Federal Court of Australia

Nelson (Trustee), in the matter of Warawita (Bankrupt) v Warawita [2022] FCA 1281

ORDERS

THE COURT ORDERS THAT:

1.    The application dated 11 April 2022 be allowed.

2.    The Respondent, within 14 days of the date of these orders:

(a)    deliver up to the Applicant vacant possession of 2 Jodie Close, Doveton, Victoria, 3177, being that parcel of land more particularly described in Certificate of Title Volume 09683 Folio 500 (the Doveton Property);

(b)    deliver up to the Applicant any documents in relation to the Doveton Property including any documents of title, rates notices, charges, policies or certificates of insurance, leases or other documents evidencing any encumbrance on or improvements to the Doveton Property (Documents), and all keys to the Doveton Property that are in the Respondent’s possession, custody or control; and

(c)    remove from the Doveton Property all vehicles, rubbish and chattels which have not vested in the Applicant (personal property).

3.    In the event that the Respondent fails to deliver up vacant possession of the Doveton Property, or the keys to the Doveton Property and any Documents related thereto in accordance with paragraphs 2(a) or 2(b) of this order, a warrant of possession for the Doveton Property shall issue forthwith in favour of the Applicant and for this purpose an affidavit sworn by the Applicant or his legal representative deposing to the non-compliance with this order shall, if filed, be sufficient proof to enable the issue of the warrant of possession.

4.    In the event that the Respondent fails, refuses or neglects to comply with paragraph 2(c) of this order, the Applicant may remove and dispose of any personal property as may remain at the Doveton Property as he sees fit and at the cost of the Respondent without being under any obligation to account for such personal property (the costs of doing so being deductable from the proceeds of sale of the Doveton Property).

5.    Pursuant to ss 134(1)(a), 134(1)(o) and 134(3) of the Bankruptcy Act 1966 (Cth) (the Act), the Applicant is authorised to sell the Doveton Property forthwith.

6.    The Respondent do all things and sign any documents to effect the sale of the Doveton Property, within such time as may reasonably be nominated by the Applicant.

7.    Pursuant to s 134(1)(k) of the Act, in the event that the Respondent fails to comply with paragraph 6 of this order, the Applicant is authorised and empowered to do all things and sign all documents required to effect the sale of the Doveton Property on behalf of the Respondent, including signing any contract of sale, discharge of mortgage, authority, transfer of land or other document.

8.    Pursuant to s 134 of the Act, and without limiting the powers of the Applicant as trustee pursuant to that section, the Applicant may:

(a)    engage agents to provide services and expertise reasonably necessary or appropriate to assist in the preparation for sale and selling of the Doveton Property, including but not limited to real estate agents, valuers, cleaners, tradespeople, accountants, solicitors, conveyancers and auctioneers;

(b)    sell the Doveton Property and have sole conduct of the sale of the Doveton Property;

(c)    sell the Doveton Property by private treaty, auction or tender;

(d)    if the Doveton Property is sold by auction, decide whether or not to set a reserve price and, if so decided, the reserve price;

(e)    deal with the goods and chattels deemed abandoned at the Doveton Property at his sole discretion; and

(f)    execute all documents, and take all necessary or appropriate steps on behalf of the Respondent in relation to the sale of the Doveton Property, including but not limited to the execution of any:

(i)    agreement with a real estate agent or agents, valuers, cleaners, tradespeople, solicitors, conveyancers, auctioneers or other agent;

(ii)    contract of sale;

(iii)    nomination form;

(iv)    document under the Transfer of Land Act 1958 (Vic);

(v)    notice relating to the contract of sale; and

(vi)    other document relating to the sale of the Doveton Property.

9.    The Applicant apply the proceeds of sale of the Doveton Property in accordance with s 109(1) of the Act, including by applying the proceeds of sale as follows:

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

(b)    second, in payment of any outstanding rates, taxes, charges, owners corporation fees or other outgoings affecting the Doveton Property or deriving from or associated with the ownership or maintenance of the Doveton Property up to the time of settlement on the sale;

(c)    third, in payment of all selling costs including agent’s commission, advertising and marketing expenses, conveyancing and legal costs associated with the sale;

(d)    fourth, in repayment of the costs of removal and/or disposal of any personal property remaining at the Doveton Property in non-compliance with paragraph 2(c) of this order; and

(e)    fifth, all remaining proceeds are to be paid to the Applicant as trustee of the Respondent’s bankrupt estate.

