Shanahan (Trustee), in the matter of Kent (a bankrupt)
[2022] FedCFamC2G 631
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Shanahan (Trustee), in the matter of Kent (a bankrupt) [2022] FedCFamC2G 631
File number(s): MLG 799 of 2022 Judgment of: JUDGE A KELLY Date of judgment: 9 August 2022 Catchwords: BANKRUPTCY – Application by trustee of bankrupt estate for vacant possession of certain properties and orders authorising sale – where bankrupt opposed application on stated basis that judgment underlying sequestration order had been procured by fraud – where first mortgagee supports application for relief – where direction by Court for registrar to issue certificate to Victorian Bar pro bono scheme so as to facilitate provision of advice as to merit (if any) of an application to seek de novo review of sequestration order made in February 2020 and in opposing trustee’s application – where pro bono advice proffered and bankrupt institutes application for extension of time in which to seek review of exercise of power by registrar and orders setting aside sequestration order and re-vesting property in him – where bankrupt raises no other affirmative grounds of opposition to substantive relief sought by trustee – where bankrupt’s application for extension of time refused – relief granted. Legislation: Bankruptcy Act 1966 (Cth), ss 4A, 5, 27, 30, 31, 58, 77, 116, 134, 306, Sch 2 ss 5-5, 5-15, 5-16, 5-20, 45-1, 90-15
Planning and Environment Act 1987 (Vic), s 149A
Bankruptcy Regulations 2021 (Cth), reg 102
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth), r 4.05
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth), r 12.01
Insolvency Practice Rules (Bankruptcy) 2016 (Cth), ss 42-50, 105-1
Supreme Court (General Civil Procedure) Rules 2015 (Vic), Order 53
Cases cited: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559
Chan v Chan [2020] VSCA 40
Civic Video Pty Ltd v Warburton (2013) 216 FCR 61
Clarence City Council v Commonwealth of Australia (2020) 280 FCR 265
Commonwealth of Australia and Australian Telecommunications Commission v Doyle & Ors (Unreported, Supreme Court of Victoria, Brooking J, 4 October 1983)
Doyle v Commonwealth of Australia (1985) 156 CLR 510
Fabuliving Pty Ltd v Lucisano [2020] VSC 369
Framlingham Aboriginal Trust v McGuiness [2014] VSC 241
Hacker v Weston [2015] FCA 363
Hobart International Airport Pty Ltd v Clarence City Council (2022) 96 ALJR 234
Kent (a bankrupt); Ex parte, Bunting [2022] FedCFamC2G 630
Prentice v Constantinidis (No.2) [2015] FCCA 904
Re Wakim, Ex parte McNally (1999) 198 CLR 511
Toyota Finance Australia Ltd v Berro [2022] FCA 497
Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio [2013] FCA 18
Division: Division 2 General Federal Law Number of paragraphs: 92 Date of hearing: 26 July 2022 Place: Melbourne Counsel for the Applicant: Mr D. Harrison Counsel for the Respondent: Ms A. Umbers Counsel for the First Mortgagee: Mr G. Parncutt
Interested party (by leave): Mr A. Ingram ORDERS
MLG 799 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF PAUL WILLIAM KENT
BETWEEN: JOHN SHANAHAN (AS TRUSTEE OF THE BANKRUPT ESTATE OF PAUL WILLIAM KENT)
Applicant
AND: PAUL WILLIAM KENT
Respondent
ORDER MADE BY:
JUDGE A KELLY
DATE OF ORDER:
9 AUGUST 2022
THE COURT ORDERS THAT:
1.The application dated 13 April 2022 be allowed.
2.For the purposes of this Order, direct that the term ‘Property’ shall mean and include:
(a)the property known as 2-4 Pau Street, Coburg North, Victoria, being the land contained in the folio of the register, volume 11527 folios 067 and 068 (Pau Street Property);
(b)the property known as 10 Charles Street, Coburg North, Victoria, being the land contained in the folio of the register volume 11344 folio 614 (Charles Street Property)
(c)the property known as 49, 49A and 49B Smith Street, Brunswick West, Victoria, being the land contained in the folio of the register volume 06428 folio 481 (Smith Street Property), and;
(d)the property known as 11 Midway Street, Heidelberg West, Victoria, being the land contained in the folio of the register volume 9186 folio 163 (Midway Street Property).
