Federal Court of Australia

Taylor (Trustee), in the matter of Behennah (Bankrupt) v Behennah [2026] FCA 1332

ORDERS

THE COURT NOTES THAT:

The following definitions apply in these declarations and orders:

A.    ‘Bankrupt Estate’ means the estate of the Bankrupt administered under the Bankruptcy Act by the trustee.

B.    ‘Bankrupt’ means the Respondent, Robert Duncan Ashton Behennah of Unit 2, 5 Bay View Street, Lavender Bay NSW 2060.

C.    ‘Bankruptcy Act’ means Bankruptcy Act 1966 (Cth).

D.    ‘CAP Liability’ means the Bankrupt’s liability under section 139P of the Bankruptcy Act to pay a contribution to the Trustee in respect of his income for the CAPs.

E.    ‘CAPs’ means the contribution assessment periods (within the meaning of section 139K of the Bankruptcy Act) commencing on 20 October 2022 and ending on 19 October 2023, and commencing on 20 October 2024 and ending on 19 October 2025.

F.    ‘Discount’ means the difference between the market value of each of the Shares as it was on the close of the trading day before that share vested (or purported to vest) on the Bankrupt and the amount or consideration the Bankrupt gave for that share.

G.    ‘Shares’ means the 21,043 shares of Cisco Systems, Inc, a company domiciled in the United States of America and trading as CSCO on NASDAQ, which vested (or purportedly vested) on the Bankrupt between 10 November 2022 and 21 September 2023.

THE COURT DECLARES THAT:

1.    Pursuant to s 90-15(1) of the Insolvency Practice Schedule (Bankruptcy), being Schedule 2 to the Bankruptcy Act:

(a)    the Shares constituted income for the purposes of Division 4B of Part VI of the Bankruptcy Act;

(b)    the income received by the Bankrupt during the CAPs is to be determined by using the market value of the Shares as at the close of the trading day before the Shares vested in the Bankrupt;

(c)    the Discount does not constitute income for the purposes of Division 4B of Part VI of the Bankruptcy Act;

(d)    to the extent any Shares remained after satisfaction of the Bankrupt’s CAP Liability, those Shares:

(i)    constituted after-acquired income of the Bankrupt;

(ii)    did not constitute after-acquired property within the meaning of s 58 of the Bankruptcy Act; and

(iii)    vested in the Bankrupt; and

(e)    any funds realised from the sale of the balance of the Shares which were not required to be sold to meet the Bankrupt’s CAP Liability constitute after-acquired property within the meaning of s 58 of the Bankruptcy Act.

THE COURT ORDERS THAT:

2.    The applicant be indemnified from the assets of the Bankrupt Estate for his costs incurred in connection with these proceedings.

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

REASONS FOR JUDGMENT

NEEDHAM J:

Background

1    The applicant is the trustee of the bankrupt estate of the respondent, Robert Behennah. The trustee seeks declarations and directions from the Court as to the proper characterisation of certain shares which vested in Mr Behennah after the commencement of the bankruptcy.

2    The parties were agreed at the hearing that the shares constituted income of Mr Behennah, as they were shares allocated by reason of his employment with Cisco Systems Australia Pty Ltd (Cisco Australia), and later Dayforce Australia Pty Ltd (Dayforce Australia). The Amended Originating Application defines those shares as being:

11.     Cisco Shares means the 21,043 shares of Cisco [Systems, Inc] which vested (or purportedly vested) on the Bankrupt between 10 November 2022 and 21 September 2023 and which continue to be held (or purportedly held) by the Bankrupt;

…

13.     Dayforce Shares means the 2,357 shares of Dayforce [, Inc.] which vested (or purportedly vested) on the Bankrupt on 4 August 2025 which continue to be held (or purportedly held) by the Bankrupt and any future shares of Dayforce to be vested (or purportedly vested) on the Bankrupt prior to his discharge from bankruptcy;

…

15.     Shares means the Cisco Shares and Dayforce Shares collectively

3    After preparation of these reasons and shortly before the delivery of this judgment, the trustee’s solicitors sent an email to my chambers, with the consent of the respondent, notifying the Court of material developments in the proceedings. In particular, I have been informed that:

(a)    5,700 Cisco Shares were sold pursuant to a Direction Letter executed by Mr Behennah in August 2025, with the proceeds of that sale received by the trustee in December 2025;

(b)    the remaining Cisco Shares have since been sold, with the proceeds currently being held by the trustee in a designated interest-bearing account pending the outcome of the Amended Application;

(c)    Mr Behennah’s employment with Dayforce Australia terminated on 30 January 2026 pursuant to a Separation Agreement dated 23 January 2026; and

(d)    as a consequence of the developments in (a) to (c), the trustee understands that no Shares remain vested or pending in Mr Behennah’s name.