10.    The Applicant’s costs of the application are deemed to be proper costs of the administration of the Respondent’s bankruptcy.

11.    There be liberty to apply on three days’ notice.

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

REASONS FOR JUDGMENT

HESPE J:

1    By originating application dated 11 April 2022, the Applicant, Simon Nelson, as trustee of the bankrupt estate of the Respondent, seeks relief against the Respondent, including:

(1)    a declaration that the Applicant, as trustee of the bankrupt estate of the Respondent, is entitled to take vacant possession of the real property situated at 2 Jodie Close, Doveton, Victoria, being that parcel of land more particularly described in Certificate of Title Volume 09683 Folio 500 (the Doveton Property);

(2)    an order pursuant to ss 30 and 77 of the Bankruptcy Act 1966 (Cth) (the Act) that the Respondent vacate the Doveton Property within 14 days for the purpose of the Applicant, by himself, his servants or agents, taking possession of the Doveton Property; and

(3)    an order that, if the Respondent fails to give vacant possession of the Doveton Property, a warrant for possession be issued.

2    The application is supported by affidavits of the Applicant sworn on 7 April 2022, 30 June 2022 and 5 August 2022, two affidavits of Geoffrey Dunlop, a process server, both sworn on 20 May 2022, and the affidavit of Derek Begg, solicitor for the Applicant, sworn on 30 June 2022.

3    The Doveton Property is the principal asset in the bankrupt estate of the Respondent and is presently occupied by the Respondent.

Background

4    The Respondent became bankrupt on 17 May 2018 pursuant to a sequestration order made by the Federal Court. The petitioning creditor was the Deputy Commissioner of Taxation.

5    Initially, the trustee in bankruptcy was the Official Trustee in Bankruptcy. On 25 May 2018, the Official Trustee, as trustee of the Respondent’s bankrupt estate, caused a caveat to be registered on the title to the Doveton Property to record the estate’s interest.

6    On 29 June 2018, the Applicant succeeded to the role of trustee of the bankrupt estate. Following the Applicant’s appointment, the Respondent made a number of composition proposals pursuant to which the Doveton Property was to be sold.

7    On 25 September 2018, a meeting of creditors accepted a composition proposal submitted by the Respondent. The Applicant was appointed as trustee of the composition and authorised to realise certain property of the Respondent, including the Doveton Property.

8    By letter dated 26 September 2018, the Applicant as composition trustee informed the Respondent of his intention to realise the Doveton Property, and enclosed a direction and notice to vacate which gave the Respondent 30 days within which to vacate the Doveton Property.

9    The Respondent neither vacated the Doveton Property nor provided the Applicant with a proposal to vary the composition.

10    By letter dated 13 December 2018, the Applicant as composition trustee again informed the Respondent of the Applicant’s intention to realise the Doveton Property, and enclosed a further direction and notice to vacate which gave the Respondent 30 days within which to vacate the Doveton Property. By further correspondence sent on the same day, the Applicant advised the Respondent that, should he fail to comply with the notice to vacate, the Applicant would issue proceedings for possession of the Doveton Property.

11    The Respondent did not vacate the Doveton Property.

12    During February 2019, the Respondent sought to negotiate a variation to the composition that would allow him to continue to occupy the Doveton Property. The Applicant gave the Respondent time to seek to refinance the Doveton Property. No refinancing was secured by the Respondent and the composition was not varied.

13    On 19 June 2019, a meeting of creditors resolved that the Applicant should commence proceedings to enforce the terms of the composition as had been accepted on 25 September 2018. The Applicant applied to the Federal Circuit Court (as it was then styled) for orders enforcing the terms of the composition or terminating the composition and making a sequestration order.

