Debrossard & Official Trustee in Bankruptcy
[2011] FamCA 648
•19 August 2011
FAMILY COURT OF AUSTRALIA
| DEBROSSARD & OFFICIAL TRUSTEE IN BANKRUPTCY | [2011] FamCA 648 |
| FAMILY LAW - PROPERTY – Where consent orders provided for the former matrimonial home to be transferred into the wife’s name following the husband being declared bankrupt – Where Official Trustee sought orders that consent orders be set aside - Where consent orders were subsequently set aside – Where wife seeks orders that the consent orders be reinstated – Contributions – Division of property between the wife and the Official Trustee - Whether Official Trustee should be empowered to act as trustee for the sale of the property. |
| Family Law Act 1975 (Cth) – s 75(2), s 75(2)(ha), s 79, s 79(1), s 79(2), s 79(4), Bankruptcy Act 1966 - s 58(1), s 116 Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) |
| Clauson and Clauson (1995) FLC 92-595; 18 Fam LR 693 Coghlan and Coghlan (2005) FLC 93-220; 32 Fam LR 414 Ferraro and Ferraro (1993) FLC 92-335 Hickey and Hickey (2003) FLC 93-143; 30 Fam LR 355 Lee Steere and Lee Steere (1985) FLC 91-626 Trustee of the property of G Lemnos (a bankrupt) v Lemnos and Another (2009) 41 Fam LR 120 |
| APPLICANT: | Ms Y Debrossard |
| RESPONDENT: | Official Trustee in Bankruptcy |
| FILE NUMBER: | WOC | 799 | of | 2007 |
| DATE DELIVERED: | 19 August 2011 |
| PLACE DELIVERED: | Parramatta |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Johnston J |
| HEARING DATE: | 25 February 2011 |
REPRESENTATION
| FOR THE APPLICANT: | Ms Y Debrossard in person |
| COUNSEL FOR THE RESPONDENT: | Mr Combe |
| SOLICITOR FOR THE RESPONDENT: | Sally Nash & Co |
Orders
That Ms C and Mr M of Insolvency Trustee Service Australia (“ITSA”), 4/201 Elizabeth Street, Sydney, New South Wales or other employees of ITSA be appointed trustees (“the Trustees”) for the sale of the property being the whole of the land contained in folio identifier … situate at … B Street, Town 1, New South Wales (“the property”).
That the property vest forthwith in the said Trustees subject to any legal encumbrances affecting the entirety thereof and free of any encumbrances affecting any undivided shares therein to be held upon the statutory trust for sale as if such statutory trust for sale had been created pursuant to Division 6 of Part IV of the Conveyancing Act 1919 (NSW).
That Ms Y Debrossard shall give vacant possession of the property not later than 21 days prior to the date for completion under the contract for sale of the property.
That Ms Y Debrossard shall be responsible for all mortgage repayments, rates, insurances and other outgoings in respect of the property pending completion of the sale.
That Ms Y Debrossard maintain the property in a clean and tidy condition, co-operate at all times with the requests of the Trustees including co-operating with real estate agents, tradesmen and any agent of the Trustees and make the property available for inspection by prospective purchasers at all reasonable times.
That the said Trustees be empowered to offer the property for sale and to sell the property by public auction at a reserve price to be agreed between the Trustees and Ms Y Debrossard and if a reserve price is not agreed after 7 days of the Trustees nominating a reserve price to Ms Y Debrossard in writing, at a reserve price to be nominated by the nominee of the President of the Real Estate Institute of New South Wales or, alternatively, to sell the property by private treaty at a price not more than 8 percent less than the reserve price.