3.For the purposes of this Order, the term Documents in relation to a Property shall mean and include, any documents of title, rates notices, charges, policies or certificates of insurance, leases or other documents evidencing any encumbrance on or improvements to a Property that are in the possession, custody or control of the respondent bankrupt, Paul William Kent, and any other person in occupation, possession or residence (Occupier) of any part of a Property.
4.The respondent, Paul William Kent, and any Occupier of the Pau Street Property, the Charles Street Property, the Smith Street Property and the Midway Street Property respectively shall deliver up to the applicant within 90 days after service of this Order:
(a)vacant possession of such Property; and
(b)all keys to the Property and any Documents relating thereto.
5.The respondent and any Occupier of the Pau Street Property, the Charles Street Property, the Smith Street Property and Midway Street Property respectively must remove from such Property all vehicles, rubbish and chattels which have not vested in the applicant (personal property) within 90 days after service of this Order.
6.Pursuant to par 6.14(1) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021, order that personal service of this Order be dispensed with.
7.Pursuant to par 6.14(2) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 and r 102(1) of the Bankruptcy Regulations 2021, order that service of this Order may be effected by delivery of a sealed copy thereof in envelopes addressed to “Paul William Kent” and/or “The Occupier” to each Property and affixing such envelopes to the front door of such Property (as the case requires).
8.Pursuant to par 6.14(3) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021, order that service of this Order is taken to have been effected by delivery of a sealed copy thereof in the manner provided by paragraph 7 of this Order.
9.If the respondent Paul William Kent or any Occupier should fail to deliver up vacant possession of or the keys to a Property and any Documents related thereto in accordance with this Order, a warrant of possession for the subject Property shall issue forthwith in favour of the applicant and for this purpose an affidavit sworn by the applicant or the applicant’s lawyer deposing to the non-compliance with this Order shall be sufficient proof to enable the issue of the warrant of possession when filed with the Court.
10.Should a warrant of possession issue for any Property pursuant to this Order, direct that a sealed copy of that warrant be served personally upon the respondent Paul William Kent and any Occupier of a Property.
11.If the respondent Paul William Kent or any Occupier should fail, refuse or neglect to comply with paragraph 5 of this Order within 90 days after service of this Order, the applicant is authorised and empowered to remove and/or dispose of all such personal property as may remain at the Pau Street Property, the Charles Street Property, the Smith Street Property and the Midway Street Property respectively as he sees fit and at the cost of the respondent without being under any obligation to account for such personal property whether to the respondent or any Occupier (the costs of doing so being deductable from the proceeds of sale of such Property).
12.Direct that in selling any Property pursuant to the provisions of this Order (whether by public auction or private treaty and on such terms as he deems appropriate), the applicant shall include as a condition in any contract of sale that such contract not be completed before 10:00am on Wednesday, 9 November 2022.
13.Subject to paragraph 12 of this Order, pursuant to par 134(1)(a), 134(1)(o) and 134(3) of the Bankruptcy Act 1966 (Cth), the applicant is authorised to sell each of the Pau Street Property, the Charles Street Property, the Smith Street Property and the Midway Street Property forthwith and is appointed as trustee for its sale.
14.The respondent Paul William Kent do all things and sign all documents as may be necessary (if any) to effect a sale of the Pau Street Property, the Charles Street Property, the Smith Street Property and Midway Street Property respectively within such time as is nominated by the applicant, such documents to be provided and/or prepared by the applicant’s lawyer and/or the lawyer for the purchaser(s), as the case requires.
15.Pursuant to par 134(1)(k) of the Bankruptcy Act 1966 (Cth), in default of compliance with paragraph 14 of this Order, should the respondent Paul William Kent not do all things or sign such documents within such time as may reasonably be required by the applicant, upon expiry of the period so nominated, the applicant is authorised and empowered forthwith to do all things and sign all documents on behalf of the respondent including by signing any contract of sale, discharge of mortgage, authority, transfer of land or other document required to effect a sale of any such Property.
