In the Matter of the Bankrupt Estate of Willis, Perry; Jones, Michael Gregory [1998] FCA 669

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 8118 of 1997

In the matter of the bankrupt estate of

perry willis

michael gregory jones

Applicant

JUDGE: WHITLAM j

DATE OF ORDER: 6 february 1998

WHERE MADE: sydney

THE COURT declares THAT: 1. The land described as lot 31 in strata plan 9260, located at Parramatta and referred to in folio identifier 31/SP9260 of the Register under the Real Property Act, 1900 of New South Wales ("the land") is not property divisible amongst the creditors of the bankrupt. AND ORDERS THAT: 2. The trustee of the bankrupt estate take such steps as he can to have the Registrar-General record the bankrupt in the Register as proprietor of the land. 3. The trustee, the bankrupt, any guardian of the bankrupt or any other person managing the affairs of the bankrupt under the laws of a State or Territory on the basis of his mental incapacity and the Registrar-General have liberty to apply.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 8118 of 1997

In the matter of the bankrupt estate of

perry willis

michael gregory jones

Applicant

JUDGE: WHITLAM j

DATE: 6 february 1998

PLACE: sydney

REASONS FOR JUDGMENT This is an application by the trustee of the estate of the bankrupt for directions in respect of certain land. The land in question is a lot in a strata scheme and is located at Parramatta. The essential background to the present application may be shortly stated. The bankrupt became the registered proprietor of the lot in 1993. On 24 July 1995 he was made bankrupt on the petition of the body corporate for the strata scheme. The debt relied on was for unpaid amounts levied by the body corporate. Although he lived at the property in question, the bankrupt failed to respond to any of the trustee's notices addressed to him there. In particular, he failed to make out a statement of his affairs. On 6 November 1995 the trustee was registered as proprietor of the land. The bankrupt continued to ignore correspondence from the trustee. The trustee obtained default judgment for possession of the subject land. On 30 April 1996 that judgment was enforced, and the bankrupt was ejected from the property. On this occasion the trustee met and spoke with the bankrupt for the first time. As a result of that conversation the trustee commenced inquiries into the possibility that that particular property had been purchased by the bankrupt out of damages recovered for personal injury. The bankrupt's mother telephoned the trustee's office on 31 May 1996 and said that the Parramatta property had been purchased from a "compensation payout". Correspondence ensued between her and the trustee. The trustee continued to try and contact the bankrupt. His attempts were unsuccessful until he met the bankrupt by chance on a ferry boat on the morning of 5 September 1996. The trustee then handed the bankrupt a letter addressed to him, which stated: "I refer to our last discussions held in our Parramatta offices on 30 April, 1996 and advise that pursuant to my subsequent enquiries sufficient information has emerged which would indicate that the property described as 3G/15 Campbell Street, Parramatta was purchased from compensation monies and accordingly, it may not vest with me as Trustee of your Bankrupt Estate and could be returned to you. Please urgently contact Stephen Rouse or myself (Michael Jones) of this office on (02) 223 5333 to discuss this matter further and in particular attempt to make arrangements for the return of the property." The trustee deposes to a conversation with the bankrupt during this chance meeting, in which the bankrupt said that he did not want the trustee to take any action either to return the property to him or to sell it and account for the net proceeds. The trustee filed the present application (which did not name a respondent) on 24 September 1997. On the first return date a direction was given that the application be served on the respondent's mother. The matter was stood over one more time to the Registrar's List last Tuesday, when the bankrupt's mother appeared in the company of another of her sons, Mr Darren Willis, and one of the bankrupt's sisters. They had all come from South Australia where they live, notwithstanding that the application did not have a special fixture. Without objection, Mr Darren Willis was given leave to appear on behalf of the bankrupt's family. Mr Darren Willis tendered, without objection, copies of two letters from the bankrupt's mother, one dated 20 January 1998 to the trustee's solicitors and the other dated 23 January 1998 to the trustee. The material attached to the first of those letters reveals a sad tale. The bankrupt was seriously injured in a motor vehicle