Re Flood, M.D. v Ex Parte James, G.J

[1990] FCA 708

Re: MARILYN DIANE FLOOD
Ex Parte: GEOFFREY RALPH JAMES
No. W 1065 of 1985
FED No. 708

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Einfeld J.(1)

HEARING

SYDNEY

#DATE 9:11:1990

JUDGE1

This is an application under subsection (8) of section 149 of the Bankruptcy Act, on the eve of the expiration of five years from the date of bankruptcy, for an extension of the bankruptcy of the bankrupt for another two years. The circumstances of the application for the extension which the trustee brings before the court, arise from the fact that the bankrupt is entitled to a beneficial interest in a property at Revesby which is a Housing Commission home previously owned and occupied by her late father-in-law and which was left to her in his will. This is her only known asset of any substantive value.

1. Mr Flood senior died in September 1984, some 14 months before the bankruptcy, and about five and a half months before the act of bankruptcy on which the sequestration order was made. The bankrupt's statement of affairs was not made available until almost a year after the bankruptcy on 3 December 1986. At that time she did not reveal that she was a beneficiary of any kind under the will of her late father-in-law with an expected interest in this property. As it happens, probate of the estate was granted to the bankrupt in June 1988 and in August of that year the Department of Housing notified the trustee of her beneficial interest in the property. The consequence was that on 20 September 1988 the trustee gave notice of his objection to the discharge of the bankrupt which would have taken place in November 1988. No challenge was made to the automatic extension of another two years that thereby came into existence. It expires on Sunday of this week.

2. Thus the bankrupt has now been in bankruptcy for five full years and notice of her interest in the property of the late Mr Flood has been in the possession of the trustee for two years and three months. During the two year extension of the bankruptcy the trustee negotiated or discussed a series of propositions with the Department of Housing to the effect that together with the Department the trustee might sell the asset and bring the proceeds of the sale to the recompensing of the creditors.

3. There is no need for me to recount in detail the progress of these negotiations. At one time they included a request, as a condition of its consent by the Department of Housing, that the trustee give certain indemnities in respect of the sale and the property. The trustee, as I think was entirely correct, was reluctant to give these indemnities and, as far as I can see, in fact declined to do so. They were not appropriate indemnities for a trustee to give.

4. But in my view, the nature of these negotiations was misconceived. One proposal in fact, that the trustee in effect have the property transferred to him, was, however well-intentioned, misguided. Ultimately, in very recent times, the Department of Housing withdrew in any case from these negotiations and declined to proceed with any joint action with the trustee.

5. It eventuates that the bankrupt herself is not entitled in any case to the automatic transfer, as it were, of the property in the administration of her late father-in-law's estate because there is as yet a debt owing by the estate to the Department of Housing. The Department is demanding that this be paid before transfer of the property can be effected, yet it seems that neither the estate nor the bankrupt can make the required payment without the sale of the property which the bankrupt does not want, because it seems that she wants to live in the house.

6. There is no evidence before the Court that the precondition to transfer of the property to the bankrupt of the payment of the outstanding sum is at all imminent. Indeed, if any inference at all is to be drawn from the evidence, it seems that it may well be some time before the bankrupt actually gets the legacy concerned into her own unencumbered hands. She has been, or was at some time, renting the premises, either herself or to someone else who was paying her some form of income for it, but there does not seem to be anything relevant to this case that turns on that event. In any case the trustee has asked for any tenants to leave and to provide vacant possession.

7. The evidence shows that the trustee has had over two years now to do something about this property. He has not, on the evidence before me, called in the bankrupt to ask for undertakings, assistance, co-operation or any other form of support for his efforts to get in funds that would help to pay the creditors; and in the circumstances I have related, I do not think that it is appropriate to blame the bankrupt for the failure to realise this asset if it is yet appropriate to call it by that name. The two years of the extension of the bankruptcy appears to have been taken up with an extraordinary, ultimately futile and seemingly completely misconceived correspondence with the Department of Housing. Months have gone by, from time to time, with no reply from the Department to contentions put forward by the trustee. As I said in argument, this could either be due to incompetence or a simple inability to know what precisely to write back in a difficult area of the law. But the fact is that the two years have been dissipated in this exchange without any effort to have an examination under section 69 or 81 of the Bankruptcy Act or seek any co-operation from the bankrupt under section 77.