4    The current status of the Cisco Shares is therefore that all shares have been sold and no further shares remain registered in Mr Behennah’s name, with the proceeds of sale of those shares being held by the trustee pending the outcome of this judgment. As the trustee believes that no Dayforce Shares remain registered in Mr Behennah’s name, he no longer presses for any relief in relation to those shares and as sought in the Amended Application.

5    These developments bear upon the utility of a determination of the questions before me. For example, two of the questions for determination relate to the characterisation of the Shares under the Bankruptcy Act 1966 (Cth) prior to any sale. Now that no Cisco Shares remain registered in Mr Behennah’s name and the trustee no longer presses for any relief in relation to the Dayforce Shares, the determination of those questions may have little practical relevance. Nevertheless, aspects of this judgment are still of assistance to the parties, including the characterisation of the proceeds of sale of the Cisco Shares.

6    I have therefore proceeded to publish this judgment, including the issues relating to the Shares originally agitated. However, the reasons below are based on the status quo ante and do not take into account the sale of the Cisco Shares and the termination of Mr Behennah’s employment with Dayforce Australia. I have not proceeded to make declarations in relation to matters where there is no longer a factual basis on which to do so.

Questions for determination

7    The proceedings arise by way of the trustee seeking advice as to how the Shares (as defined above), or their proceeds of sale, should be characterised in the administration of Mr Behennah’s estate.

8    There are three primary questions which the trustee seeks to have resolved by the Court with respect to the Shares. Those questions, and their answers for the reasons set out below, are as follows:

Question 1: Do the Shares which have vested in Mr Behennah constitute (as a whole):

(a)     “income” for the purposes of Division 4B of Part VI of the Bankruptcy Act; or

(b)    “after-acquired property” for the purposes of s 58(6) of the Bankruptcy Act?

Answer: (a).

Question 2: Assuming the Shares (as a whole) constitute “income” for the purposes of Division 4B of Part VI of the Bankruptcy Act, are the balance of the Shares, being such shares as remain after the satisfaction of Mr Behennah’s income contribution obligations:

(a)     “income” for the purposes of Division 4B of Part VI of the Bankruptcy Act which vests in Mr Behennah; or

(b)    “after-acquired property” for the purpose of s 58(6) of the Bankruptcy Act, and accordingly, constitute property which is divisible among creditors?

Answer: (a).

Question 3: Assuming the Shares which remain after the satisfaction of Mr Behennah’s income contribution obligation constitute income which vests in Mr Behennah, do the proceeds from any future sale of the Shares constitute:

(a)     “income” for the purposes of Division 4B of Part VI of the Bankruptcy Act which vests in Mr Behennah; or

(b)     “after-acquired property” for the purpose of s 58(6) of the Bankruptcy Act, and accordingly, constitute property which is divisible among creditors?

Answer: (b).

9    The trustee also raises subsidiary questions in the event that the Shares are found to constitute “income”, as I have found they do. Those questions, and their answers, are as follows:

Subsidiary Question 1: Is Mr Behennah’s income properly calculated by reference to the market value of the Shares at the time they vested in him, or ought that income also include any increase in the value of the Shares during the relevant income contribution period?

Answer: The income is properly calculated by reference to the market value of the Shares when they vested in Mr Behennah.

Subsidiary Question 2: Is any increase in the capital value of the Shares to be properly taken into account as additional income, noting that some Shares have been (and more may need to be) sold to meet Mr Behennah’s income contribution liability?

Answer: Yes.

Subsidiary Question 3: Does the fact that the sum of $31,864.91 was deducted from Mr Behennah’s salary in exchange for his participation in the Cisco ESS have any impact upon the calculation of Mr Behennah’s income referable to the vesting of the Shares?

Answer: No.

Relevant facts

10    The facts are not in dispute.

11    On 5 May 2021, Cisco Australia made an offer of employment to Mr Behennah, which he accepted on 14 May 2021. The employment offer included, under the heading “Discretionary Benefits”, that “[y]ou may be eligible to participate in Cisco Group employee stock plans as established from time to time”, and “[s]ubject to approval … you will receive a Cisco new-hire restricted stock unit grant at a value of 900,000 USD.”

