Michell (Trustee), in the matter of Lee (deceased)

The case of Michell (Trustee), in the matter of Lee (deceased) involved the trustees of the bankrupt estate of John William Lee, who had died during his bankruptcy, and Maureen Monica Lee, the administrator of his intestate estate. The trustees sought directions from the Court regarding the outstanding fees owed to Mr Lee at the time of his bankruptcy and fees that were paid after the sequestration order. The central legal issue was whether these fees should be treated as property of the bankrupt that vested in the trustees, or as income of the bankrupt. Additionally, the trustees sought directions on whether they should have acted in accordance with the authority set by Lockhart J in Re Sharpe; Ex parte Donnelly (1998) 80 FCR 536, which held that fees owed to a bankrupt at the date of bankruptcy, and paid afterwards, were income of the bankrupt and not property of the bankrupt.

The Court considered the established principles under the Bankruptcy Act 1966 (Cth) concerning the vesting of property upon bankruptcy and the nature of the bankrupt's practice as a barrister operating on a cash receipts basis. The Court noted the authority of Lockhart J, who held that fees owed to a bankrupt at the date of bankruptcy, and paid afterwards, belonged to the bankrupt as income. The trustees argued for a different outcome, contending that the fees should be treated as property of the bankrupt. However, the Court found that the trustees should have followed the established authority and treated the fees as income of the bankrupt. Furthermore, the Court ruled that the costs of the trustees and the costs paid to the successful respondent should not be treated as costs of the trustees in the administration of the bankrupt estate.

The Court dismissed the application and ordered that the trustees pay the costs of the proceeding to Maureen Monica Lee as the administrator of the deceased estate of John William Lee. Additionally, the Court ruled that the costs incurred by the trustees and the costs paid to the respondent should not be treated as costs of the trustees in the administration of the bankrupt estate. The decision underscored the importance of adhering to established legal authorities and the distinction between property and income in the context of bankruptcy.