Re: Buloke Shire Council
[2005] FMCA 793
•30 May 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| RE: BULOKE SHIRE COUNCIL | [2005] FMCA 793 |
| BANKRUPTCY – Administration of property – realisation of property – disclaimer of onerous property and consequences – land – other matters – vesting order under s.133(9) of the Bankruptcy Act – vesting order in favour of rating authority. |
| Bankruptcy Act1966, s.181 Local Government Act1989, s.133(9) |
| Applicant: | BULOKE SHIRE COUNCIL |
| File Number: | MLG 144 of 2005 |
| Judgment of: | Riethmuller FM |
| Hearing date: | 30 May 2005 |
| Last Submission: | 30 May 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 30 May 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr Chay |
| Solicitors for the Applicant: | John R Buman & Co |
ORDERS
Title in the property (“the property”) at 322 Broadway Street, Wycheproof in the State of Victoria being all that land described in Certificate of Title Volume 7410 Folio 982 be vested in the applicant.
The applicant forthwith take all necessary and reasonable steps to sell the property.
Upon the sale of the property being effected the applicant is to apply the proceeds from such sale in the manner and priority as follows:
(a)firstly, in payment of the costs of sale incurred by the applicant (or for which it is liable if not paid prior to obtaining the proceeds of sale);
(b)secondly, in payment of the legal costs incurred by the applicant in bringing this application in the amount fixed in accordance with these orders;
(c)thirdly, in the event of any surplus from the proceeds of sale subsequent to the payment of the costs referred to in paragraph (a) and (b) above, such surplus is to be divided equally between the applicant and the Grampians Wimmera Mallee Water Authority in payment of any outstanding municipal and water rates in respect of the property;
(d)fourthly, in the event of any surplus after payment of the foregoing costs and outstanding rates such surplus is to be paid to Mr Peter Robert Vince in his capacity as Trustee of the Bankrupt Estate of William Edmund Ryan;
The applicant and the Trustee have liberty to apply in this matter.
The applicant’s costs of this proceeding be fixed in the amount of $4,191.30.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 144 of 2005 of 2004
| RE: BULOKE SHIRE COUNCIL |
REASONS FOR JUDGMENT
This is an application by Buloke Shire Council for orders vesting the title of the property at 322 Broadway Street, Wycheproof (being the land contained in certificate of title volume 7410 and folio 982) in the council.
Background
On 4 June 1969 William Edmond Ryan became the sole registered proprietor of the property. On 22 May 1997 Ryan became bankrupt and a trustee was appointed to administer the estate.
On or about 8 October 1997 the trustee’s interest in the property was registered on the certificate of title.
As a result of the mounting rates liability on the property ($9,155.57 as at 2 February 2005) the trustee disclaimed any interest in the property under section 133 of the Bankruptcy Act on 16 January 2003.
Section 133 of the Bankruptcy Act provides as follows:
(1AA) Where any part of the property of the bankrupt consists of:
(a) land of any tenure burdened with onerous covenants; or
(b) property (including land) that is unsaleable or is not readily saleable;
subsection (1) applies.
(1AB) Where:
(a) any part of the property of the bankrupt consists of property, being neither land nor an interest in land; and
(b) it may reasonably be expected that the costs, charges and expenses that the trustee would incur in realising the property would exceed the proceeds of realising the property;
subsection (1) applies.
(1) Subject to this section, the trustee may, notwithstanding that he or she has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation to it and notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her, at any time disclaim the property.
(1A) Subject to this section, the trustee may at any time, by writing signed by him or her, disclaim any contract that forms part of the property of the bankrupt whether or not the trustee has endeavoured to assign the property or exercised any rights in relation to it.
(2) A disclaimer under subsection (1) or (1A) operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.
(3) If a trustee disclaims property whose transfer must be registered under a law of the Commonwealth or of a State or Territory of the Commonwealth, the trustee must give notice of the disclaimer as soon as practicable to the officer who has the function of registering the transfer.
(4) A trustee is not entitled to disclaim a lease without the leave of the Court unless:
(a) the trustee has given to the lessor and, if the bankrupt has sub-let the whole or any part of the leased property or has mortgaged the lease, to each sub-lessee or mortgagee, 28 days' written notice of his or her intention to disclaim the lease; and
(b) no person to whom the trustee has given such a notice has, within 28 days after it was given to the person, by written notice given to the trustee, required the trustee to apply to the Court for leave to disclaim the lease.
(5) The Court may, in relation to an application for leave to disclaim a lease under this section:
(a) impose such terms as a condition of granting the leave; and
(b) make such orders with respect to fixtures, improvements and other matters arising out of the lease;
as the Court considers just and equitable.
