Federal Court of Australia National Australia Bank Limited, in the matter of Collins (a bankrupt) v State of Queensland [2020] FCA 1889 File number: QUD 320 of 2020 Judgment of: REEVES J Date of judgment: 2 December 2020 Date of publication of reasons: 29 January 2021 Catchwords: BANKRUPTCY AND INSOLVENCY – application for a vesting order under s 133(9) of the Bankruptcy Act 1966 (Cth) – where the property has been disclaimed by the trustee in bankruptcy – where the applicant has an interest in the property – whether it is just and equitable to make the order – application granted Legislation: Bankruptcy Act 1966 (Cth) Property Law Act 1974 (Qld) Cases cited: Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1221 Australia and New Zealand Banking Group Limited v State of Queensland [2020] FCA 1597 Bank of Queensland Limited v State of Western Australia [2020] FCA 442 Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 National Australia Bank Ltd v State of New South Wales [2014] FCA 298 National Australia Bank Limited v State of South Australia (No 2) [2015] FCA 240 St George - A Division of Westpac Banking Corporation v State of Western Australia [2020] FCA 397 Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 10 Date of last submissions: 27 November 2020 Date of hearing: Determined on the papers Solicitor for the Applicant: Ms L Fraser of Gadens Lawyers Solicitor for the Respondent: Ms N Barton of Department of Natural Resources, Mines & Energy ORDERS QUD 320 of 2020 IN THE MATTER OF MICHEAL CRAIG COLLINS (A BANKRUPT) AND TRACEY LEEANNE COLLINS (FORMER BANKRUPT) BETWEEN: NATIONAL AUSTRALIA BANK LIMITED ABN 12 004 044 937 Applicant AND: STATE OF QUEENSLAND Respondent order made by: REEVES J DATE OF ORDER: 2 December 2020 THE COURT ORDERS BY CONSENT THAT: 1. Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple in the land described as Lot 28 on Survey Plan 200517, Title Reference 50725973 being the land situated at Unit 28, 40-65 Gledson Street, North Booval in the State of Queensland (the North Booval Property) vest in the applicant for the purpose of it exercising its powers as mortgagee under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgage 711954249 (the Mortgage). 2. On the vesting of the North Booval Property in the applicant, pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the applicant: (a) may, but is not bound to, deal with the North Booval Property as if it were exercising its powers as mortgagee in possession under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Mortgage, including exercising the right to sell the estate in fee simple of the North Booval Property in exercise of its power of sale and all its other respective rights under the Mortgage; (b) for the purpose of selling the estate in fee simple of the North Booval Property in exercise of its power of sale, is not required to serve: (i) a notice of default or demand whether under s 88 of Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise; and (ii) a notice pursuant to s 84 of the Property Law Act 1974 (Qld); (c) is entitled to calculate the entirety of each of the debts secured and owing pursuant to the Mortgage as including all monies that would have been secured by the Mortgage had the Trustee in Bankruptcy of the bankrupt estates of Mr Micheal Craig Collins and Mrs Tracey Leeanne Collins not disclaimed the North Booval Property, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the North Booval Property as if it were money secured by the Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the North Booval Property); (d) will apply the proceeds of sale from the North Booval Property as follows: (i) Firstly, in payment of any outstanding statutory charges and body corporate debts (if any) affecting the North Booval Property, regardless of whether statute provides that they are payable in priority to the mortgagee. (ii) Secondly, in payment of all costs, charges and expenses properly incurred by the applicant as incidental to the sale, or any attempted sale, or otherwise. (iii) Thirdly, in discharge of the debt owed to the applicant by Mr and Mrs Collins as secured by the Mortgage and to the extent that the proceeds of sale arise from the North Booval Property. (iv) Fourthly, in payment of any subsequent mortgages (if any). (v) Fifthly, any surplus proceeds from the sale of the North Booval Property are to be paid to the Trustee in Bankruptcy of the bankrupt estates of Mr Collins and Mrs Collins as if the Trustee had exercised the power of sale pursuant to the Mortgage. If, when any surplus funds become available, the Trustee has ceased to be appointed over the bankrupt estates of Mr Collins and Mrs Collins, surplus proceeds will be paid to the Crown in right of the State of Queensland. (e) must, after any sale of the North Booval Property, provide an account of its payments and receipts to: (i) the Trustee in Bankruptcy of the bankrupt estate of Mr Collins; (ii) Mr Collins; (iii) the Trustee in Bankruptcy of the bankrupt estate of Mrs Collins; (iv) Mrs Collins; and (v) the respondent. 3. There is no order as to costs against the respondent. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT REEVES J: 1 The National Australia Bank Limited (the NAB) has applied for a vesting order under s 133(9) of the Bankruptcy Act 1966 (Cth) (the Act) in respect of the real property comprising Unit 28, 40-65 Gledson Street, North Booval in the State of Queensland (the North Booval Property). This application follows a disclaimer made under s 133(1) of the Act on 16 January 2020 by Ms Moira Carter as Trustee in Bankruptcy (the Trustee) of the bankrupt estates of Mr Micheal Craig Collins and Mrs Tracey Leeanne Collins. 2 Mr and Mrs Collins each presented a debtor's petition under the Act which resulted in the appointment of the Trustee. In respect of Mr Collins, that occurred on 30 September 2019 and, in respect of Mrs Collins, it occurred on 10 October 2017. Mr and Mrs Collins took those steps after they fell into default under a mortgage they had executed on 9 September 2008 in favour of the NAB which secured two home loan advances made to them in the total sum of $320,000. That mortgage was registered on 30 September 2008 on the title to the North Booval Property and allocated dealing number 711954249. 