That after the sale of the said property at auction or by private treaty, the Trustees shall apply the proceeds of sale to pay the following:
7.1.The commission, advertising and other expenses of real estate agents employed by the Trustees for sale of the property;
7.2.Repayment to Company 1 and Company 2 or other registered chargor over the property in discharge of any mortgage or charge;
7.3.The legal expenses of transferring the property to the purchaser;
7.4.Any taxes including but not limited to Capital Gains Tax, Land Tax and Goods and Services Tax associated with the sale of the property;
7.5.All necessary adjustments of rates and taxes on settlement of sale;
7.6.Insurance and other reasonable expenses for the protection, maintenance and upkeep of the property incurred prior to transfer to the purchaser;
7.7.60 percent of the proceeds of sale after all expenses listed above to be paid to Ms Y Debrossard; and
7.8.40 percent of the proceeds of sale after all expenses listed above to be paid to the Official Trustee as the trustee of the bankrupt estate of Mr I Debrossard.
That the parties shall execute all deeds and instruments necessary to give effect to these orders.
That in the event any party refuses, fails or neglects to execute any such deeds and instruments necessary to give effect to these orders, the Registrar of this Court shall be appointed pursuant to section 106A of the Family Law Act 1975 to execute such deed or instrument in the name of the party and to do all acts and things necessary to give validity to the operation of such deed or instrument.
That both parties have leave to relist these proceedings in relation to implementation of the orders.
That all exhibits be released.
IT IS NOTED that publication of this judgment under the pseudonym Debrossard & Official Trustee in Bankruptcy is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT PARRAMATTA |
FILE NUMBER: WOC 799 of 2007
| Ms Y Debrossard |
Applicant
And
| Official Trustee in Bankruptcy |
Respondent
REASONS FOR JUDGMENT
Introduction
These are property proceedings. The parties in the proceedings are Ms Y Debrossard and the Official Trustee in Bankruptcy. For convenience I shall refer to them as “the wife” and “the Official Trustee”. The Official Trustee is the Trustee of the bankrupt estate of Mr I Debrossard. I shall refer to Mr I Debrossard as “the husband”.
On 12 July 2007 the wife filed an Application for Final Orders in this Court.
On 7 December 2007 consent orders were made between the husband and wife by a Registrar of this Court in relation to the parties’ property. The effect of the orders was that the husband was to transfer his interest in the former matrimonial home at Town 1 to the wife.
But earlier that year, namely on 12 April 2007 the husband had been declared bankrupt.
In March 2010 the Official Trustee filed an application in this Court seeking to have the consent orders set aside. The wife filed a response. Those proceedings came before me and on 10 May 2010 I made orders to the effect that the consent orders be set aside.
At the time that the Court made the consent orders the husband owned no property. This was because by way of operation of ss 58(1) and 116 of the Bankruptcy Act1966 all property of the husband had vested in the Official Trustee as at 26 September 2006. That date was the date of the first act of bankruptcy by the husband. The Official Trustee was given no notice of the application which the husband and wife proposed to make which culminated in the making of the consent orders.
After I made orders setting aside the consent orders, over the strong objection of the wife, a practical consequence was that the Official Trustee then became the moving party in respect of the matrimonial property dispute, although the wife remained the applicant, at least in a technical sense.
Applications
The Official Trustee seeks substantive orders to the following effect:
·That named employees of the Insolvency Trustee Service Australia (“ITSA”) be appointed trustees for the sale of the former matrimonial home at Town 1;
·That the said property vest forthwith in the trustees and that they be authorised to sell the property;
·That the wife give possession of the property to the trustees within a specified time and vacant possession within a further specified time;
·That the wife be responsible for all mortgage repayments, rates, insurances and other outgoings in respect of the property pending completion of the sale;
·That in the event of non-compliance by the wife to give vacant possession a writ of possession be issued in favour of the trustees;
·That the trustees have various powers, including a power to sell the property by public auction;
·That the proceeds of sale be applied to pay the following:
a)Real estate agent’s commission, advertising and other expenses;
b)Discharge of the mortgage(s);
c)The remuneration expenses of the trustees in respect of the sale;
d)The legal expenses upon sale;
e)Any taxes;
f)All necessary adjustments of rates and taxes on settlement;
g)Insurance and other reasonable expenses for the protection, maintenance and upkeep of the property incurred prior to transfer;
h)60 percent of the remaining proceeds to the wife and 40 percent thereof to the Official Trustee as trustee of the bankrupt estate of the husband.
