second respondent’s bankrupt estate. The trustee requires the proceeds of sale in order that he might recover for the second respondent’s creditors the amounts that they are owed (or some portion of them). Orders in the nature of those now sought, although unfortunate, are not novel and there is no reason why they should not now be made.

21    In saying so, I should not wish to discourage any efforts that the respondents might now make to secure funds sufficient to avoid the possession and sale of their properties (and, in particular, their family home). Such efforts perhaps ought to have been pursued—or pursued with greater vigour than they appear to have been—well before now. Indeed, the passage of time and the inevitable accumulation of expense in administering the second respondent’s bankruptcy have worked very much to the respondents’ disadvantage. Nonetheless, there is no suggestion that the bankruptcy has been administered in anything other than a proper manner; and it is appropriate that the second respondent’s creditors should be able, via the applicant, to avail themselves of the machinery for which the Act provides.

22    Although I will accommodate a timeframe more generous to them than the one proposed by the applicant—and, thereby, give them yet further opportunity to make arrangements to annul the second respondent’s bankruptcy in a way that might avoid them losing their properties—there is not any real basis upon which the respondents might resist what the applicant seeks to set in train.

23    Before concluding, something might be said about the order in which the applicant proposes to allocate the sale proceeds of the Harkness Property. It is proposed that those proceeds should be allocated first to the discharge of applicable securities and to any statutory charges payable on settlement, and then to the trustee’s costs of, and remuneration for activities associated with, the sale. Thereafter, the trustee proposes that he should withdraw an amount for his costs of the proceeding (a topic to which I shall shortly return), following which the balance is to be evenly split as between the first respondent and the applicant.

24    I do not accept that the trustee should receive amounts to cover the costs of the sale or his activities in that endeavour in priority to or from funds otherwise payable to the first respondent. The sale (if it proceeds), will proceed solely at the applicant’s initiative. There is no obvious reason why the first respondent should have to pay for it. This court has made orders in the past consistent with the notion that such costs are costs of administering a bankrupt estate, rather than costs to be borne by a non-bankrupt co-owner: see, by way of recent example, Scott (Trustee) v Le [2021] FCA 1364 (Moshinsky J); see also Le v Scott as trustee of property of Chanh Tam Le, a Bankrupt [2020] FCAFC 12, [10] (Kerr, Anastassiou and Anderson JJ).

25    That leaves for consideration the issue of costs. They should follow the event. It was accepted that the first respondent should pay the applicant’s costs of the application. Those costs should be assessed in default of agreement in the usual way. In saying so, I do not accept that the applicant’s costs of the proceeding should—or even necessarily could, given the timeframes that the orders contemplate—be deducted from any proceeds from the sale of the Harkness Property. They will need to be discussed and agreed—and, failing agreement, assessed—in the usual way and the order that I will make will reflect that. To the extent not recoverable by such an order, the applicant’s costs should and will otherwise be deemed proper costs of the bankruptcy of the second respondent.

26    The parties will otherwise have liberty to apply on three days’ notice.

Associate:

Dated:    15 July 2022