8. The trustee argues that he now should get an extension of another two years for essentially three reasons. One is to ensure that the estate is fully administered and the creditors paid to the maximum possible extent. The second is to permit examinations of the bankrupt under the relevant sections. The third is to seek contributions by the bankrupt towards the estate.

9. As it seems to me, none of these reasons make out a case for an extension. Discharge from bankruptcy itself does not, as is now well established, prevent the getting in of moneys, property or assets acquired in the circumstances applying here in relation to the beneficial interest in the estate of the late Mr Flood which might eventually flow to the bankrupt. Hence discharge will not result in any inhibition on the administration of the estate or the payment of the creditors, should that eventually become conceivable. Decisions made by Mr Justice Sheppard in Re Pevsner; Ex parte Trustee in Bankruptcy (1983) 68 FLR 254 and by Mr Justice Lockhart in Geoffrey David Thomson and Florence Mary Thomson v Brian Raymond Silva (1989) 87 ALR 695, the latter I am informed recently being the object of an unsuccessful application for leave to appeal to Mr Justice Davies, make quite clear that in the event that Mrs Flood comes by either the property itself or the proceeds from the sale of the property, the trustee will have full opportunity to require that those assets be vested in him for distribution, or to make other rulings, directions or requirements in the interests of the creditors.

10. So far as the examinations are concerned, it is now well established that section 81 examinations may be held after discharge. In fact, section 81 now makes express provision for an examination of this kind, and it would be perfectly adequate for the purposes of the trustee outlined today by his solicitor. I see no reason why, although it has not been decided and I have not considered the matter in detail, a post-discharge examination under section 69 would also not be possible. In relation to contributions, the trustee must demonstrate that on the evidence some significant contribution is likely to be available. I, for my part, can see no basis for making such a finding. There is some slight evidence that the bankrupt has had a form of income of some kind, but this has not been the subject of any application by the trustee to the Court under section 131 or even an effort to ascertain further and better particulars of the income from the bankrupt. Neither has he discussed with the bankrupt the possibility of some contribution. I can draw no inference from this material that there are any moneys available which are likely to make a significant contribution to the estate.

11. The trustee says that the reason he has not conducted any of the statutory examinations is because he is without funds and he points to the fact that an earlier effort to obtain funds pursuant to section 305 was unsuccessful. So far as the evidence before me is concerned, no further application has been made during the two year extension period for funds to conduct any examination of the kind referred to. More importantly, no basis has been established on which such an examination as presently advised would gain any more information for the trustee, at any rate in relation to the bequeathed property concerned, than he has already obtained or than he could have obtained from the Housing Department or by asking questions of the bankrupt herself. In my view, it has not been shown that any prejudice to the creditors will accrue in relation to possible assets that can be vested in the trustee for distribution, by a discharge of the bankrupt now. Further, everything the trustee says he could now achieve in another two years, could have been achieved in the last two years and nothing appears likely to change in the ensuing two years that did not exist in the past. There is certainly no reason to believe that the trustee will be put in any funds after next Sunday that were not available to him in the past, or put in the reverse, the situation that has persisted in the past with regard to funds does not appear likely to change imminently if discharge is further delayed. In those circumstances it is not appropriate to grant the application and I dismiss it.

12. The bankrupt applies for the costs of the application. The trustee resists the application for costs, arguing that the application for extension of the bankruptcy was brought bona fide. I think this is a significant stance to adopt. As was pointed out by Mr Justice Jenkinson in Re Campbell; Ex Parte Official Trustee (1987) 72 ALR 251, the obligation of a trustee in bankruptcy under section 149 is of a quasi judicial kind in the performance of a public duty for the public welfare. Certainly his action in bringing this application was designed to be in the interests of the creditors, if not the wider public, and although I think some criticism can be directed at the effective inactivity over the last two years, I cannot form the opinion that his action in seeking an extension of the bankruptcy now is tainted with any serious degree of unreasonableness. In the circumstances I think the appropriate order is that each party should pay her and his own costs.