14    Although the application was initially listed for hearing on 11 November 2019, the hearing was adjourned by consent after the Respondent (through his solicitor) put forward a proposal to vary the composition.

15    The variation sought was to permit the Respondent to continue to occupy the Doveton Property on the condition that the Respondent pay to the Applicant, in his capacity as trustee of the composition, the sum of $128,724.74 (with interest accruing from 15 January 2020) within 60 days.

16    On 25 November 2019, the variation to the composition was accepted at a meeting of creditors. The Applicant, in his capacity as trustee, wrote to the Respondent on the same day, confirming the Respondent’s obligations under the varied composition and advising the Respondent that if he failed to meet the payment obligation by 25 January 2020, he would be required to vacate the Doveton Property.

17    The Respondent failed to pay the amount required by the varied composition by 25 January 2020.

18    On 13 February 2020, the Respondent made a payment of $25,000 to the Applicant in his capacity as trustee. On the same day, the Applicant wrote to solicitors for the Respondent, requesting that the balance of the payment be made within seven days. The balance of the payment was not paid within the time specified.

19    On 8 April 2020, the Federal Circuit Court made orders by consent requiring, among other things, the Respondent to deliver up vacant possession of the Doveton Property to the Applicant by 4.00 pm on 8 October 2020.

20    On 21 July 2020, the Respondent made a further payment of $25,000 to the Applicant in his capacity as trustee.

21    The Respondent failed to comply with the order of 8 April 2020. The Applicant made an application to the Federal Circuit Court seeking the termination of the composition (as varied) and the making of a sequestration order. On 30 October 2020, the Federal Circuit Court made those orders and appointed the Applicant as the trustee of the Respondent’s bankrupt estate.

22    At a meeting between the Applicant and Respondent held on 19 February 2021, the Applicant suggested to the Respondent that, if the Respondent wanted to continue to reside in the Doveton Property, he needed to nominate a purchaser willing to purchase the available equity from the trustee, such as a friend or relative of the Respondent who might permit the Respondent to continue to reside in the property. By letter dated 23 February 2021, the Applicant provided the Respondent with a draft agreement for the sale by the Applicant of the Doveton Property and shares held by the Respondent in companies owned by the Respondent. The Applicant did not receive a response to that letter.

23    By letter dated 6 May 2021, the Applicant informed the Respondent of the Applicant’s intention to realise the Doveton Property and enclosed a further direction and notice to vacate, giving the Respondent 30 days within which to vacate the Doveton Property.

24    The Respondent again failed to vacate the Doveton Property.

25    By letter dated 29 June 2021, the Applicant informed the Respondent that, if the Respondent did not give an indication whether he intended to proceed with the sale of the bankrupt estate’s interest in the Doveton Property to a nominated party by 6 July 2021, the Applicant would commence proceedings for the possession and sale of the Doveton Property.

26    On 28 July 2021, the Applicant applied for a transmission of title in respect of the Doveton Property. The Applicant, in his capacity as trustee, is now recorded as the sole registered proprietor of the Doveton Property.

27    Having not received a response to his letter of 29 June 2021, the Applicant commenced the present proceedings.

RESPONDENT’S SUBMISSIONS

28    The Respondent opposes the application.

29    The Respondent migrated to Australia in 2000 with his wife and son. He suffers depression as a result of the breakdown of his marriage, which culminated in divorce in 2007. He accepts that he mismanaged his financial affairs.

30    At the time he was first made bankrupt in May 2018, the Respondent claims to have owned three real estate properties:

(1)    a property in Warragul (the Warragul Property);

(2)    a property in Clyde North (the Clyde North Property); and

(3)    the Doveton Property

31    The Respondent claims that the trustee in bankruptcy disposed of the Warragul Property in March 2019 at an undervalue. The proceeds of the sale by auction, in the sum of $128,000, were applied to partially discharge the secured debt owed to the ANZ bank. The Clyde North Property was sold on 11 October 2019 and the Respondent claims that the net proceeds of sale, in the sum of $82,275, were received by the Applicant.