On the other hand the wife seeks orders to the effect that the application by the Official Trustee be dismissed. The wife also seeks orders that the original consent orders be reinstated and that she and the husband do all things and sign all documents necessary to transfer the Town 1 property into the name of the wife. The wife also seeks an order to the effect that the Official Trustee pay compensation to her in the sum of $250 000 and pay her costs of these proceedings.
Background
The husband was born in 1954 and he is therefore almost 57 years of age. The wife was born in 1955 and she is therefore 56 years of age. They commenced cohabitation in 1976 and were married in 1977 in Wollongong, New South Wales. They separated in 2005 and their divorce was finalised on 12 August 2006.
There are three adult children of the marriage. They are, Mr J Debrossard born in 1982, Mr T Debrossard born in 1984 and Ms K Debrossard in 1986.
In 1971, the wife completed a secretarial course. She then worked for various employers in the Sydney Suburb 1 and Wollongong areas between 1971 and 1981.
In September 1976, the husband and wife purchased a property at P Street, Wollongong Suburb 1 for $16 500 as tenants in common. The property was secured by a mortgage to Illawarra Co-Operative Building Society. They purchased the property together because the wife was unable to obtain a loan on her own as a young single woman.
As indicated above, in 1977, the husband and wife married.
In July 1979, they sold their property at P Street, Wollongong Suburb 1 for $18 750. In 1980 they purchased a property at M Street, Wollongong Suburb 2 as joint tenants.
In March 1986, the husband and wife sold their Wollongong Suburb 2 property and entered into a contract to purchase the property at B Street, Town 1 (“the Town 1 property”) as joint tenants for $67 000. This purchase was completed in June 1986. The purchase was facilitated by a loan of $25 000 on mortgage.
Between 1989 and 1990, the wife worked on a casual basis doing word processing for Business 1.
Between 1992 and 2002, the husband was employed by Business 2 as a manager.
From 1991 to 1993, the wife worked for Business 3 in a job share arrangement, earning $200 per week.
In January 1997, the husband and wife re-financed their loan by increasing it to $75 000 with the National Australia Bank to enable them to extend the Town 1 property. This mortgage was discharged in August 2002.
In March 1997, the husband established a company through which he provided his employment services to the proprietor of Business 2. The company was called A Pty Limited and the husband and wife were appointed as directors.
In 1998 the wife rolled over her superannuation benefit of $9407 from Super 1 to the Debrossard Superannuation Fund at the request of the husband.
In November 1999 the wife’s mother loaned the parties $20 207.
During December 2001 the husband started to suffer health problems. Not only was he working full time but he was studying part time at University 1.
From February 2002 to 29 September 2006, the wife worked on a casual basis at University 1.
The husband suffered a serious breakdown in his health in April 2002. He was terminated from his employment. He commenced receiving worker’s compensation payments. The parties’ financial circumstances became very strained.
In August 2002, they took out a mortgage of $165 000 on their Town 1 property with Company 3. They discharged the mortgage to the National Australia Bank.
In January 2003, the husband obtained employment as a manager at Business 4.
In December 2003, the husband and wife executed a Deed of Release of Indemnity with the Mines Subsidence Board for $2500 in relation to a claim for compensation for poor repairs for damage to their home by mining.
In December 2003, they obtained a loan from Company 1 also secured on their Town 1 property. The purpose of this loan was to assist funding the purchase of an investment property in Queensland.
In December 2003, the husband was removed from professional recognition pursuant to s … of the … Act … (NSW).
In January 2004, the mortgage to Company 3 was discharged.
In November 2004, the Mines Subsidence Board paid $20 000 to the husband and wife in relation to a claim for works on their Town 1 property.
In January 2005 the parties’ eldest child Mr J Debrossard left the home. Mr T Debrossard and Ms K Debrossard remained living there with the wife.
As indicated above, the husband and wife separated in 2005. The husband left the former matrimonial home and lived with his mother at Wollongong Suburb 3.
In mid 2005 the purchase of the investment property in Queensland was completed.
In May 2006 the mortgagee lodged a caveat in respect of the Town 1 property.
In July 2006, the wife was granted a Centrelink Newstart Allowance.
At approximately this time the parties sold the Queensland investment property. Unfortunately there was a loss on the sale of $25 000.
On 12 August 2006, the husband and wife’s divorce was finalised.
From 5 September 2006 to 10 November 2006, the wife was employed by a government department.
On 10 November 2006, a creditor’s petition was filed by the Deputy Commissioner of Taxation against the husband.
In 2007, the wife commenced a Graduate Diploma at University 2.
On 12 April 2007, the husband was declared bankrupt and a sequestration order was made against him. The property of the husband vested in the Official Trustee as indicated above.
On 23 April 2005, the Official Trustee lodged a caveat in respect of the Town 1 property.
On 21 June 2007, the wife was notified of the husband’s bankruptcy by the Insolvency and Trustee Service Australia (“ITSA”).
On 12 July 2007, the wife filed an Application for Final Orders in this Court seeking, in effect, that she become the sole owner of the Town 1 home as she said was agreed between the parties at the time of divorce.
On 3 August 2007, the husband’s mother Ms D Debrossard died. The husband held an interest in the deceased estate to the value of $150 000 to $155 000.
As indicated above, on 7 December 2007, consent orders were made by a registrar of this Court to the effect that the husband’s interest in the Town 1 property be transferred to the wife.
From January 2008 to April 2008, the wife was employed full-time in the employment field at Town 2, New South Wales.
In April 2008, the wife returned to the Town 1 property and commenced work in the education field on a casual basis.
In September 2008, the husband ceased making mortgage payments on the Town 1 property and the wife became solely responsible for the payments. The wife has been assisted by the parties’ adult daughter Ms K Debrossard in making those payments.
In October 2008, the wife ceased work as a casual employee in the education field.
In March 2009, the wife arranged for the early release of her superannuation from Super 2 in the amount of $7564 on the grounds of hardship. She then paid this to reduce the mortgage balance with Company 1.
At this time the wife was finding it difficult to pay her expenses and her mother loaned her $10 000.
In August / September 2009 the parties’ son Mr T Debrossard left the home.
On 1 September 2009, the wife prepared an application for a lapsing notice in respect of the caveat lodged by the Official Trustee due to her financial hardship. The wife referred to having been unemployed since October 2008.
As indicated above, on 1 March 2010, the Official Trustee filed an application in this Court seeking to have the consent orders set aside.
On 11 March 2010, the Official Trustee lodged a caveat in respect of the Town 1 property.
On 26 March, the wife filed a response to the Official Trustee’s application.
As indicated above, on 10 May 2010, I ordered that the consent orders be set aside on the basis that at the time the orders were made the husband’s property had vested in the Official Trustee and there had been no notice of the proceedings given to the Official Trustee.
On 31 May 2010, the husband and wife lodged a claim with the Mines Subsidence Board in regard to further damage to the Town 1 property caused by subsidence. This was rejected on 4 August 2010.
In May 2010 the wife was released from her liability of $14 250.79 to the Australian Taxation Office.
On 9 September 2010, the parties attempted mediation. This was unsuccessful.
On 29 October 2010, I ordered that a valuer be appointed to value the Town 1 property and the property has been valued at $420 000.
The Bankruptcy Proceedings
A creditor’s petition was filed in the Federal Magistrates Court on 10 November 2006, a sequestration order was made on 12 April 2007.
The substantial unsecured creditor in the bankruptcy was the Deputy Commissioner of Taxation.
The estimate of the amounts due in the bankruptcy administration provided on behalf of the Official Trustee was as follows:
$
Deputy Commissioner of Taxation
220,277.00
[Business 5]
28,584.00
Possible interest claims
35,000.00
Search fees
179.31
Costs of securing and protecting assets
174.00
NPII search
22.00
Standard admin fee
70.00
Insurance premium (as at 30 April 2010)
3,217.26
Petitioning creditors tax costs
2,781.50
Legal costs (estimate only)
15,000.00
Official Trustee’s fees
64,061.01
Realisation charge
13,396.70
______________
$382,762.78
Less amount received in the estate
$100,918.45
______________
Total required (nett)
$281,844.33
The Applicable Law
As submitted by learned counsel for the Official Trustee, the date of bankruptcy namely, 26 September 2006, post dates the commencement of the amendments to s 79 of the Family Law Act 1975 (“the Act”) introduced by the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) on 18 September 2005. Accordingly, the Court may make orders against property vested in the Official Trustee pursuant to s 79(1)(b) of the Act.
This is because s 79(1) provides as follows:
(1)In property settlement proceedings, the court may make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them--altering the interests of the parties to the marriage in the property; or
(b)in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage--altering the interests of the bankruptcy trustee in the vested bankruptcy property;
including:
(c)an order for a settlement of property in substitution for any interest in the property; and
(d)an order requiring:
(i)either or both of the parties to the marriage; or
(ii)the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
Sub-section 79(2) provides that the Court shall not make an order under s 79(1) unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
There is a long-standing preferred approach to the determination of property applications. This involves four inter-related steps. Firstly, the Court should make findings about the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of s 79(4) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should consider the effect of any proposed order upon the earning capacity of either party, the relevant matters in s 75(2), any other order made under the Act affecting a party or child and any child support that a party has provided or for which a party might be liable. The Court is to determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of its findings and determination and resolve what order is just and equitable in all the circumstances of the case.
This approach has been confirmed in numerous cases in this Court including for example Lee Steere and Lee Steere (1985) FLC 91-626; Ferraro and Ferraro (1993) FLC 92-335; Hickey and Hickey (2003) FLC 93-143; 30 Fam LR 355; Coghlan and Coghlan (2005) FLC 93-220; 32 Fam LR 414 and Clauson and Clauson (1995) FLC 92-595; 18 Fam LR 693.
In the case of Trustee of the property of G Lemnos (a bankrupt) v Lemnos and Another (2009) 41 Fam LR 120 the Full Court of this Court (Coleman J) said as follows at page 138:
There is no legislative provision which expressly or impliedly constrains the court from making orders with respect to “property”. Commonsense and experience suggest that there will be many cases in which alterations to parties’ interests in property will be appropriate or necessary notwithstanding that the parties have unsecured liabilities which may exceed the parties’ total equity in such property. Subject to s 90AE(3)(b), I perceive there to be no legislative impediment to the making of property settlement orders in such circumstances.
Accordingly, in cases where there is “property” of the parties to the marriage or either of them, the effect of the 2005 amendments is that the Court has jurisdiction to make orders which have an adverse impact upon unsecured creditors. In this regard the term “property” includes property vested in the trustee of a bankrupt spouse.
And then at page 139:
… by the Insolvency (Tax Priorities) Legislation Amendment Act 1993 the priority previously enjoyed by the ATO has been removed and it now ranks equally alongside other unsecured creditors.
It follows that I agree with the alternative proposition made on behalf of the trustee which I have earlier set out, namely that the effect of the insertion of section 79(1)(b) in the FLA is that the interests of unsecured creditors do not automatically “trump” the interests of the non-bankrupt spouse and that the legislation now requires the Court to balance their competing claims in the exercise of the wide discretion conferred upon the Court by s 79.
His Honour also made it clear that a trial judge is required to consider all relevant matters pursuant to s 75(2) including s 75(2)(ha) before determining what order should be made in the exercise of the court’s discretion.
Sub-section 75(2)(ha) of the Act provides as follows:
75(2)The matters to be taken into account are:-
…
(ha)the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant;
Property Available for Division Between the Parties
This part of the four-step process can be approached in a couple of different ways.
Firstly it is clear that the available assets consist of the following:
$
1. Former matrimonial home
420,000
2. Wife’s motor vehicle
10,000
3. Contents of former matrimonial home
10,000
4. Wife’s superannuation
3,312
_____________
$443,312
But there would also be a basis for adding to this the following assets:
$
5. Wife’s superannuation roll-over to Debrossard Superannuation Fund (add back)
9,4076. Wife’s superannuation released by Super 2 (add back)
10,000
7. Husband’s superannuation
35,000
8. Husband’s inheritance
100,918
_____________
$155,325
This would be a total asset pool of $598 637.
