Dealing with Real Property in Bankruptcy. Michael Lhuede Piper Alderman 10 June 2015

Transcription

1 Dealing with Real Property in Bankruptcy Michael Lhuede Piper Alderman 10 June 2015

2 The facts Unemployed bankrupt is co-registered proprietor in equal shares with his wife of the family home. 2 years have elapsed since date of bankruptcy and AFSA have transferred file to you having done nothing to realise interest in property in meantime Non-bankrupt spouse has since date of bankruptcy met all mortgage repayments, rates etc and has renovated all from her own wages

3 The Process Identify the asset and third party equities the 10 rules. Put your foot on the asset - secure the interest by lodging a caveat. Sell the property.

4 Rule 1: Presumption of Joint Beneficial Ownership It will be presumed that husband and wife joint registered proprietors of the family home will own the property beneficially in equal shares Presumption will likely apply in de-facto arrangements Query what claim trustee may have where family home registered solely in name of nonbankrupt spouse See decision of High Court of Australia in Trustees of the property of Cummins v Cummins (2006) 227 CLR 278

5 Rule 2: Discharge from bankruptcy does not result in a re-vesting of property Failure on the part of a trustee to realise property prior to a bankrupt's discharge will not of itself result in a re-vesting of such property Dixon v Riquero [2004] FMCA 173 per Raphael para 16 Note limitation provisions of section 127 (20 years) and 129AA (6 years with option to extend)

6 Rule 3: Trustee has positive duty to realise assets A trustee in bankruptcy: > acting for remuneration, is under a higher duty than one acting gratuitously; > is required to administer the estate so as to maximise the return from estate assets; > must take all reasonable and proper measures to obtain possession of the trust property... and to preserve it and secure it from loss. Adsett v Berlouis (1992) 37 FCR 201 per Northrop Wilcox & Cooper para 27

7 Rule 4: Remember the duty to act commercially at all times Duty to exercise powers in a commercially sound way (section 19) Undertake cost-benefit analysis of all recovery actions (clause 2.8, 2.9 and 2.13 of Schedule 4A) (noting Court likely to impute similar standards to AFSA) Avoid litigation unless prospects of success/return are such as to outweigh risk of loss to estate (Adsett v para 32) No positive obligation on trustee to spend own money

8 Rule 5: If you aren t going to take action to recover property (see Rule 3) then mitigate risk of complaints by creditors Undertake and document preliminary investigations to ascertain value of asset to be recovered Make appropriate demands/invitations to purchase Absent commercial settlement call on creditors for indemnity Absent indemnity from creditors do we conduct recovery on speculative basis or invite transfer to new registered trustee to so conduct matter

9 Rule 6: Failure to realise property in a timely manner will not of itself give rise to an estoppel The decision of O'Brien v Sheahan [2002] FCA 1292 "...should not be understood as establishing any general applicable principle of law relating to estoppel in the administration of bankrupt estates" Per Gummow J of the High Court of Australia on the hearing of the application for leave to appeal in Sheahan v O'Brien [2003] HCATrans 308 (14 August 2003)

10 Rule 7: Non bankrupt co-owner is entitled to an allowance for contributions to mortgage If the non bankrupt co-owner repays more than one half of the mortgage debts by way of either capital or interest then the co-owner may recover the excess from the proceeds of sale. The right does not entitle the non bankrupt coowner to a proprietary claim by way of trust over the bankrupt's share but a right to account from the proceeds Draper v Official Trustee in Bankruptcy (2006) 156 FCR 53 per Besanko paras 135 and 163

11 Rule 8: An allowance can be made for improvements by non bankrupt co-owner A non bankrupt co-owner may claim an allowance from the sale proceeds for the lesser of one half of the cost of the improvements, repairs and maintenance or one half of the increase in value of the property arising from the improvements. Draper v Official Trustee in Bankruptcy per Besanko para 163

12 Rule 9: Non bankrupt co-owner is entitled to an allowance for contributions to rates As with the mortgage if the non bankrupt co-owner repays more than one half of the rates taxes and outgoings then the co-owner may recover the excess from the proceeds of sale. Draper v Official Trustee in Bankruptcy per Besanko para 163