12    Between 20 September 2021 and 11 October 2022, Mr Behennah entered into a number of Stock Unit Agreements with Cisco Systems Inc, a Delaware corporation (Cisco USA) under the 2005 Employee Stock Incentive Plan (Cisco ESS). Mr Behennah’s payslips indicate that an amount of $31,864.91 was deducted from his salary in connection with his participation in the Cisco ESS, although it is not clear what that sum represents. At paragraph 10 of the trustee’s first affidavit, the terms of the Cisco ESS are summarised as follows:

i.    employees receive Restricted Stock Units (RSUs) in Cisco, which represent a right to receive Cisco shares upon the fulfillment of certain conditions;

ii.    upon the fulfillment of certain conditions, common stock in Cisco would be issued to the employee at no monetary cost, and for no consideration; and

iii.    the RSUs and the vesting of common stock are treated as an ESS for the purposes of Australian taxation legislation, and at the point in time the RSUs vest and common stock is issued to the employee, any discount on the shares (being the total market value of the shares, given that the common stock is issued under the EES for no consideration) is treated as part of the employees assessable income (Discount)

13    On 20 October 2022, a sequestration order was made with respect to Mr Behennah’s estate and the trustee was appointed as trustee of his bankrupt estate.

14    On 12 June 2023, Mr Behennah and Cisco Australia entered into a Termination Agreement. With respect to the RSUs, that agreement stated that Cisco Australia was to procure the acceleration of the vesting of 151,068 RSUs which were otherwise to vest after the termination date, such that those RSUs would vest (or purport to vest) on Mr Behennah, and Cisco’s common stock to be issued (or purport to be issued) to Mr Behennah on the termination date. The termination date was 12 September 2023, or an earlier date if elected by Mr Behennah.

15    On 18 December 2023, Mr Behennah’s solicitors provided the trustee with a holding statement evidencing that he held 24,464 shares in Cisco USA, comprising 3,421 shares which vested in him prior to his bankruptcy and 21,043 shares which vested in him after the commencement of his bankruptcy. The shares which vested in Mr Behennah after the commencement of his bankruptcy had a market value at the time of vesting of approximately AUD $1,681,938.34.

16    On 30 April 2024, the trustee issued an income assessment on Mr Behennah for the contribution assessment period from 20 October 2022 to 19 October 2023 (CAP 1). That income assessment referred to the decision in Di Cioccio v Official Trustee in Bankruptcy [2015] FCAFC 30; 229 FCR 1 (Edmonds, Gordon and Beach JJ), and stated that, in the trustee’s view, the balance of any shares remaining after the satisfaction of Mr Behennah’s income contribution liability would vest in the trustee for the benefit of creditors as after-acquired property of Mr Behennah.

17    On or around 1 May 2024, Mr Behennah commenced employment with Dayforce Australia. Mr Behennah’s employment agreement with Dayforce Australia provided that he may participate in the Dayforce Employee Incentive Plan (Dayforce EIP).

18    On 25 June 2024, Mr Behennah submitted an application for a review of the trustee’s CAP 1 income assessment. That application annexed submissions which contended that the Cisco Shares could not both be income and after-acquired property, and distinguished the decision in Di Cioccio from Mr Behennah’s circumstances (see Exhibit BAT-1 to the trustee’s first affidavit commencing at p 357). The Inspector-General found that he “does not have the power to determine whether or not particular property is after-acquired property of a bankrupt estate … [t]he Inspector General does not have the power to order a trustee to act in a particular manner”.

19    The Amended Application seeks judicial guidance pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy) (IPS), being Schedule 2 to the Bankruptcy Act, and (in the alternative) an opinion, advice, or direction of the Court pursuant to s 63 of the Trustee Act 1925 (NSW). Section 90-15 allows the Court to make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate, which includes “an order determining any question arising in the administration of the estate” (sub-s 90-15(3)(a)).

20    The trustee, in seeking a determination under s 90-15 of the IPS, was not advancing a particular position in an adversarial sense, but seeking advice as to the tensions in the relevant authorities, and guidance as to how the legislation should apply to this particular circumstance. Mr Foley for the trustee sought to set out the questions in dispute and Mr Hegarty for Mr Behennah was able to argue for his contentions.

21    Mr Behennah is a bankrupt until 2 December 2030. The Shares are worth a not-insubstantial amount of money and so these proceedings have an impact on the administration of the bankruptcy.

22    With those facts in mind, upon which no questions of credit arise, and the parties’ helpful distillation of the questions, I will deal with each of the questions in turn.

Question 1: Do the Shares (as a whole) constitute income for the purposes of Division 4B of Part VI of the Bankruptcy Act, or after-acquired property for the purpose of s 58(6) of the Bankruptcy Act?

23    The parties are agreed that the Shares constitute “income”. That is because they were received in exchange for Mr Behennah’s services pursuant to his terms of employment, and for no consideration. This falls within the definition of s 139L of the Bankruptcy Act, in that “income” has “its ordinary meaning”. The definition includes “a payment to the bankrupt in consequence of a termination of … employment”: s 139L(1)(a)(ii). Income vests in the bankrupt, rather than the bankrupt’s trustee, subject to the bankrupt’s obligations to make a contribution under Division 4B of Part VI of the Bankruptcy Act: see Barwick v Goodridge [2011] NSWSC 1233; 255 FLR 245 at [24] (Black J).