32    The Respondent claims to have made the following payments to the Applicant:

(1)    a payment of $40,000 on 6 July 2018;

(2)    a payment of $5,000 in November 2018;

(3)    a payment of $40,000 on 11 September 2018;

(4)    the net proceeds of $82,275 from the sale of the Clyde North Property;

(5)    a payment of $25,000 on 13 February 2020; and

(6)    a payment of $25,000 on 21 July 2020.

33    Of these total payments, the Respondent claims that only $31,023.74 has been applied to repay his creditors with the balance being applied to the Applicant’s fees and costs.

34    The Respondent claims to have been unable to make the required payments to the Applicant due to his business being affected by the restrictions imposed to deal with the COVID-19 pandemic and his mental health issues. He claims his inability to secure refinancing of the Doveton Property was unsuccessful due to valuers being unable to attend the property as a result of the COVD-19 pandemic restrictions. He claims that, in November 2020, a lender was willing to loan him $100,000 secured against his equity interest in the Doveton Property if the Applicant had agreed to remove the caveat against the title to the property.

35    The Respondent claims that he will be made homeless if the Doveton Property is sold. He seeks another chance to arrange finance and pay his debts.

36    The Respondent is concerned that the Applicant will sell the Doveton Property at an undervalue and requested that he or his representatives be permitted to have “a say in the sale price”.

RESPONDent’s FINANCIAL POSItiON

37    The following is based on the evidence before the Court.

38    As at May 2018:

(1)    the Warragul Property was owned by a company of which the Respondent was the sole shareholder and director (Respondent’s company);

(2)    the Clyde North Property was owned by that same company; and

(3)    the Doveton Property was owned by the Respondent.

39    As at 17 May 2018, the Respondent owed taxation liabilities of $215,641.88, of which $31,023.73 was owed on account of Superannuation Guarantee Charge and accorded priority under ss 109(1)(e) and (1C) of the Act. Proof of debts submitted to the Applicant indicated that the Applicant also owed approximately $40,374.48 to Westpac and $2,241.81 to the HSBC Bank.

40    On 6 July 2018, the Respondent’s company made a payment of $40,000 to the Applicant as trustee.

41    By power of attorney executed on 13 November 2018, the Applicant was appointed to act on behalf the Respondent’s company in relation to the sale of the Warragul Property.

42    As at 15 November 2018, the Applicant estimated that the Respondent’s total outstanding debt (including the costs and expenses of administering his estate) amounted to $298,179, comprising:

43    In addition to the above amounts, the Applicant was also required to pay a 7% realisation charge to the Australian Financial Security Authority on all receipts received from administering the composition.

44    On 16 March 2019, the Warragul Property was sold at a public auction for $140,000 (excluding GST). Settlement occurred on 22 November 2019. As at the date of hearing, the Applicant was not aware of any creditor raising any concern in relation to the sale process or sale price obtained for the Warragul Property.

45    On 24 September 2019, the Respondent paid the sum of $40,000 to the Applicant to defray the costs of the meeting of creditors which was required to be convened in order to vary the composition.

46    Notwithstanding that the Applicant had lodged a caveat over the Clyde North Property, the Respondent’s company sold that property. The sale of the Clyde North Property settled on 11 October 2019 and the sum of $82,275 was paid to the Applicant.

47    Of the sum of $128,724.74 that the Respondent was required to pay by 25 January 2020, pursuant to the terms of the composition as varied by the agreement of creditors on 25 November 2019, the Respondent paid the sum of $50,000 (by two payments of $25,000 on 13 February 2020 and 21 July 2020).

48    By 30 October 2020, the sum of $215,771.31 had been paid to the creditors of the Respondent’s estate as follows:

(1)    petitioning creditor’s costs in the sum of $6,787.95;

(2)    superannuation guarantee charge in the sum of $31,023.74;

(3)    the Official Trustee’s remuneration and costs of $4,407.54;

(4)    remuneration to the trustee of the first bankrupt estate of $21,835 including GST;

(5)    remuneration to the trustee of the composition and varied composition of $41,117.99 including GST; and

(6)    legal fees of $72,854.07 including GST.

