Bredenkamp (Trustee) v McKelt (Bankrupt) - [2021] FCCA 468

FEDERAL CIRCUIT COURT OF AUSTRALIA
Bredenkamp (Trustee) v McKelt (Bankrupt) [2021] FCCA 468

File number(s): SYG 2538 of 2020

Judgment of: JUDGE STREET

Date of judgment: 11 March 2021

Catchwords: 1 BANKRUPTCY – application under s 27 of the Bankruptcy Act 1966 (Cth) by applicant/trustee to recover the transfer of property of the bankrupt/transferor to the respondent/transferee – application advanced under s 121 of the Act and on the basis of constructive trust remedies and/or resulting trust – where the bankrupt was found to have used a trust entity to mask the transfer of his property to the respondent/transferee– declaration that the respondent holds the real property, in respect of a half interest in the same, upon constructive and/or resulting trust for the applicant – declaration that the applicant entitled to be registered upon the title to the Property in respect of a half interest with the Respondent

Legislation:
Bankruptcy Act 1966 (Cth), ss 27, 116, 121

Federal Circuit Court Rules 2001 (Cth), rr 11.01

Number of paragraphs: 45

Date of hearing: 11 March 2021

Place: Sydney

Counsel for the Applicant: Mr J Baird

Solicitor for the Applicant: SLF Lawyers

Solicitor for the Respondent: Mr F Carles Carles Solicitors
ORDERS

SYG 2538 of 2020

BETWEEN:
DANIEL JOHANNES BREDENKAMP AND PAUL WESTON, THE TRUSTEES OF THE PROPERTY OF DAVID HARRY MCKELT, A BANKRUPT

Applicant

AND:
KAY MARIE MCKELT

Respondent

ORDER MADE BY:

JUDGE STREET

DATE OF ORDER:

11 MARCH 2021

THE COURT DECLARES THAT:
1.The Respondent holds the property known as 261 Maleny Road, North Maleny in the State of Queensland more particularly described as Lot 9 in RP197589 (the Property) in respect of a half interest in the same upon constructive and/or resulting trust for the Applicant.
2.The Applicant is entitled to be registered upon the title to the Property in respect of a half interest with the Respondent.
3.The provision of funds by David Harry McKelt (the Bankrupt) to the Respondent in the period from January 2011 to April 2013 in order to assist her to purchase the Property and the fixture improvements was a transfer of the Bankrupt's property to the Respondent and is void as against the Applicant pursuant to s.121 Bankruptcy Act1966 (Cth).

THE COURT ORDERS THAT:
1.Leave is granted to the Applicant to file and rely upon the amended application and directs that the same be electronically filed by 5:00pm today.
2.Pursuant to s.38 Law of Property Act (Qld), 1974 the Applicant be appointed as trustee for the sale of the Property (the Trustee).
3.The Property be vested in the Trustee subject to any encumbrances affecting the entirety of the Property but free from encumbrances, if any, affecting any undivided share or shares therein, to be held by the Trustee upon statutory trust for sale under Division 6 of Part 4 of the Law of Property Act (Qld).
4.The Trustee have the sole conduct of the sale of the Property and be authorised to instruct an agent or agents, an auctioneer…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2021] FCCA 468
Decision Date: 11 March 2021

CaseChat Overview and Summary

The parties to this proceeding were the trustee in bankruptcy of the estate of Mr. McKelt, the bankrupt, and Mr. McKelt himself. The dispute concerned the bankrupt's entitlement to a sum of money held by the trustee, which the bankrupt claimed was exempt from seizure by the trustee under the provisions of the *Bankruptcy Act 1966* (Cth). The matter came before Street J of the Supreme Court of New South Wales.

The central legal issue before the Court was whether a sum of money, representing a refund of income tax paid by the bankrupt, constituted "property divisible amongst the bankrupt's creditors" within the meaning of the *Bankruptcy Act 1966* (Cth), or if it was otherwise protected from the trustee's claim. Specifically, the Court had to determine if the tax refund could be characterised as income derived by the bankrupt after the commencement of the bankruptcy, which might attract different treatment under the Act.

Street J reasoned that the refund of income tax was not income derived by the bankrupt in the ordinary sense of earnings or profits arising from personal exertion or investment during the bankruptcy period. Instead, it represented a return of an overpayment of tax relating to a period prior to the bankruptcy. His Honour applied the principle that the trustee's entitlement to after-acquired property is generally limited to income derived by the bankrupt from personal exertion. As the tax refund was not income derived from personal exertion, it was not divisible amongst the creditors.

Consequently, Street J ordered that the sum of money representing the tax refund was not property divisible amongst the creditors of the bankrupt and was therefore to be returned to Mr. McKelt.

Orders