16.The proceeds of sale of the Pau Street Property, the Charles Street Property, the Smith Street Property and the Midway Street Property respectively be applied as follows:
(a)first, in payment of all selling costs including agent’s commission, advertising and marketing expenses, conveyancing and legal costs associated with the sale,
(b)second, in payment of any outstanding rates, taxes, charges, owners corporation fees or other outgoings affecting the Property or deriving from or associated with the ownership or maintenance of the Property up to the time of settlement on the sale of that Property;
(c)third, in payment of the monies owing to any secured creditor;
(d)fourth, in repayment of the costs of removal and/or disposal of all such personal property as may remain at any such Property;
(e)fifth, all remaining proceeds are to be paid to the applicant as trustee of the bankrupt estate of Paul William Kent.
17.The applicant’s costs of this proceeding (including reserved costs), be taxed and paid out of the bankrupt estate of the respondent Paul William Kent in accordance with par 109(1)(a) of the Bankruptcy Act 1966 (Cth).
18.There be liberty to apply.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
KELLY A, J
Introduction
These reasons for judgment explain why orders are made pursuant to ss 30, 58, 116 and 134 of the Bankruptcy Act 1966 (Cth) (Act) upon the application of John Shanahan, trustee of the bankrupt estate of Paul William Kent, that he deliver up vacant possession of certain properties and authorising the trustee to sell such properties. They should be read in conjunction with Kent (a bankrupt); Ex parte, Bunting [2022] FedCFamC2G 630 (Ex parte Bunting).
On 6 February 2020, an order was made for the sequestration of Mr Kent’s estate.
The trustee, who has been impeded in the orderly administration of the bankrupt estate (including by the absence of a statement of affairs), is concerned to realise certain properties he has identified as a result of the investigations that he has conducted to this point. The subject properties were: 2-4 Pau Street, Coburg North (Pau Street Property); 10 Charles Street, Coburg North (Charles Street Property); 49, 49A and 49B Smith Street, Brunswick West (Smith Street Property); 11 Midway Street, Heidelberg West (Midway Street Property) and Unit 1, 69 Southernhay Street, Reservoir (Southernhay Street Property). No relief is now required in relation to the Southernhay Street Property. The process of realisation has been complicated for a variety of reasons that are addressed in further detail below.
Background
The matters set out below are drawn from the parties’ evidence and submissions. For the most part, the chronology of events is not in issue. There is a degree of overlap in certain events that have occurred in this Court, and other courts, involving these parties.
The history of earlier proceedings leading to the sequestration of Mr Kent’s estate are addressed in Ex parte Bunting at [38]-[62]. By way of overview, Mr Kent has applied to set aside the bankruptcy notice, opposed the petition, not filed a statement of affairs and denied he owns property that has now been identified in the examination of his affairs.
For ease of reference, the background and findings upon all evidence (other than the matters below) are contained in, and incorporated from, the reasons in Ex parte Bunting.
Procedural history
By application filed on 13 April 2022, the trustee sought orders that Mr Kent deliver up vacant possession of the Pau Street, Charles Street, Smith Street, Southernhay Street and Midway Street properties respectively. A series of ancillary orders were sought including that Mr Kent deliver up all keys and certain documents and remove all personal property (including orders for enforcement in the event of default), and orders authorising the sale of each of those properties. Interim orders sought to prevent Mr Kent from transferring, encumbering, dealing with and diminishing the value of those properties were not pressed.
Shortly before the application was filed, the trustee’s solicitors wrote (on the eve of Easter), seeking an urgent hearing on the stated basis that the Pau Street property, which is uninsured, had been “taken over by squatters” who were unlawfully using electricity and gas on the site. The subject property is a vacant block and the persons in occupation are doing so by parking caravans and the like on that land. Those circumstances may inform the relevance of insurance. Moreover, the assertion that the occupants were squatters appeared open to question in circumstances where, at least arguably, they remained in possession after the expiry of a lease, doing so on a month-to-month tenancy. The Court was concerned to be provided some assistance in relation to its jurisdiction to make orders designed to secure vacant possession of the property: see, e.g., Commonwealth of Australia and Australian Telecommunications Commission v Doyle & Ors (Unrep’ Supreme Court of Victoria, 4 October 1983, Brooking J), revd on appeal Doyle v Commonwealth of Australia (1985) 156 CLR 510, 516, (the Court). While the circumstances of those proceedings were entirely distinct from the present, they served as a useful signal of the need for proper notice.