24    The trustee’s evidence included the terms of Mr Behennah’s employment agreements and the terms of the employee share schemes themselves. It is clear that Mr Behennah’s right to the Shares originated in the context of his employment and so the Shares “have the character of income when received, since they … originate[d] in the provision of his services …” (Barwick v Goodridge at [31] per Black J, citing Lockwood v Vince [2007] FCA 1946; 166 FCR 305 at [15] and Re Sharpe; Ex parte Donnelly (1998) 80 FCR 536). It matters not whether the income in the form of the Shares were personal earnings by Mr Behennah acquired prior to the bankruptcy: see Barwick v Goodridge at [40].

25    The trustee submitted that the Shares constitute income within the meaning of Division 4B of Part VI of the Bankruptcy Act for this reason. The respondent agreed. Having reviewed the authorities above, I agree that the Shares constitute ‘income’ and the answer to question 1 is (a).

Question 2: Do the balance of the Shares which remain after the satisfaction of the Bankrupt’s income contribution obligations constitute income for the purposes of Division 4B of Part VI of the Bankruptcy Act, or after-acquired property for the purpose of s 58(6) of the Bankruptcy Act?

26    The answer to this question impacts Mr Behennah because if the Shares are income, they are (subject to his income contribution obligations) his own, and if they are after-acquired property, they would constitute property which is divisible among creditors.

27    Section 58 of the Bankruptcy Act is headed “Vesting of property upon bankruptcy – general rule”, and sub-s (6) provides:

In this section, after-acquired property, in relation to a bankrupt, means property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt.

28    After-acquired property vests in the bankrupt’s trustee (s 58(1)(b)); but after-acquired income does not so vest.

29    On the facts of this case, the parties are agreed that if the Shares are not sold, they remain income which is vested in Mr Behennah, and not after-acquired property. The analysis which leads to this position is derived from Re Gillies; Ex parte Official Trustee in Bankruptcy (1993) 42 FCR 571 (French J) at 576-7 where his Honour described Division 4B of the Bankruptcy Act as a “comprehensive scheme … which approaches a code for dealing with after-acquired income of the bankrupt”: see also Re Hawkins; Ex parte Worrell (1996) 71 FCR 371 at 375 per Spender J.

30    Again, the parties are agreed that the balance of the Shares remaining after contribution (IRAC) continue to constitute income. This is consistent with the decisions of Re Gillies and with Ambrose v Badcock, in the matter of Badcock [2021] FCA 1647 discussed in detail below. I agree with this position and find that the answer to question 2 is (a).

Question 3: Do the proceeds of any future sale of the Shares constitute income for the purposes of Division 4B of Part VI of the Bankruptcy Act, or after-acquired property for the purpose of s 58(6) of the Bankruptcy Act?

31    The question upon which the parties do not agree arises out of the status of any Shares which are sold. Once they are sold, do the proceeds retain that character of income, or are they after-acquired property, and thus property divisible under ss 58(1) and 116(1) of the Bankruptcy Act?

32    The Bankruptcy Act allows particular kinds of property to be acquired and retained. The list of such kinds of property in s 116(2) operates as an exception to after-acquired property which vests in the trustee. The Full Court in Di Cioccio at [34] said, in effect, that if an item of property is acquired by the bankrupt and it is not listed in s 116(2), “then it is caught by s 116(1) and is divisible amongst the bankrupt’s creditors” – s 116 being concerned with property, “not with the character of the property as income or capital”.

33    The trustee submitted that there was a tension between what the Full Court said in Di Cioccio and the approach of French J in Re Gillies. The respondent submitted that Di Cioccio was distinguishable on its own facts.

34    In Di Cioccio, the Full Court said at [32] that the scheme of the Bankruptcy Act allowing the bankrupt to retain and acquire property has limits as to the kinds and value of that property; “until discharged, the Act does not permit a bankrupt to commence acquiring all kinds of assets to the detriment of a bankrupt’s creditors”. The reasoning in Di Cioccio was that, as s 116(2) of the Bankruptcy Act does not expressly refer to property purchased by a bankrupt using IRAC, that fact does not exempt after-acquired property from being divisible amongst creditors: see [34] of Di Cioccio, “The answer is no”.

