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Sale of property by bankruptcy trustees - Section 30 of the Bankruptcy Act 'out' - Section 66G of the Conveyancing Act 'in'

CaseFlash 30 July 2014

The recent Full Federal Court decision of Coshott v Prentice [2014] FCAFC 88 rules out the use by a bankruptcy trustee of s30 of the Bankruptcy Act (Act) to sell property of a bankrupt if the property is co-owned by a non-bankrupt.

Facts

Mr Coshott became bankrupt on 7 November 2008. The only asset of note held by Mr Coshott was the family home which he co-owned in equal shares with his wife, Mrs Coshott. Following several applications by various parties (including Mr & Mrs Coshott’s son) for a declaration that Mr and Mrs Coshott held the property on trust for the family Superannuation Fund (Coshott Super Fund), the trustee in bankruptcy brought proceedings against Mr Coshott alleging that his 50% interest in the property was an asset to be brought to account in his bankrupt estate.

At trial, Mr Coshott submitted that his interest in the property was held by him on trust for the Coshott Super Fund. If correct, Mr Coshott’s interest in the property would not be property divisible amongst his creditors. The primary judge disagreed, holding that any suggestion Mr Coshott held the interest other than beneficially was a ‘sham’ and ordered the sale of the property so distribution could be made of the sale proceeds to creditors.

On appeal to the Full Federal Court, Mr Coshott sought to challenge the declarations and orders of sale made by the primary judge.

The decision - Power of Sale

The Full Court’s decision provides interesting reading on issues such as whether the interest of a bankrupt in property was acquired beneficially or on trust and also what is the meaning of a sham transaction. However of more significance to bankruptcy trustees is the Full Court’s finding that s30 cannot be used as a source of power for the sale of property of a bankrupt co-owned with another.

Prior to the Full Court decision, various courts had allowed the wide reaching general power of s30 of the Act to be used by trustees to obtain orders for sale and writs for possession. In Cook v Tagamilitsky Raphael FM opined that the jurisdiction to make such an order was grounded in section 77(1)(g) of the Act - duty of a bankrupt to aid to the utmost in the administration of the estate - and s30. This decision was followed and affirmed by Barnes FM in Cooke v Schwartz and by Lucev FM in Official Receiver v Tregaskis.

Through an exploration of the authorities and application of the principles of statutory construction, the Full Court in Coshott found that an order under s30 would represent an abrogation of Mrs Coshott’s rights and unless the Parliament had expressed such an intention with ‘irresistible clearness’, such a fundamental right should not be interfered with:-

…the general power in s 30(1) of the Bankruptcy Act does not extend to the making of orders for the sale of property which is co-owned by a person who is not the bankrupt thereby destroying their rights in the property.

The Full Court did not uphold a challenge by Mr Coshott to the availability of s66G of the Conveyancing Act to trustees in bankruptcy for the sale of co-owned property. Whilst the Full Court was not required to determine who might be appointed as trustees for sale (that being a matter remitted to the primary judge) the Court did say “In all the circumstances, the primary judge may well consider it prudent not to appoint the trustee in bankruptcy as one of the trustees for sale”.

Implications for trustees

Although orders under s30 had provided an alternative means to sell property of a bankrupt that avoided some of the disadvantages of a s66G sale - such as the trustee in bankruptcy not having control of the sale and the extra layer of costs added to the administration of the estate - the Full Federal Court’s decision is binding and trustees should bring future applications for sale of co-owned property under s66G of the Conveyancing Act.

Please click here to view a PDF version of this CaseFlash.


Kirsten Farmer, Partner
Sydney

CaseFlash 30 July 2014
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