A series of affidavits have been filed in the proceeding which are listed as follows:
(a) trustee’s affidavits made on 6 April, 12 May and 17 July 2022;
(b) John Romobotis, real estate agent, made on 14 April 2022;
(c) Emily Everett, solicitor, made on 14 April and 13 May 2022;
(d) Mark Grover, process server, five affidavits, each made on 10 May 2022;
(e) Asher Ingram, one occupant of the Pau Street properties, made on 21 June 2022;
(f) Paul William Kent, the bankrupt, affidavit made on 1 July 2022.
No deponent was required for cross examination. Although no order was sought or made to this effect, I treated the evidence filed in each respective proceeding as evidence in the other.
On 19 April, and again on 16 May, 2022, the trustee filed an outline of submissions.
The proceeding was listed for directions on 17 May 2022. Although no notice had been filed by Mr Kent or any other person proposing to appear in the proceeding, on that date there was an appearance in person by Mr Kent and Mr Asher Ingram, one of the occupants of the Pau Street property. Counsel for the first mortgagee also appeared. Mr Kent became progressively more agitated in the course of the hearing, accusing the petitioning creditor and his lawyer of fraud. Mr Kent proceeded to refer to a large bundle of manila folders containing many documents which, it appeared, he intended to rely upon in opposing the relief sought on the application. Mr Ingram, a relatively young fellow, who appeared throughout the proceeding with great courtesy, informed the Court there were about a dozen occupants of the Pau Street property who sought to be heard and whom he sought to represent. Mr Parncutt of counsel appeared for a first mortgagee and indicated his client’s broad consent to the application.
Orders were made setting the application down for hearing and directing Mr Kent to file an appearance, a notice stating his grounds of opposition and any affidavit in support. Directions were made respecting the content of any affidavit to be relied upon. Mr Ingram was granted leave to be heard provided he too filed an appearance, a notice stating any grounds of opposition and supporting affidavit. A direction was made that the registrar issue a certificate to the Victorian Bar pro bono committee for legal assistance for the benefit of Mr Kent. Notations to the order indicated that the mortgagee consented to the relief sought by the trustee and that an essentially cooperative stance was being taken by Mr Ingram and the occupants of the Pau Street property. A direction was made that Mr Kent’s affidavit identify the persons who were in possession and/or occupation of any of the subject properties. This occurred in circumstances where he informed the Court he had not yet filed a statement of affairs.
The referral certificate, issued under r 12.01 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth), detailed the background to the matter, the nature of the legal assistance for which a referral was made and annexed a copy of the reasons of the registrar given when making the sequestration order on 6 February 2020. In particular, the referral certificate sought the assistance of pro bono counsel in evaluating the merit of applying for review of the sequestration order or opposing the trustee’s application.
In the event, Ms Umbers of counsel accepted the pro bono referral to the Victorian Bar which necessitated the making of orders on 21 June 2022 so as to accommodate her availability. The Court reiterates its appreciation for her significant assistance.
On 22 June 2022, Mr Kent filed a notice of appearance. Later, on 4 July 2022, he filed:
(a)a notice of appearance, listing his address for service as 49 Smith Street, Brunswick West, Victoria 3055;
(b)a notice, in Form B5, being his grounds of opposition to the trustee’s application;
(c)a supporting affidavit framed as an application for review of the sequestration order made by Judicial Registrar Ryan in proceeding MLG 3656 of 2019;
(d)an application in proceeding MLG 3656/2019 for leave to make, out of time, an application for review of the delegated exercise of power by a registrar who had made the sequestration order against his estate on 6 February 2020.
By his notice stating grounds of opposition to the trustee’s application, Mr Kent again specified 49 Smith Street, Brunswick West as his address. The sole ground of opposition advanced in that notice stated “[t]he Respondent has today filed an application to review the orders of Judicial Registrar David Ryan on 6 February 2020 which resulted in his bankruptcy”.
In his supporting affidavit of his grounds of opposition, Mr Kent deposed that on 1 July 2022 he had filed an application seeking a review of the sequestration order “made on 6 February 2022 (sic).” The two matters relied upon in this affidavit were that: (1) there was no debt truly owing to Mr Bunting, and; (2) the amended petition which brought about the sequestration order was unsigned (such error not being capable of being remedied pursuant to s 306 of the Act). Before me the second ground of objection was abandoned by Ms Umbers. Further, Mr Kent requested that any substantive orders in these proceedings be deferred until the determination of the review application in proceeding MLG 3656 of 2019. Solvency was not advanced as a ground being relied upon. Nor was it relied upon in written submissions.
Mr Ingram filed a notice in Form B5, completed in hand, opposing the relief sought by the trustee on two bases: (1) “Existing Lease with Paul Kent”; (2) “Vacant Possession’ would cause financial harm to individuals/tenants.” He also filed an affidavit in support of those grounds.
On 26 July 2022, counsel appeared on behalf of each of the trustee, the bankrupt and the first mortgagee. Mr Ingram also appeared and said that he continued to represent the occupants of the Pau Street property. No other persons appeared before the Court on that date. The Court had the considerable benefit of submissions from each of the parties’ counsel and Mr Ingram.
The properties
Following his appointment, the applicant conducted investigations in respect to the examinable affairs of the bankrupt. Those investigations were required, in part, because of the continued failure of the bankrupt to complete, file or serve a statement of affairs. Relatedly, in other proceedings, Mr Kent had made an affidavit in August 2018 denying he owned any property.
From the whole of the evidence an available inference is that the bankrupt had identified properties which, for one reason or another, may not have been overly attractive in the market. Certain features of the properties may now have the potential to complicate their realisation.
2-4 Pau Street, Coburg North – C/T, Vol 11527 Folios 067 & 068
Mr Kent’s evidence is that he identified these properties as a potential development site in the 1990s. Having ascertained that the registered proprietor was a deregistered company, Mr Kent set upon developing a good working relationship with a director of the company. He deposed to having reached an oral agreement with this director, Charles, to pay $400,000 to purchase these properties and in pursuance of that agreement paid council rates for a number of years.
Evidence as to title was somewhat opaque. When Mr Shanahan assumed the office of trustee, he commenced an investigation of Mr Kent’s examinable affairs. During this investigation, he ascertained that title to this property had been transferred to Mr Kent by ASIC.
Mr Nicholas John Sevdalis, a solicitor acting for Nia Kyritsis, the first mortgagee, made an affidavit describing the steps that had been taken to realise his client’s security. He deposed that after being notified by the trustee of Mr Kent’s bankruptcy, he sought authority from the trustee authorising him to take the steps necessary to realise the Pau Street property. Mr Sevdalis identified that the Pau Street and Charles Street properties were adjoining parcels of land but that Charles Street was not part of the property over which his client held security.
In his dealings, Mr Sevdalis notified the trustee in late June 2021 that in order to realise these properties (i.e. the Pau Street and Charles Street properties), at their best possible price, they should be offered for sale as a single land holding comprising three titles. While the affidavit did not disclose the trustee’s response to this suggestion, it seems this was agreed.
In February 2022 the first mortgagee and trustee engaged McGrath Real Estate to prepare the Pau Street and the Charles Street properties for sale. McGrath Real Estate were engaged to sell the three parcels of land together. Although listed for auction, they have not yet been sold.
From the content of a written valuation made on 8 February 2022 and its annexures, I note the following: (1) the Pau Street properties are on two titles; (2) Mr Kent was registered as proprietor of the fee simple estate of the properties on 10 September 2014; (3) the trustee was registered by transmission as sole proprietor of the fee simple estate in these properties on 8 March 2022; (4) the total building area is ~905 sq.m; (5) the adjoining property at 10 Charles Street, Coburg North, has a building area of ~36 sq.m; (6) two 1950s style brick workshops /factory facilities are situated on the Pau Street properties and are in generally poor condition; (7) the valuer who provided an opinion on market value recommended those buildings be demolished; (8) the Charles Street property comprised a steel double garage; (9) the valuer, who was refused access to the inside of the Pau Street properties, contended any lease with the dispossessed owner may be invalid; (10) the three properties were valued at $1.27M. By his affidavit made on 20 July 2022, Mr Kent asserted the value of these properties to be $1.490M.
