Bendigo & Adelaide Bank Ltd v Capotondi - [2016] SASC 11

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BENDIGO & ADELAIDE BANK LTD v CAPOTONDI & ANOR
[2016] SASC 11
Reasons of Judge Dart a Master of the Supreme Court
10 February 2016
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - POWERS AND REMEDIES OF MORTGAGEE - POSSESSION - GENERALLY
BANKRUPTCY - ADMINISTRATION OF PROPERTY - REALISATION OF PROPERTY - POWERS OF TRUSTEE TO DEAL WITH PROPERTY - GENERALLY
Plaintiff is registered mortgagee - it obtained an order for possession - a warrant of possession was subsequently issued - registered proprietor is a bankrupt - registered proprietor applied to stay execution of warrant of possession - registered proprietor has no standing to make the application - trustee in bankruptcy supports execution of the warrant of possession.
Bankruptcy Act 1966 s 58, s 116; Supreme Court Civil Rules 2006 r 204, referred to.
Cirillo & Anor v City Corp Australia Limited & Ors (2004) 2 ABC(NS) 525; Michael John Fuller and Patrick Joseph Cummings v Beach Petroleum NL and Claremont Petroleum NL (1993) 43 FCR 60; Rogers v Asset Loan Co Pty Ltd & Ors (2006) 4 ABC(NS) 293; W R Henry and Son v Hodge [1963] VR 111, considered.

BENDIGO & ADELAIDE BANK LTD v CAPOTONDI & ANOR
[2016] SASC 11
JUDGE DART:

The first defendant is the registered proprietor of land at 28B Sixth Avenue, Glenelg East. As the registered proprietor, he borrowed monies from the plaintiff and secured the repayment of that loan by the granting of a registered first mortgage. After a default in the repayment of the loan, the plaintiff obtained an order for possession. The first defendant sought an urgent order staying the execution of a warrant of possession obtained by the plaintiff. These reasons deal with my reasons for dismissing the application.
On 15 July 2015 the first defendant became a bankrupt upon the making of a sequestration order in the Federal Circuit Court. That order was made as a consequence of the default judgment obtained against him in the Magistrate's Court by a third party. It is apparent from the affidavit material that the first defendant unsuccessfully applied to set aside the default judgment in the Magistrate's Court. It is also apparent that he applied to the Federal Circuit Court to set aside the bankruptcy notice served on him. That application was dismissed. After the making of the sequestration order he applied to have the order reviewed but, again, his application was dismissed.
The plaintiff instituted these proceedings in October 2015. They joined, in addition to the first defendant, Mr Scott, the trustee of the bankrupt estate of the first defendant. It might be that the joining of the first defendant was unnecessary, but it is not an uncommon practice to join both the registered proprietor and the trustee in bankruptcy.
The effect of the making of a sequestration order is that the property of the bankrupt, relevantly here, the real property, vests in the Bankruptcy Trustee (“the Trustee”). That is, it is a consequence of s 58 of the Bankruptcy Act 1966 (“the Act”) which provides:
58Vesting of property upon bankruptcy—general rule
(1)Subject to this Act, where a debtor becomes a bankrupt:
(a)the property of the bankrupt, not being after‑acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b)after‑acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
Note 1:This subsection has a limited application if there are orders in force under the proceeds of crime law: see section 58A.
Note 2:Even if property has vested under this section, it may, under the Proceeds of Crime Act 2002:
(a)    become subject to a restraining order; and
(b)    be taken into account in making a pecuniary penalty order; and
(c)    become subject to a charge to secure the payment of an amount under a pecuniary penalty order, if it is subject to a restraining order; and
(d)    be dealt with by the Official Trustee, if it is subject to a restraining order and a court has directed the Official Trustee to pay the Commonwealth an amount under a pecuniary penalty order out of property subject to the restraining order.
(2)Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with.
(3)Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
(4)After a debtor has become a bankrupt, distress for rent shall not be levied or proceeded with against the property of the bankrupt, whether or not the bankrupt is a tenant of the landlord by whom the distress is sought to be levied.