accident in 1981 when he was seventeen years old. In 1983 he received in settlement of a claim for damages a sum in excess of $200,000. This amount was placed in a trust fund for him. The bankrupt has permanent limitations in left-side coordination, hearing and vision. His most serious incapacity is mental. By the end of April 1987 he had evidently been admitted three times to a psychiatric hospital. The discharge summary in respect of the last of those admissions said that he had developed a psychotic illness as a consequence of his head injury in 1981, but it noted that his delusional symptoms responded to medication. The trust fund was used from time to time to purchase various assets, including two properties in Adelaide. In 1993 the last of those properties was sold, the trust fund evidently vested in the bankrupt, and he moved to Sydney where he purchased the Parramatta property. When filed, the trustee's application had sought a determination by the Court whether the Parramatta land was property divisible amongst the bankrupt's creditors. The trustee now accepts in the light of the further material produced by the bankrupt's family (which was made available to him last week) that that land is property to which s 116(2)(n) of the Bankrupt Act 1966 ("the Act") applies. However, the trustee presses for the following declarations: "3. The Applicant is entitled to sell the Property and apply the proceeds of sale of the Property or part thereof, to the costs of the sale including real estate agents commission, legal fees, municipal and water rates and Strata Title Act levies, the costs of the Petitioning Creditor, the costs of the administration of the Bankrupt Estate of Perry Willis and the costs of these proceedings. 4. Moneys remaining for the benefit of Perry Willis after the sale of the property and the application of funds in accordance with the orders of the Court are to be placed to the credit of the bank account of Perry Willis held with the Commonwealth Bank of Australia." The submission in support of such relief made by Mr Bentley, who appeared for the trustee, is simple. It rests on the following propositions: (1) the transmission of the Parramatta land has been registered and s 58(2) of the Act acknowledges that that "part of the property of the bankrupt" now vests at law in the trustee; (2) the trustee may sell that property under s 134(1)(a) of the Act; and (3) whilst s 116(1) of the Act does not extend to the property so as to make it divisible amongst the bankrupt's creditors, the proceeds of such property may still be applied in payment of first priority debts under s 109(1)(a) of the Act since they are not the debts of "creditors" within the meaning of s 116(1). Mr Bentley concedes, I think, that such payment could not extend to the rates and levies due on the land. The fatal flaw in the argument is that it overlooks the definition in s 5(1) of the Act, which provides: ""the property of the bankrupt", in relation to a bankrupt, means: (a) except in subsections 58(3) and (4): (i) the property divisible among the bankrupt's creditors; and (ii) any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt; and (b) in subsection 58(3) and (4): (i) the property, rights and powers referred to in paragraph (a) of this definition; and (ii) any other property of the bankrupt;" That definition makes it clear that the Parramatta land never did vest in equity in the trustee by virtue of s 58 of the Act and that he was not entitled to have any transmission to him registered. I will not, therefore, make the declarations sought in paragraphs 3 and 4 of the application. The Registrar-General has not been given notice of this proceeding and is not a party to it. It would be inappropriate, therefore, to make an order for rectification or cancellation without giving him an opportunity to be heard. However, s 90 of the Real Property Act 1900 (NSW) provides that "any other person claiming to be entitled to land under the provisions of this Act by virtue of . . . anything done [under the Bankruptcy Act] may apply . . .to be registered as proprietor of that land". If the Court makes a suitable declaration, this provision should permit the bankrupt's registration to be restored administratively by the Registrar-General. That seems to me a preferable course to directing the trustee to transfer the land to the bankrupt, which was what Mr Darren Willis urged on behalf of the family. The practical effect should be the same. There may, of course, be difficulties in having an application in an appropriate form signed by the bankrupt. I shall, therefore also grant liberty to apply, which may be necessary when the requirements of the Land Titles Office are ascertained by the trustee. I certify that the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam