Delic v Kazar and Slaven as Joint Trustees in the Bankrupt Estate of Delic

The applicant, Mr. Delic, sought orders under section 104 of the *Bankruptcy Act 1966* (Cth) to reverse or vary the trustees' acceptance of a proof of debt lodged by a third party. The trustees in the bankrupt estate of Mr. Delic were Kazar and Slaven. The dispute centred on the validity of the debt, which Mr. Delic contended arose from an agreement that was either liable to be set aside due to unilateral mistake or induced by misleading or deceptive conduct. The matter came before Manousaridis J.

The primary legal issue before the Court was whether section 104 of the *Bankruptcy Act* empowered the Court to determine that a debt admitted by the trustee was not a valid debt, on the basis that the underlying agreement was liable to be set aside, without first making a formal order setting aside that agreement.

Manousaridis J reasoned that section 104 of the *Bankruptcy Act* is broad enough to encompass the determination of whether a debt, as admitted by the trustee, is in fact a debt at all. His Honour held that the Court, in exercising its supervisory role over trustees, could inquire into the validity of the debt and, if it found the underlying agreement to be vitiated by mistake or misleading conduct, could conclude that no debt arose from that agreement. This conclusion could be reached without the necessity of making a separate, formal order to set aside the agreement itself. The Court determined that such an inquiry and determination fell within the scope of section 104.