(5)Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.
(5A)Nothing in this section shall be taken to prevent a creditor from enforcing any remedy against a bankrupt, or against any property of a bankrupt that is not vested in the trustee of the bankrupt, in respect of any liability of the bankrupt under:
(a)a maintenance agreement; or
(b)a maintenance order;
whether entered into or made, as the case may be, before or after the commencement of this subsection.
(6)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.
A possession order was made in respect of the property on 25 November 2015 on the plaintiff’s application. A warrant of possession was issued by the Court and the Sherriff was to execute it on 2 February 2016.
It is also necessary to consider s 116 of the Act, which provides as follows:
116Property divisible among creditors
(1)Subject to this Act:
(a)all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and
(b)the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and
(c)property that is vested in the trustee of the bankrupt’s estate by or under an order under section 139D or 139DA; and
(d)money that is paid to the trustee of the bankrupt’s estate under an order under section 139E or 139EA; and
(e)money that is paid to the trustee of the bankrupt’s estate under an order under paragraph 128K(1)(b); and
(f)money that is paid to the trustee of the bankrupt’s estate under a section 139ZQ notice that relates to a transaction that is void against the trustee under section 128C; and
(g)money that is paid to the trustee of the bankrupt’s estate under an order under section 139ZU;
is property divisible amongst the creditors of the bankrupt.
(2)Subsection (1) does not extend to the following property:
(a)property held by the bankrupt in trust for another person;
(b)the bankrupt’s household property that is:
(i)of a kind prescribed by the regulations; or
(ii)identified by a resolution passed by the creditors before the trustee realises the property;
(ba)personal property of the bankrupt that:
(i)has sentimental value for the bankrupt; and
(ii)is of a kind prescribed by the regulations; and
(iii)is identified by a special resolution passed by the creditors before the trustee realises the property;
(c)the bankrupt’s property that is for use by the bankrupt in earning income by personal exertion and:
(i)does not have a total value greater than the limit prescribed by the regulations; or
(ii)is identified by a resolution passed by the creditors; or
(iii)is identified by an order made by the Court on an application by the bankrupt;
(ca)property used by the bankrupt primarily as a means of transport, being property whose aggregate value does not exceed the amount prescribed by the regulations or, if before the trustee realises the last‑mentioned property the creditors determine by resolution a greater amount in relation to that property, that greater amount;
(d)subject to sections 128B, 128C and 139ZU:
(i)policies of life assurance or endowment assurance in respect of the life of the bankrupt or the spouse or de facto partner of the bankrupt;
(ii)the proceeds of such policies received on or after the date of the bankruptcy;
(iii)the interest of the bankrupt in:
(A)a regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993); or
(B)an approved deposit fund (within the meaning of that Act); or
(C)an exempt public sector superannuation scheme (within the meaning of that Act);
(iv)a payment to the bankrupt from such a fund received on or after the date of the bankruptcy, if the payment is not a pension within the meaning of the Superannuation Industry (Supervision) Act 1993;
(iva)a payment to the bankrupt under a payment split under Part VIIIB of the Family Law Act 1975 where:
(A)the eligible superannuation plan involved is a fund or scheme covered by subparagraph (iii); and
(B)the splittable payment involved is not a pension within the meaning of the Superannuation Industry (Supervision) Act 1993;
(v)the amount of money a bankrupt holds in an RSA;
(vi)a payment to a bankrupt from an RSA received on or after the date of the bankruptcy, if the payment is not a pension or annuity within the meaning of the Retirement Savings Accounts Act 1997;
(vii)a payment to the bankrupt under a payment split under Part VIIIB of the Family Law Act 1975 where:
(A)the eligible superannuation plan involved is an RSA; and
(B)the splittable payment involved is not a pension or annuity within the meaning of the Retirement Savings Accounts Act 1997;
(g)any right of the bankrupt to recover damages or compensation:
(i)for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or
(ii)in respect of the death of the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt;
and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person;
Note:See also subsection 5(6).