35    There is a factual difference between Mr Behennah’s shares and the shares in Di Cioccio, because Mr Behennah’s shares are income and Mr Di Cioccio’s shares were purchased with income. The question of whether assets in the latter category were after-acquired property for the purposes of s 58(1)(b) was the subject of a preliminary view by French J in Re Gillies that such property vested in the trustee in the following terms (at 577):

I am inclined to the view that assets purchased by a bankrupt with after-acquired income will, if not within any of the excluded categories in s 116(2), constitute property divisible among the creditors and vest in the trustee. In my opinion, however, no final decision should be given on this point which is still rather hypothetical.

36    In Ambrose, White J set out a number of cases where French J’s inclination has been followed or referred to with approval (at [45], which I do not set out here for reasons of length). After pointing to those decisions, White J went to the decision of EM Heenan J in Rodway v White [2009] WASC 201; 233 FLR 262 at [51] where his Honour noted that income “generally means money (or other valuable consideration) itself constituting property, obtained by a person over some period”. His Honour noted the difficulties between a situation where the income remained in the form in which it was earned, or:

… a situation where income is received in cash, and is then converted by the recipient to a credit in a bank or deposit account, and is then transferred to a second, third or subsequent bank or deposit account, each transition constituting, strictly speaking, the acquisition of property in the form of the subsequent account or accounts.

37    EM Heenan J agreed with French J in Re Gillies that where income (in cash or in specie) is converted into a “distinctly different form of property”, then that “will result in the acquisition of after-acquired property divisible among creditors and so vest in the trustee, unless within any of the categories excluded by s 116(2)” (at [66]).

38    Charlesworth J in Gittins v Field (Trustee) [2018] FCA 976 took the view at [59] that “[t]he closing paragraphs of the judgment in Di Cioccio appear to be an unexplained departure from the historical position that the income of a bankrupt does not vest in the trustee”. Similarly in Devine v State of Queensland [2020] QSC 229; 5 QR 280 there was a recognition by Holmes CJ that there was a tension between Di Cioccio and Re Gillies. The Chief Justice noted that had the Full Court been intending a “major departure from the reasoning and result in Re Gillies”, “one would expect… that to have been said, given the volume of judicial approval of the case over the years” (at [36]).

39    I note here that the Full Court in Di Cioccio at [26] cited Re Gillies as being the first in a list of cases in which the issue of whether property acquired “using money or a credit to a bank account representing income previously derived during the bankruptcy that was below the actual income threshold amount” was after-acquired property, and noted that that issue “has not been decided authoritatively”, but did not afterwards revert to the closing statement of French J cited above from Re Gillies. Neither the trustee nor Mr Behennah sought to distinguish the facts in Re Gillies on the basis that Mr Gillies’ after-acquired property was acquired with income below the threshold, and any property to be acquired by Mr Behennah after sale of the Shares would be with IRAC.

40    The trustee took me to Meriton Apartments Pty Limited v Industrial Court of New South Wales [2008] FCAFC 172; 171 FCR 380 (Branson, Greenwood and Perram JJ) and cited considerations of ss 116 and 58 of the Bankruptcy Act by each of Greenwood J and Perram J, the latter of which expressed the tension as being between restrictions on the use of income to purchase items outside s 116(2) on the one hand, and the work that s 58(1)(b) can do on the other. Perram J discussed the “obvious injustice” of protecting IRAC from creditors but not allowing a bankrupt to buy anything except s 116(2) items without it being immediately designated after-acquired property (at [235]-[236]). Greenwood J took this issue a little further and determined that property acquired through expenditure of income retained by the bankrupt under s 116(2)(c) or Division 4B is not specifically brought within s 116(1) as property divisible amongst creditors (at [140]). However, as the case was decided on the validity of an assignment of property, the discussion of the question at hand could be seen to be obiter.

41    White J, in Ambrose at [63], dealt with this tension (although not referring to the Meriton Apartments decision) by distinguishing the ratio in Di Cioccio as not being directed “to income per se as an item of property” but to:

… items of property able to be acquired and retained by the bankrupt. That qualifying expression is used by the Full Court in [34]. Although the same qualifying phrase is not used after the term “item of property” in the sentence which immediately follows, that term seems to be used in the same sense. That suggests that the focus of the Full Court’s attention was on property able to be acquired and retained, whatever be the sources of the funds used for the acquisition.

(emphasis in original)

42    At [66], White J noted that it was “plain that the Bankruptcy Act intends that bankrupts be able to retain the balance of the income [after contribution] ... unless they convert it into some other form of property”. On this reading, his Honour said, Di Cioccio was a decision not about income being used for an acquisition, but about items of property “able to be acquired and retained”.

43    The Court in Ambrose was dealing with the withdrawal of funds from the bankrupt’s “Complete Freedom” account with BankSA into a different account – an “Incentive Saver” account – held at the same bank, but on different terms. White J held that the bankrupt’s income “continued to be held in specie” and “[t]he mere change of account did not alter the nature of the property” (at [76]).