On the other hand if I was to accept all liabilities as asserted by the wife and on behalf of the Official Trustee these would be as follows:
$
1. Company 1 (mortgage)
163,000
2. Business 6 (second mortgage)
24,000
3. Wife’s mastercard
4,000
4. Wife’s flexirent
1,068
5. Wife’s loan from her mother
55,000
6. Wife’s loan from her daughter
17,000
7. Wife’s HECS debt
14,283
8. Wife’s debt to Law Firm 1
15,060
9. Husband’s bankruptcy estate liabilities
382,762
This would be total liabilities of $676 173.
If the Court was to approach the matter on this basis there would be a deficiency. That is that the available property has a lesser value than the total liabilities as asserted. If I was to remove the alleged debts to the wife’s mother and daughter from the liabilities this would reduce the total liabilities by $72 000 which would leave the liabilities as being $604 173. This would still represent a deficiency.
But the fact that there is a deficiency does not prevent the Court from making orders in relation to the property, as indicated above, on the authority of Lemnos.
Contributions
This was a long marriage during the course of which both the husband and the wife applied their skills, qualifications and energy for the overall benefit of their family.
During the early years of the marriage the wife was earning more as a legal secretary than the husband was earning as a clerk. The wife continued to work in full time employment until just before the birth of the parties’ eldest child Mr J Debrossard in June 1982. From this time until 1989 or 1990 the wife did not work in paid employment. But in 1989 or 1990 she started to undertake some casual word processing work from home for which she received between approximately $30 and approximately $100 per week.
Between 1991 and 1993 the wife shared a job as secretary / receptionist with Business 3 for two or three days per week. Between 1994 and 2007 the wife was employed either as a secretary or administrative assistant at University 1. This was full time employment for part of the period. The wife also worked at a government department from September 2006 through 2007. For a few months in early 2008 the wife worked as in the education field at Town 2 and then between April and October that year she worked as a casual employee in the education filed.
On the other hand the husband worked as a clerk and later as a manager with Business 2. As indicated above, his health deteriorated and he lost his employment with Business 2 in April 2002. In January 2003 he commenced employment with Business 4 as a manager.
At the commencement of cohabitation the wife’s property consisted of some savings and a Volkswagen motor vehicle. At this time the husband had some savings and a Holden motor vehicle.
I have referred to the acquisition by the parties of their various properties culminating with their purchase of their former matrimonial home at Town 1.
So it is clear that both of the parties made direct financial contributions and those monies have been used for the purposes of the household. The husband was the major breadwinner.
On the other hand both of the parties have made contributions to the welfare of their family constituted by themselves and the children and as homemakers and parents. Because the husband was the major breadwinner in the earlier part of the marriage and also studying part time towards a degree, the major part of the parenting and household duties fell upon the wife to fulfil. The consequence must be that she has made the major contribution to the family’s welfare.
Given the long duration of the marriage and the commitment by both the husband and the wife to their various responsibilities, one might be inclined to assess their contributions as being equal. But there are some distinguishing matters. Firstly, in November 1999 the wife’s mother loaned the parties $20 207 as I have said. This money has never been repaid. And when the parties separated, although the wife had the use of the former matrimonial home, she also had the responsibility for the care of two of the parties’ children, both of whom were students at the time. In addition, although the husband continued to meet the mortgage payments until 2008, from that time the wife has undertaken the sole responsibility for this. Clearly it has been a major challenge for her and she has only managed to maintain the program of payments with the assistance of the parties’ daughter. I say a challenge because in order to pay the repayments it became necessary for the wife to borrow $10 000 from her mother and she also had access to her superannuation benefit and was able to withdraw $7564 on compassionate grounds.
In my view these matters set the parties apart to some extent in respect of their contributions so that the wife should be assessed as having made a greater contribution overall than has the husband. Having said this one must be careful not to double count. I keep in mind the fact that a significant part of this money consisted of loans from the wife’s mother which the wife says her mother still expects her to repay.