(k)amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph;
(l)amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph, where the amounts are paid in circumstances prescribed for the purposes of this paragraph;
(m)prescribed amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph;
(ma)prescribed amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph, where the amounts are paid in circumstances prescribed for the purposes of this paragraph;
(mb)amounts paid to the bankrupt by the Commonwealth as compensation in relation to the loss of:
(i)an amount covered by paragraph (k), (l), (m) or (ma); or
(ii)property purchased or acquired wholly or partly with such an amount;
(n)property to which, by virtue of subsection (3), this paragraph applies;
(p)amounts paid to the bankrupt under subsection (2C) or (4);
(q)any property that, under an order under Part VIII of the Family Law Act 1975, the trustee is required to transfer to the spouse, or a former spouse, of the bankrupt;
(r)any property that, under an order under Part VIIIAB of the Family Law Act 1975, the trustee is required to transfer to a former de facto partner of the bankrupt;
(s)the bankrupt’s property that is:
(i)a support for the bankrupt that was funded under the National Disability Insurance Scheme (as defined in the National Disability Insurance Scheme Act 2013); or
(ii)an NDIS amount (as defined in that Act).
The effect of the scheme of the Act is that a chose in action is property that vests in a trustee. It is only those actions that fall within the exemption provision in s 116(2)(g) that remain with the bankrupt.
Once the property of a bankrupt vests in a trustee, the bankrupt no longer has standing in legal proceedings in respect of that property.[1] In Rogers v Asset Loan Co Pty Ltd & Ors[2] the Court was dealing with an application by a bankrupt for an interlocutory injunction to prevent a secured creditor exercising a power of sale in respect of real property. Greenwood J said:[3]
Mr Rogers attacks the exercise of the power of sale by the secured creditor[s] on the basis of a failure to comply with the requirements of s84 of the Property Law Act 1974 (Qld). The interest of Mr Rogers in agitating that question is his interest as owner of the property the subject of the security. That interest has become vested in the trustee. It includes the rights, powers and capacities of the bankrupt in relation to that interest which, in turn, includes the right to agitate the question of whether the secured creditor has complied with the Property Law Act 1974 (Qld). I accept the submission that only the trustee can agitate that question and the trustee chooses not to do so.
[1] Cirillo & Anor v City Corp Australia Limited & Ors (2004) 2 ABC(NS) 525 at 545.
[2] (2006) 4 ABC(NS) 293.
[3] Rogers v Asset Loan Co Pty Ltd & Ors (2006) 4 ABC(NS) 293 at 305.
The position is the same here. The right to make an application to prevent the secured creditor exercising rights in respect of its security is a right vested in the Trustee. The Trustee has not made any such application and in fact opposes the application of the first defendant. The Trustee’s position is that the property should be sold.
The first defendant said that he proposed to make further applications to challenge the default judgment and also the sequestration order. The effect of the sequestration order is he no longer has an interest in the Magistrate's Court judgment.[4] A bankrupt has no standing to set aside a default judgment upon which a sequestration order was based.[5]
[4] Michael John Fuller and Patrick Joseph Cummings v Beach Petroleum NL and Claremont Petroleum NL (1993) 43 FCR 60.
[5] W R Henry and Son v Hodge [1963] VR 111.
In possession proceedings, therefore, a bankrupt proprietor of land has no standing to appear in the proceedings and no entitlement to oppose the making of orders by the Court. The only basis on which a bankrupt may be heard is in the capacity of occupier pursuant to the rights afforded to occupiers by the Rules of Court.[6]
[6] Supreme Court Civil Rules 2006 r 204.
The position the first defendant finds himself in is regrettable. However, his status is that of an undischarged bankrupt. The Court must adjudicate his rights on the basis of that status. The real property vested in his Trustee, who is the only person who may apply to the Court in respect of it. The application for a stay on the warrant of possession was dismissed.