44    Mr Behennah argued that any sale of the Shares should be dealt with in a manner consistent with White J’s statement in Ambrose at [76], such that it would not involve a “conversion” to a different type of property so that they are rendered “after-acquired property”, but instead “retain their inherent character of income”. Mr Behennah submitted that the sale of the Shares should not be regarded as the purchase or acquisition of an asset (cf French J in Re Gillies at 577 where his Honour spoke about “assets purchased by a bankrupt with after-acquired income”), and sought to resist any application of Di Cioccio on the basis that the facts of that decision concerned an acquisition of shares with income, rather than the sale of shares which were themselves income.

45    Mr Behennah drew upon the words of Perram J in Meriton Apartments to submit that the proceeds of any sale of the Shares being designated as after-acquired property would be a “substantial injustice”. Mr Behennah pointed to the injustice that this particular income, even though IRAC, cannot be readily used to meet his living expenses or his income contribution liabilities without being sold. He noted that in fact some of the Shares have already been sold to meet the income contribution liabilities at the direction of the trustee. If, he says, the cash proceeds are after-acquired property, then the “income which [he] is liable to pay contributions for has been lost”. This is at odds with the scheme of the Bankruptcy Act. This is, he says, an absurdity, and the sale of the Shares should not be regarded as a conversion into after-acquired property rather than income.

46    The trustee, while sympathetic to the “well made” observation that if the proceeds of sale were treated as after acquired property they could not be used to meet Mr Behennah’s living expenses, made his own observations that, under the Income Tax Assessment Act 1997 (Cth) (ITA Act), shares acquired under employment share schemes are both income and a CGT asset and the taxing point is ascertained differently depending on whether they were sold within 30 days or not: see ss 83A-10, 83A-120, 83A-125, 104-10, and 108-5 of the ITA Act. The analogy is that the same asset can be treated differently under the same legislation.

47    In reply to Mr Behennah’s sale of shares at the trustee’s direction, the trustee said he did not contend that those proceeds constituted after-acquired property. He noted that the question before the Court is whether the proceeds of sale of shares which were earned by way of income retain that character. The trustee accepts that, on the construction of the Bankruptcy Act as set out in Re Gillies and Di Cioccio, some injustice may arise. On the other hand, the trustee says there are indications in Meriton Apartments and Ambrose that may assist the respondent.

48    I have considered the various cases and arguments put by the parties. I particularly appreciated the trustee’s approach of not taking an adversarial bent but trying to put before the Court the relevant arguments in order to assist the Court, and I likewise appreciated the helpful submissions of the respondent.

49    This Court has followed a long-accepted line of authority dating back to Re Gillies to the effect that income is not divisible property. This construction is consistent with the structure and purpose of the Bankruptcy Act which sets a process by which the income contribution is calculated in accordance with a formula (see s 139S of the Bankruptcy Act). The fact that not all income is divisible amongst creditors demonstrates that there is a statutory intention that the bankrupt be able to retain at least part of their income. So much is uncontroversial.

50    I can accept the trustee’s submissions that that protection of the Shares as income, as in this case, would last only as long as those shares were not, as White J expressed it in Ambrose, “convert[ed]… into some other form of property” (at [66]). The question before me is not, as it was in Di Cioccio, a question of whether income below the threshold was used to buy new shares during the course of the bankruptcy. That is an example of property being acquired after bankruptcy and so falling within the definition of after-acquired property in accordance with s 58(1) of the Bankruptcy Act. Here, the question is whether the proceeds of sale of shares, which were themselves income, retain that character of income when sold and converted into money.

51    I do not accept the position of Mr Behennah that there would be, on sale of the shares, no conversion of property. While Mr Behennah relies on what White J said in Ambrose at [76] in relation to income being transferred to different bank accounts retaining its character, and on distinguishing Di Cioccio, on an uncontroversial analysis of the facts before me, a sale of shares and conversion of the shares into money cannot be anything other than an acquisition of another kind of property. I agree with the trustee’s submissions in reply that “[t]he decision in Ambrose does not appear to assist the [r]espondent in this respect”.

52    The most helpful judicial commentary for the respondent is found in Meriton Apartments, concisely stated by Perram J at [234] where his Honour said: “Taken to its extreme this means that although the [Bankruptcy] Act permits a bankrupt to earn an income, it does not permit the bankrupt to acquire any property with that income”.

53    Perram J reviewed a number of English decisions at [235]-[236] which go to underline the proposition that there was an “obvious injustice” in treating assets bought with the bankrupt’s retainable income as not divisible amongst creditors. However, leaving aside that the discussion of this issue in Meriton Apartments was indeed obiter, the Full Court was not in agreement and indeed Perram J accepted that there “must … be some limits” to the argument that property purchased with income by a bankrupt never becomes after-acquired property (at [237]).