In all these circumstances, in my view, a proper assessment of contributions must favour the wife. However in the circumstances of this case, in my view, it would be somewhat academic to assess the contributions in specific percentage terms. This is for the reason as indicated above that the liabilities would appear to be greater than the total value of the available assets.
s 75(2) matters
As indicated above, the wife is 56 years of age. There is no evidence before the Court in proper form about her health. But there appear to be some problems. Firstly, the wife said that she is a long time sufferer of asthma and I accept that. The wife also said that she has been suffering from the stress of these proceedings and I accept that also. I have had the experience of her engaging in some quite disrespectful behaviour in the courtroom on a number of occasions. When this has occurred I considered it most likely to have been the consequence of the substantial stress that these proceedings appear to have been causing her. The wife did say that she thought that once this case has been completed there would be nothing to stand in the way of her being able to resume full time work.
The wife has a Bachelor’s degree, having graduated in 2004 from University 1. As indicated above she has had some experience working in the education field. In 2007 the wife undertook a year long graduate diploma at University 2. She has secretarial qualifications and long experience as a secretary. In January 2009 the wife completed a Certificate qualification in the healthcare field.
There is no question that the wife has been really struggling financially. Her income consists of the widow allowance of $231 per week. She has only been able to make ends meet with the assistance of the parties’ daughter Ms K Debrossard who has been making substantial weekly contributions to the costs of her mother and herself. In her financial statement the wife estimated her personal expenditure as being $770 per week. I accept this but note that this includes the entirety of the cost of the two mortgages, the total being $287 per week. As indicated above, clearly Ms K Debrossard assists the wife in meeting this and other expenditure.
On the other hand I know little about the husband’s current circumstances. He is almost 57 years of age and apparently in reasonable health. He did make an appearance in Court prior to the time when I made the orders setting aside the consent orders. But he has had no standing in these proceedings. It may be that with the passage of time, including the time since the hearing of this matter to delivery of this judgment, he might no longer be a bankrupt. He has a degree although he has not been professionally certified and would presumably face considerable difficulties in that regard.
In all these circumstances, particularly the obviously necessitous circumstances of the wife, in my view there should be some set-off of property in favour of the wife. But again I can see no point in arriving at a specific percentage adjustment and regard a broader approach to the exercise of discretion to be appropriate.
Conclusion and Fourth Step
As I have said, on the one hand the wife is in very necessitous circumstances and no doubt needs every dollar the Court can fairly direct to her. On the other hand, as indicated above, an important matter for the Court to consider is the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant. As I have said, this is provided by s 75(2)(ha). Clearly for every dollar in the value of the property which the Court might favour the wife with there would be one less dollar available to satisfy the unsecured creditors and those acting in their interests. As Coleman J said in Lemnos (above) at page 131:
… I conclude that the reconciliation of the conflicting rights of unsecured creditors of the bankrupt and the rights of the bankrupt’s spouse involves the exercise of discretion. …
What the Official Trustee proposes in the orders as sought is that the major asset available for division, namely the former matrimonial home, be sold and the net proceeds after paying the usual costs and discharging the mortgages be paid 60 percent to the wife and 40 percent to the Official Trustee. Implicit in this arrangement would be that the wife would be responsible for whatever other liabilities she says she has including those she asserts in relation to her mother and daughter and, on the other hand, that the Official Trustee would do the best out of the available funds to pay some money to the unsecured creditors. What this would be likely to produce in practical terms is as follows.
The Town 1 property has a value of $420 000. From this would be paid the outstanding mortgage balance, say $163 000 to Company 1 and $24 000 to Business 6. This would produce $233 000 although there would be some sale costs. Sixty percent of this is $139 800. Forty percent of this amount would be $93 200.
