Bredenkamp (Trustee) v McKelt (Bankrupt)

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.