3 There are two schools of thought reflected in the authorities on the effect of a disclaimer under s 133(1) of the Act (see Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 (Ginn) at [14]-[16] per Edelman J and Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 (McFarlane) at [17]-[19] per Derrington J). Nonetheless, as Edelman J observed in Ginn, "… on any view, in this process a pre-existing charge is not extinguished. A fee simple interest remains subject to a charge even after disclaimer and escheat …" (at [16]). This approach has been followed in several decisions since (see, most recently, Australia and New Zealand Banking Group Limited v State of Queensland [2020] FCA 1597 at [6] per Logan J and St George - A Division of Westpac Banking Corporation v State of Western Australia [2020] FCA 397 at [21]-[22] per Banks-Smith J). Accordingly, I propose to adopt it in this matter. 4 On this aspect, it is worth interposing to note that, on 25 May 2020, the Property Law Act 1974 (Qld) (the PLA) was amended to insert a new s 84A pursuant to which a disclaimer of the kind made by the Trustee in this case does not affect the right of a mortgagee to exercise a power of sale conferred on it under the terms of that Act, or otherwise in relation to the property. However, that amendment only applies if the disclaimer concerned was made after the commencement of the amending Act (s 359(b)(i) of the PLA). Accordingly, it does not apply in this matter because, as already mentioned at [1] above, the Trustee's disclaimer was made on 16 January 2020. 5 The test for whether the vesting order sought by the NAB should be granted was described by Perram J in National Australia Bank Ltd v State of New South Wales [2014] FCA 298 at [11] as follows: … (a) that a disclaimer to relevant property has occurred within the meaning of s 133; (b) that the applicant has an interest in the disclaimed property within the meaning of s 133(9); and (c) that the applicant is entitled to the disclaimed property or that the Court considers it to be just and equitable that it should be so vested or delivered. See also Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1221 at [9] per Rangiah J and National Australia Bank Limited v State of South Australia (No 2) [2015] FCA 240 at [19] per Griffiths J. 6 In this matter, I am satisfied on the affidavit evidence filed by the NAB that it meets each of these prerequisites. The prerequisite in (a) has already been addressed and the existing mortgage described at [2] above is sufficient to meet (b). In respect of (c), I note the evidence that: (a) after being provided with a copy of the draft orders, Ms Natalie Barton, a principal lawyer employed by the State of Queensland, the respondent in this proceeding, stated that the State consents to the application and will abide by the orders of the Court; (b) the Trustee has stated that, apart from being informed of the outcome of this application, she does not wish to be joined as a party in this proceeding, appear in the proceeding, or otherwise contest the orders sought; and (c) Mr and Mrs Collins remain in default under the mortgage and, absent orders of the kind proposed by it, the NAB has no ability to exercise its power of sale under the mortgage. 7 In these circumstances, subject to one variation addressed below, I consider it is just and equitable to make the orders proposed by the NAB. 8 The variation relates to the proposed order that any surplus proceeds from the sale of the North Booval Property should be paid into court. According to the NAB's written submissions, this order was proposed because of the comments of Derrington J in McFarlane as follows (at [26]): There is no evidence before the Court as to the value of the two properties when compared to the total indebtedness of the McFarlanes. However, had there been a belief that there would be excess proceeds from the sales of the two properties after the payment of the mortgaged debt, the properties would not have been disclaimed by the trustees. It ought also be recognised that the cost of obtaining valuations (even a kerbside valuation) might be an unnecessary cost in the circumstances where, it seems to be accepted, there shall be a deficiency of proceeds from the sale of the secured properties to meet the debts owed to the bank. It is also appropriate in the consideration of this issue to take into account the commercial standing of the applicant bank. For those reasons, and despite the absence of evidence of the value of the secured properties, it is not inappropriate to make the orders sought. In particular, it is not inappropriate to make the orders relieving the bank of the statutory obligation under s 85 of the Property Law Act 1974 (Qld) to take reasonable care to ensure that the property is sold at market value. 9 It can be seen that his Honour did not, in these observations, propose that any surplus proceeds be paid into court. Rather, his Honour assumed that, because the disclaimer had been made, there would be no surplus proceeds of sale. In Bank of Queensland Limited v State of Western Australia [2020] FCA 442 (BoQ v Western Australia), McKerracher J discussed this issue at [43]-[48] and adopted a different approach. That is, his Honour concluded (at [49]) that any surplus proceeds of sale should be paid to the trustees or, if they had ceased to hold that office, to the State. Since the NAB's written submissions on this aspect appear to assume there may be surplus proceeds of the sale in this matter, I propose to follow the reasons of McKerracher J in BoQ v Western Australia, with which I respectfully agree, and make orders in similar terms to his Honour. 10 For these reasons and with the variation mentioned above, I propose to make the orders sought by the NAB. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Reeves. Associate: Dated: 29 January 2021