54    I acknowledge, as does the trustee, the seeming unfairness of income in the form of shares becoming after-acquired property on sale. However, the Bankruptcy Act’s balancing of the ability of the bankrupt to earn income and to own assets as per s 116(2) while providing for the interest of the creditors is clearly set out in the way in which s 58(1)(b) applies to the current situation.

55    Di Cioccio is a decision of the Full Court of this Court, and as set out above, it can be read with White J’s statements in Ambrose at [76] to operate so that the conversion of the shares into a different form of property results in the proceeds being after-acquired property in accordance with s 58(1)(b) of the Bankruptcy Act.

56    The answer to question 3 is (b).

Subsidiary Questions

57    These questions were not dealt with to any great extent by Mr Behennah, his submissions focusing mainly on question 3.

58    I will deal with the subsidiary questions in turn, briefly.

Subsidiary Question 1

59    The first question is whether Mr Behennah’s income is properly calculated by reference to the market value of the Shares at the time they vested in him, or ought that income also include any increase in the value of the Shares during the relevant income contribution period.

60    The trustee submitted that “[t]he Bankrupt’s income is properly calculated by reference to the market value of the Shares at the time they vested in the Bankrupt.”

61    While the value of the Shares has increased, that increase is, as yet, an unrealised capital gain, and when realised, would be treated as income, in a similar way to interest on capital (see Lockwood v Vince at [15], noted in Barwick v Goodridge at [31]).

62    The answer to the first subsidiary question is that the income is properly calculated by reference to the market value of the Shares when they vested in Mr Behennah.

Subsidiary Question 2

63    The second question flows from the first; is any increase in the capital value of the Shares to be properly taken into account as additional income, noting that some Shares have been (and more may need to be) sold to meet Mr Behennah’s income contribution liability?

64    The trustee submitted that any increase in value of Shares sold to meet the income contribution liability (currently by direction from the trustee to the broker) would be treated as additional income. As noted in response to the last question, that capital gain when realised would be additional income in the hands of Mr Behenneh and so liable to trigger a review of his income and a new contribution (see s 139Q of the Bankruptcy Act). While this may – as pointed out by the trustee – subject Mr Behennah to an adversity in the form of a process of rolling income assessments, that part of the proceeds of sale of the Shares which is attributable to realised capital gain should be treated as income in accordance with the ordinary meaning of “income” (see s 139L of the Bankruptcy Act).

65    The answer to the second subsidiary question is that any increase in the capital value of the Shares on realisation is properly taken into account as additional income.

Subsidiary Question 3

66    The third question relates to an otherwise unexplained payment of $31,864.91 which was deducted from Mr Behennah’s salary apparently in exchange for his participating in the Cisco ESS. The question is whether this has any impact upon the calculation of Mr Behennah’s income referable to the vesting of the Shares.

67    The terms of Mr Behennah’s employment with Cisco, which he was offered in May 2021, included an offer of stock units. The grant of those units included terms which provided:

(a) What are Stock Units?

…

When your Stock Units vest, you will be issued shares of Common Stock at no monetary cost (other than applicable taxes) to you.

….

and

(b) Do I have to pay any money to receive the Restricted Stock Unit award?

No. You pay no monetary consideration to receive the Stock Units, nor do you pay anything to receive the shares of Common Stock upon vesting of the award.

68    The trustee’s affidavit provided that:

… during the course of his employment with Cisco Australia, the Bankrupt participated in the Cisco ESS in respect of which an amount of $31,864.91 was deducted from his pay;

69    There is no further evidence as to the character of the payment of that amount. The trustee submits that the payment of this amount does not impact the determination of the questions relating to the character and treatment of the Shares in circumstances where the terms of the Cisco ESS make clear that the shares were acquired by the Bankrupt (and issued by Cisco) for zero consideration.

70    The deduction of the amount of $31,864.91 is unexplained. It may be that it would be a deduction against Mr Behannah’s income if it were characterised as a charge for participation; however, there is simply not enough evidence to determine if that deduction should affect the calculation of his income in this context.

71    The answer to the third question is “No”.

Jurisdiction and Orders

72    As noted at the outset, I was asked to make orders either under 90-15 of the IPS, or to give an opinion, advice, or direction of the Court pursuant to section 63 of the Trustee Act.