49    On 21 December 2021, the Applicant obtained a kerbside appraisal of the Doveton Property which estimated the value of that property to be between $550,000 and $640,000. The title to the Doveton Property records that the ANZ bank has a registered mortgage over that property which is security for a loan the bank made to the Respondent’s company. As at 14 March 2022, the outstanding balance owed in respect of that loan was $347,924.68. No payments had been made against that loan since 14 May 2021. Based on this information, the Applicant believes there is equity in the Doveton Property of approximately $200,000 to $250,000 which would be available to benefit the Respondent’s creditors.

50    As at 4 August 2022, the Applicant was aware of the following creditor claims (although proof of debts had not been received in respect of all claims):

51    The Applicant’s costs of the application to the Federal Circuit Court for the sequestration order made on 30 October 2020 are a debt provable in the bankruptcy, but those costs are yet to be quantified.

DISCUSSION

52    I am satisfied based on the evidence before me that the Respondent is a bankrupt and that the Doveton Property forms part of the property of the bankrupt in terms of the Act.

53    Upon becoming a bankrupt, the Doveton Property vested in the Applicant by operation of s 58(1) of the Act.

54    Section 30(1) of the Act provides that the Court has power to make such orders (including declaratory orders) as the Court considers necessary for the purposes of carrying out or giving effect to the Act in any case of bankruptcy.

55    Section 77(1) of the Act relevantly provides:

(1)    A bankrupt shall, unless excused by the trustee or prevented by illness or other sufficient cause:

…

(b)    attend the trustee whenever the trustee reasonably requires; and

…

(e)    execute such instruments and generally do all such acts and things in relation to his or her property and its realization as are required by this Act or by the trustee or as are ordered by the Court upon the application of the trustee; and

…

(g)    aid to the utmost of his or her power in the administration of his or her estate.

56    The evidence before me establishes that the Respondent occupies the Doveton Property and, despite negotiation and exchanges with the Applicant over a prolonged period, the Respondent has not furnished evidence that he has satisfied his creditors’ debts. Nor has the Respondent complied with the direction and order of the Federal Circuit Court that the Doveton Property be vacated. The evidence establishes that the Doveton Property forms part of the bankrupt estate. The Applicant asserted his belief that no third party had an entitlement to the Doveton Property as against the Applicant as trustee (save for the secured creditor). The Respondent’s statement of affairs gave no indication that any third party asserted or held an interest in the Doveton Property.

57    As the trustee’s attempts to deal with the Respondent have proved fruitless, the orders sought appear necessary for the purposes of carrying out or giving effect to the Act. There is no apparent alternative means for discharging the debts and the costs of the bankruptcy. The sale of the Doveton Property is necessary in order for the trustee to administer the bankrupt estate. The Respondent’s vacation of the property is a necessary step in that administration.

58    Although this is stressful to the Respondent, the Applicant has established all of the elements necessary to justify the making of orders in the nature of those he seeks. The Doveton Property is vested in the Applicant who is the sole registered proprietor. Its sale is necessary in order for the Applicant to recover amounts for the benefit of the creditors.

59    The Applicant is an experienced trustee in bankruptcy subject to the duties imposed by the Act. The Court is not satisfied that allowing the Applicant to “have a say in the sale price” will advance the administration of the bankrupt estate.

60    The Respondent has sought to take issue with the remuneration and expenses incurred by the Applicant. The contentions appear to have no basis in any event. It is the role of the Inspector General in Bankruptcy to oversee the performance by trustees in bankruptcy of their powers, duties and functions. It is not part of the Court’s role in this proceeding.

61    The Applicant provided draft orders which would in effect allocate the proceeds of sale first to the payment of selling costs, then to the payment of outstanding charges payable on settlement and thereafter to the ‘secured creditor’.

62    As explained above, the ANZ Bank holds a registered mortgage over the Doveton Property as security for a loan not made to the Respondent, but to the Respondent’s company.

63    In circumstances where the sale will proceed solely at the Applicant’s initiative, the Court does not accept that the Applicant should receive amounts to cover the costs of the sale in priority to the discharge of the ANZ mortgage.

64    There will be orders accordingly.

Associate:

Dated:    28 October 2022