(5A) A trustee is not entitled to disclaim a contract (other than an unprofitable contract) without the leave of the Court.
(5B) The Court may, in relation to an application for leave to disclaim a contract under this section:
(a) impose such terms as a condition of granting the leave; and
(b) make such orders with respect to matters arising out of the contract;
as the Court considers just and equitable.
(6) Where:
(a) an application in writing has been made to the trustee by a person interested in property requiring him or her to decide whether he or she will disclaim the property or not; and
(b) the trustee has, for a period of 28 days after the receipt of the application, or such extended period as is allowed by the Court, declined or neglected to disclaim the property;
the trustee is not entitled to disclaim the property under this section and, in the case of a contract, he or she shall be deemed to have adopted it.
(7) The Court may, on the application of a person who is, as against the trustee, entitled to the benefit or subject to the burden of a contract made with the bankrupt, make an order rescinding the contract on such terms as to payment by or to either party of damages for the non-performance of the contract, or otherwise, as the Court considers just and equitable.
(8) Damages so payable may be proved as a debt in the bankruptcy.
(9) The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.
(10) Subject to subsection (11), where an order vesting property in a person is made under subsection (9), the property to which it relates vests forthwith in the person named in the order for that purpose without any conveyance, transfer or assignment.
(11) Where:
(a) the property to which such an order relates is property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered; and
(b) that law enables the registration of such an order;
the property, notwithstanding that it vests in equity in the person named in the order, does not vest in that person at law until the requirements of that law have been complied with.
(12) A person aggrieved by the operation of a disclaimer under this section shall be deemed to be a creditor of the bankrupt to the extent of any loss he or she has suffered by reason of the disclaimer and may prove the loss as a debt in the bankruptcy.
(13) In this section:
mortgage includes charge.
mortgagee includes the person entitled to the benefit of a charge.
It appears that the disclaimer came about as a result of the fact that rates and water liabilities owed to the Grampians Water Authority exceeded the value of the property. As at 2 February 2005, the rates liability was over $9,000.00 and the outstanding water rates owed to the Grampians Water Authority was approximately $11,500.00. Whilst there is no valuation in evidence, it has been indicated from the bar table that the property is expected to have a value when sold of around $12,000.00.
Unfortunately, it seems unlikely that the property could be sold without some agreement between the rating authority (the applicant in this case) and the Grampians Water Authority for the discharge of the outstanding rates and water rates, as any subsequent purchaser would have land subject to charges and liabilities worth nearly double the value of the land. The result of this appears to have been to have left the property in limbo, with the applicants unable to sue the bankrupt or the trustee for the outstanding rates and therefore unable to recover the sums due to them and, alternatively, unable to sell the property under the provisions of section 181 of the Local Government Act 1989.
Section 181 of the Local Government Act requires a Court order prior to sale:
(1) This section applies if-
(a) any amount due to a Council for, or in respect of, rates or charges (including enforcement costs and interest) in respect of any rateable land is more than 3 years overdue; and
(b) no current arrangement exists for the payment of the amount to the Council; and
(c) the Council has a Court order requiring the payment of the amount (or part of the amount).
(2) The Council may sell the land, or cause the land to be transferred to itself, for an amount equal to or more than the estimated value of the land as set out in a written valuation of the land by a valuer that was made not more than 6 months before the date of the sale or transfer.
(3) In sub-section (2), "valuer" means a person who holds the qualifications or experience specified under section 13DA(1A) of the Valuation of Land Act 1960.
(4) For the purposes of sub-section (1)(b), an arrangement is not current if any term of the arrangement is not being complied with.
(5) Before selling the land, or causing it to be transferred, the Council must-
(a) if it appears from the Register kept under the Transfer of Land Act 1958 or from any memorial in the office of the Registrar-General that a person has an estate or interest in the land, serve on that person a notice requiring the payment of the amount referred to in sub-section (1) accompanied by a copy of this section; and
(b) ensure that public notice of its intention to conduct the sale, or carry out the transfer, is given; and
(c) if the land is to be sold by auction, notify in writing any person who must be served with a notice under paragraph (a) of when and where the auction will be held.
(6) The Council must comply-
(a) with sub-sections (5)(a) and (b) at least 4 weeks before the date of the sale or transfer; and
(b) with sub-section (5)(c) at least 14 days before the date of the auction.