13 Rule 10: Non bankrupt co-owner can be required to account for an occupation rent A co-owner who exercises the right to occupy the property is not obliged to pay an occupation rent unless he or she: > wrongfully excludes the co-owner; or > Claims an allowance for mortgage, improvements or repairs. Draper v Official Trustee in Bankruptcy per Besanko para 163

14 What is a caveat? In Latin, the word caveat means let him beware. A caveat is a warning that the person who lodged the caveat (the caveator ) claims an interest in the property. Any caveats in respect of a title can be found by checking the register of titles with respect to the property.

15 What does a caveat do? A caveat places restrictions on dealing with the property unless the caveator is notified and gives their consent or any dealing is taken subject to the caveat. It gives the caveator the opportunity to call upon the court to determine the rights of the parties. A caveat will not prevent dealings with the property which do not entitle the caveator to object, or which were registered prior to the registration of the caveat.

16 When should a trustee lodge a caveat? In Victoria a Trustee will be registered as proprietor upon making an application to the Registrar of Titles (s51 Transfer of Land Act 1958 (Vic)). In the ordinary course, this is only done when the Trustee intends to sell the property. Consider lodging caveats immediately over any property of which the bankrupt is a registered proprietor to prevent dealings see Sch 4A Item 4.3.

17 Can you lodge a caveat under section 120? A voidable transaction does not create a caveatable interest in land, only a personal right to take proceedings to have the transaction voided (Martin v The Official Trustee in Bankruptcy [1990] TasRp 5). CFHW Pty Ltd v Burness [2014] VSC 451 Trustee lodges caveat as constructive trustee but removed for absence of evidence

18 Third Party Caveats Trustee takes subject to equities so its irrelevant if third party caveat lodged after that of trustee Sonenco (No.11) Pty Ltd v Silvia (1989) 24 FCR 105 An agreement to lodge a caveat on a property is sufficient to create an equitable charge over the property to secure a debtsee Porter & Ors v Bonarrigo & Ors [2009] VSC 500

19 Realise the asset FCC or Federal Court application NEVER VCAT Invoke jurisdiction by seeking declaratory relief Appointment as trustee for sale Order for Vacant possession

20 Realise the asset Coshott v Prentice [2014] FCAFC 88 Court does not have power under section 30 of the BA to order a sale of a third parties interest in property Court does have power by virtue of section 79 of the Judiciary Act 1903 (C th) to apply State laws which will include the Property Law Act 1958 (VIC) - and this is so even if State law is expressed to grant power solely to State Tribunal

21 Property Law Act 1958 Div 2 of Part IV Order for sale in lieu of partition s225 Power to make such order to ensure just and fair sale s.228 Power to appoint trustees for the purpose of sale - s.231 Power to pay remuneration and to order payment from sale s.231

22 Sale in conjunction with co-owner Deed of Consent and Acknowledgement from co-owner > Authority of co-owner to effectuate sale via power of attorney and agreement with co-owner on distribution of sale proceeds Occupancy Deed Agreement to vacate property with consent orders for judgement for possession

23 Sale in conjunction with co-owner Sale Contract > Unilateral right to extend settlement date Obtain informed consent of bankrupt if sale to non bankrupt spouse and potential surplus

24 The hard questions.. Can a trustee just accept a cheque and withdraw the caveat? > Sale of Land Act - s.16 sale of land in contravention of Act is an offence > Section 32 vendor statement > Section 32K offence not to provide s.32 and right of rescission prior to settlement

25 The hard questions.. If selling for equity, subject to mortgage, by instalments can trustee do a standard sale agreement? > Sale of Land Act s29m restrictions on sale of land under terms contract and offence for contravention > S. 29N voidable at option of purchaser loss of deposit

26 The hard questions.. Can bankrupt borrow against property to pay out bankruptcy? > Consent deed by mortgagee as to further borrowing and distribution of funds

27 Questions

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