In other words the practical effect of this would be on a sale of the property the wife would receive an amount in the vicinity of $139 800 obviously depending on what sale price was achieved and taking account of the costs of sale and, on the other hand, the unsecured creditors would be left to share an amount of $93 200. Whether the wife would repay her mother and the parties’ daughter for the alleged money she owes them would be a matter between those persons and the wife. If the wife was to pay the $72 000 which she says she owes to them and her debt to Law Firm 1, this would be an amount to be paid by her of $87 060. Taking this from the $139 800 would leave her with $52 740. In my view the HECS debt is in a different category because as I understand arrangements under the Scheme the debt is repaid in accordance with a formula at a time when the debtor is employed in income producing work.
Clearly this would leave the wife with only a very modest amount. But that situation is obviously more favourable to her than if the Court was simply to take the assets available for division and deduct all the liabilities which would leave nothing. It might be argued that to allow the wife a higher percentage of the available assets would be more appropriate. But in my view this would be unfair to the unsecured creditors who even on the application of the Official Trustee would only be receiving an amount in the vicinity of $93 200 as I have said to apply against total liabilities in excess of $281 844. They would be receiving approximately 33 cents in each dollar. In reality the liabilities will almost certainly be higher than this because of legal costs of these proceedings.
Amongst all the relevant matters to which consideration must be given is the manner in which the indebtedness to the secured creditors arose. As indicated above the major unsecured creditor is the Deputy Commissioner of Taxation. It is not clear to me how much continues to be owed in circumstances where in excess of $100 000 was applied from the husband’s inheritance to reduce the overall liabilities in the estate. But there had been in excess of $220 000 owing to the Deputy Commissioner of Taxation as at April 2010 and a significant part of that must still remain owing. This liability arose apparently over quite some years as a consequence of the company A Pty Limited not lodging income tax returns. The consequence of the company not lodging income tax returns must have been that income which would not otherwise have been available to the family was available to them. Accordingly, the wife must have derived some benefit from this situation.
In all these circumstances in my view for this Court to make orders in accordance with what is proposed by the Official Trustee would be an appropriate exercise of the Court’s discretion pursuant to the requirements of s 79 of the Act. In my view the orders which would flow from such an exercise would be just and equitable in all the circumstances.
Compensation
As indicated above, the wife also included in the orders she seeks an order to the effect that the Official Trustee pay compensation to her. There is no basis at law for any such order.
Orders
As indicated at the outset the Official Trustee seeks orders that in effect appoint it as trustee for sale of the Town 1 property. In my personal experience of this case there has been very little cooperation between the wife and the Official Trustee. In fact not only has the wife sought to thwart the interests of the Official Trustee by joining with the husband in having the consent property orders made but she has resisted most, if not all, of the endeavours of the Official Trustee to bring their dispute about this matter to conclusion. This included difficulties in the wife not cooperating with efforts to have the Town 1 property valued.
In these circumstances and on the basis of my own observations of the problems on numerous court occasions between the wife and the Official Trustee this Court could have no confidence that if both the wife and the Official Trustee were given the power to arrange the sale of the Town 1 property, with all the decisions which would have to made about this, that the exercise would be able to progress to completion. If I was to place the responsibility to arrange for the sale of the home in the hands of the wife I have no confidence that she would be able to bring herself to do what would be required. In these circumstances, in my view, the only appropriate course would be to make orders which would empower the Official Trustee to act as trustee for sale of the property.
Having said this, I do not propose at this stage to make an order that in the event that the wife failed to give possession of the property to the trustees for the purpose of completion of sale a writ of possession be issued in favour of the trustees. In my view this would be a step too far at this point. In my view the appropriate course would be to make an order requiring the wife to give possession of the property to the trustees to enable completion at the appropriate time. In the event that the wife was to fail to comply with the order then it would be a matter for the Official Trustee to place before the Court the relevant evidence of the failure and seek that appropriate relief.
I note also that under the orders proposed by the Official Trustee it proposed that the wife have 140 days before being required to give vacant possession of the property. This would have been almost five months. But given the time that it has taken to prepare this judgment and bearing in mind that time will be taken to achieve a sale of the property, in my view it would be unreasonable to include such a provision in the orders.
I certify that the preceding one hundred and thirteen (113) paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Johnston delivered on 19 August 2011.
Associate:
Date: 19 August 2011
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