(7) The Council may recover the following amounts from the proceeds of a sale of land (or if the land is transferred, may offset from the transfer amount the following amounts)-
(a) all expenses incurred in connection with the sale or transfer;
(b)the amount referred to in sub-section (1) and any enforcement expenses and interest associated with that amount;
(c) any other amount due to it for, or in respect of, rates or charges (including enforcement costs and interest) in respect of the land.
(8) If any amount remains after the Council has recovered (or offset) everything it is permitted to recover (or offset) under sub-section (7), it must then-
(a) use that remaining amount to discharge, in their order of priority, any mortgages and other charges in respect of the land, whether registered or not, that it has notice of; and
(b) pay any amount remaining to each person who appears to have an estate or interest in the land-
(i) in accordance with that person's estate or interest; or
(ii) if 2 or more people appear to have an estate or interest but it is not possible to determine from the Register or memorials how their estates or interests stand in relation to each other, in equal shares.
(9)If any person who is entitled to an amount under sub-section (8) cannot be found after reasonable efforts have been made to find her, him or it, the Council may use the amount for its general purposes.
(10) If no person appears to have an estate or interest in land that has been sold or transferred under this section, the Council may use for its general purposes any amount that remains after it has recovered (or offset) everything it is permitted to recover (or offset) under sub-section (7), and paid everything it is required to pay under sub-section (8)(a).
(11) If land that is sold or transferred under this section is land under the Transfer of Land Act 1958, the Registrar of Titles-
(a) must register a transfer of land under this section if the transfer is in a form approved by her or him; and
(b)must cancel any mortgages or charges registered as encumbrances on the land when registering the transfer of land; and
(c)may dispense with the production of the certificate of title for the purpose of registering the transfer.
(12) The registration of the transfer vests in the transferee all the estate and interest in the land.
It is clear from section 181(1)(c) that the council first requires a court order for payment before it can exercise its powers under section 181 to sell the land. As a result of the bankruptcy and disclaimer by the trustee, the council is not in a position to obtain a judgment for the amount outstanding. This application by the shire council has been served upon the Water Authority, the bankrupt and the trustee. The letter from the bankrupt is annexed to an affidavit of service confirming that he had received the application and enclosures.
The bankrupt in this case is a legal practitioner and would undoubtedly be aware of the necessity to advise the applicants (or attend these proceedings), if he claimed any interest. Not surprisingly the trustee, having disclaimed any interest, took no further part in the proceedings, although wrote to the applicants acknowledging service and advising that the bankrupt was discharged from bankruptcy on 5 July 2000 and the administration of the estate was finalised in July 2003. That letter also confirmed that the property had been disclaimed by the trustee.
It appears to me that this application must be considered under section 133(9) of the Bankruptcy Act. Under that subsection, a person who claims an interest in or has a liability not discharged by the Act in respect of the property may apply for a vesting order and the court may make such order as it considers to be ‘just and equitable’. In this case, there is no person who claims to have an interest in the property in the sense of a legal or equitable interest that could amount to an interest justifying a claim for possession.
There is some question as to the precise nature of the interests held by the local authority as a result of section 156 of the Local Government Act which provides for the debt to be at charge. However, it is not necessary for me to resolve that question in this case. It is clear that the monies owed to the rating authority and Water Authority are liabilities in respect of the disclaimed property. In the absence of any person claiming an interest in the property, it is appropriate that the property be vested in a person who is able to realise what value there is in the property to apply to the outstanding debts in respect of the property.
In this case, there are two persons in that category: the local authority who brings the application, and the Grampians Water Authority. The local authority has negotiated with the Grampians Water Authority and entered into a deed of agreement whereby it and the Grampians Water Authority would share in the proceeds of sale after the payment of the costs of sale and legal expenses. To the extent that there is any proceeds after the payment of the debts to the two authorities and the various expenses, their agreement provides for the further surplus to be held in trust pending directions of the court.
It appears to me that this is a ‘just and equitable’ method of dealing with the particular problem. To do nothing leaves land forever unusable in the relevant shire, which is clearly not in the public interest. The course suggested provides for those who have any interest in payment of the debts associated with the land receiving an equitable share of the proceeds of sale. It should be noted that the debts would normally run with the property unless discharged by the authorities, which gives them the greater claim than perhaps other creditors.
In the circumstances, I therefore propose to make orders in the terms as agreed between the two authorities. I find that those orders are just and equitable. I propose fixing the amount of costs so as to minimise further expenses to the parties in this case in having the costs taxed. In the circumstances of this case, having regard to the submissions made with respect to the calculations of the scale, I fix costs at $4,191.30.
In the event there is any surplus it is appropriate it be paid to the trustee, who may apply to the court if further directions are required.
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
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