73    The trustee made short submissions on whether the Federal Court of Australia (FCA) has jurisdiction under the Trustee Act given that s 5 of that Act defines “Court” to mean “the Supreme Court” (of New South Wales). The submissions were that, notwithstanding s 5 of the Trustee Act,

(a)    the FCA’s jurisdiction extends to the entire litigious or justiciable controversy between the parties of which the federal claim forms but a part (Stack v Coast Securities (No 9) Pty Ltd [1983] HCA 36; 154 CLR 261 at 290 per Mason, Brennan and Deane JJ); and

(b)    where an application for judicial advice pursuant to s 63 of the Trustee Act is brought as part of a federal claim, the Court has jurisdiction to determine that application and give judicial advice pursuant to the Trustee Act (Hodges v Waters (No 7) [2015] FCA 264; 232 FCR 97 per Perram J at [40]-[48]).

74    In Hodges v Waters (No 7), at [49]-[50] Perram J noted that s 79(1) of the Judiciary Act 1903 (Cth) was engaged by the federal jurisdiction in that matter (in that case, the Corporations Act 2001 (Cth) and the Australian Securities and Investment Commission Act 2001 (Cth); here, the Bankruptcy Act). Section 79(1) provides:

79 State or Territory laws to govern where applicable

(1)    The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.

75    Section 63 of the Trustee Act becomes “applicable” when relief under it is sought in a properly constituted matter in federal jurisdiction. At [52] Perram J said:

A State statute may be applicable as a source of rights and remedies in federal jurisdiction even though, on its own terms, that law identifies only the courts of the enacting State as the courts to provide those remedies: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559 at 591-593 [68]-[71]. Consequently, the effect of s 79(1) in this case is that s 63 is picked up in federal jurisdiction without the definition of “court” in s 5 which, at a theoretical level, is inconsistent with the Constitution.

76    I am satisfied that this court has jurisdiction to entertain an application under s 63 of the Trustee Act, and the power to make the orders.

77    The power in s 63 to make orders can only be exercised in relation to a question respecting the management or administration of the trust property, or a question concerning the interpretation of the trust instrument: see s 63(1) of the Trustee Act, and Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; 237 CLR 66 at 89-90 [58]. In this case, the trustee seeks guidance as to how the trust property constituted by the Shares is to be administered, and so the power in s 63(1) is enlivened.

78    The opinion, advice, or direction of the Court is given to the trustee (s 63(1) of the Trustee Act), and beneficiaries whose rights are affected by the proposed exercise by the trustee must be given notice of the application (s 63(8) of the Trustee Act) but need not be joined. The order made by the Court is binding on the beneficiaries served or given notice (s 63(11) of the Trustee Act). If the trustee acts in accordance with that opinion, advice, or direction, then that action is deemed by s 63(2) to be an appropriate discharge of the trustee’s duty. In applications for judicial advice in the Supreme Court of New South Wales, the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) provide in Part 55 for a statement setting out the facts which the trustee seeks to have considered, and the question for the opinion, advice or direction.

79    While I do not in these proceedings make any complaint about the way the trustee has conducted these proceedings, the process set out under Part 55 of the UCPR is a helpful structure for identifying the facts upon which the trustee may act, and the questions which are sought to be determined. In practice, applications in the Supreme Court are often accompanied by a confidential advice by counsel which can assist the Court in reaching the position of being able to give the judicial advice sought. While that procedure was not necessary in this case, and the trustee’s position was able to be brought appropriately by way of submissions, the confidential counsel’s advice process can often be useful (and I note was engaged in Hodges v Waters (No 7) at [105] to the effect that the settlement in those proceedings was reasonable).

80    In these proceedings, as there is a sufficient power in s 90-15 of the IPS, and Mr Behennah is a party, I consider that it is appropriate to make orders under that section rather than providing judicial advice to the trustee under s 63. However, an application under the Trustee Act would be appropriate in cases of a trustee seeking advice in a proceeding where the s 90-15 procedure is not available but where federal jurisdiction is otherwise engaged.

81    I will make orders under s 90-15 of the IPS giving effect to the answers to the questions as set out in paragraphs 8 and 9 of these reasons; that is, I will make declarations 1(a), (b), (c), (d) and 2(e) of the Amended Application. In light of the developments which were brought to my attention after the preparation of these reasons but prior to the delivery of judgment (see paragraphs 3 to 6 of these reasons), I have not made declarations in relation to matters where there is no longer a factual basis on which to do so. In particular, I have not made declarations in relation to the Dayforce Shares in circumstances where the trustee has confirmed it no longer presses for the relief sought in the Amended Application in relation to those shares, and the declarations I have made in relation to the Cisco Shares have been framed to acknowledge the fact that all Cisco Shares have been sold and no shares remain registered in Mr Behennah’s name.

82    I make order 5 in the Amended Application in relation to the trustee’s costs.

Associate:

Dated:    10 September 2026