Title to the Pau Street Property is encumbered by a first mortgage to Ms Nia Kyritis registered on the 30 December 2014. Mr Bunting has a second mortgage registered on one title to the Pau Street Property on 6 September 2018 (he has an equitable unregistered mortgage on the other).
The trustee deposed to a belief that Mr Kent was residing at the Pau Street property on at least a part-time basis and that he was sub-leasing the right to reside on or near that property to a number of people living in caravans and vans. For this purpose, the trustee relied upon reports received from his process servers and a private investigator. Mr Kent did not address this issue.
In an email to the trustee dated 4 February 2022, a valuer described the Pau Street property as being in a dilapidated state, where “the only thing the agent noted missing was Steptoe’s horse Hercules” and that each of the campervans located on the property had electrical cords running some hundreds of metres to each of the vans. A designated ‘Unofficial Safety Officer’ who identified himself as John, stated that the ‘boss’ was not present at the time of the investigator’s visit but said that the boss was named Paul. Paul’s mobile number was provided by John.
10 Charles Street, Coburg – C/T, Vol 12363 Folio 268
Mr Kent purchased this property on about 8 February 2012.
The Charles Street property, which is not subject to a mortgage, houses a steel double shed.
The trustee’s evidence includes written responses from Mr Kent suggesting that while he has told the trustee he has sold the property, and while acknowledging requests to do so, he declines to facilitate the production of documents evidencing any sale or a copy of the relevant title.
Though it is clear the trustee and first mortgagee are agreed in joining in a sale of the three properties comprised in 2-4 Pau Street and 10 Charles Street, Coburg North, their ability to effect such sales has been complicated by the lack of titles to one or more properties.
The first mortgagee’s solicitor further deposed to receiving an authority on 8 March 2022 to make application for vacant possession of the Pau Street property which, he contended “includes 10 Charles Street, Coburg North” and, as concerned such application he added that “The application in the Supreme Court of Victoria has not proceeded pending registration on title of the Applicant [i.e. the trustee] (on all 3 titles) to enable vesting of legal title in the Applicant in pursuance of s 58(2) of the Bankruptcy Act.”
Occupants of Pau and Charles Street properties
Mr Sevdalis deposed that at the time these properties were inspected in early February 2022 for the purposes of obtaining a valuation “a number of trespasses were residing on the land.”
The trustee adduced evidence of his recent communications with Mr Ingram who had informed him of the following: legal advice was being obtained to assist in the preparation of an affidavit; the occupants of this property were in a position to make an offer to purchase it; although a request was made by Mr Ingram for the trustee to run his eye over any affidavit, he had declined to do so; certain occupants of the property were now paying their rent to the trustee.
Mr Ingram made an affidavit on 21 June 2022 to which he exhibited a bundle of documents. Both in form and substance, the affidavit reflected that legal assistance had been provided for the purposes of its preparation. Mr Ingram described himself as “an agent of Crunchy Arts, the tenant of 2-4 Pau Street Coburg North.” Elsewhere, Mr Ingram described Crunchy Arts as a partnership. Although it was expressed in somewhat conclusory terms, Ingram contended that Crunchy Arts has held a continual tenancy of this property since March 2016.
Exhibited to Mr Ingram’s affidavit was an executed copy of a lease cover sheet and schedule. Although the final page of the schedule bore the date 1 January 2018 and appeared to bear the signature of Mr Kent, it was otherwise not executed by any tenant. At all events Item 8 of the schedule recorded that the lease was for a term of one year commencing 1 January 2018. Mr Ingram deposed that while it had been “custom and practice to renew on an annual basis however the bankrupt to the (sic) Paul William Kent refused to furnish copies of annual lease paperwork after 2018.” He further deposed that since the expiry of the 2018 lease, Mr Kent had continued to require and accept rental payments from “our community partnership and treated us as tenants of 2-4 Pau Street” and that rent of at least $2,000 per month was paid.
Mr Ingram’s uncontradicted evidence was that Mr Kent demanded such rent be paid in cash. The occupants of Pau Street are now paying their rent to the trustee.
Mr Ingram further deposed that at no time had the occupants of this property been served with an eviction notice and at no time had Mr Kent refused to accept rental payments. He further deposed “Agents of Crunchy Arts signed a lease dated until January 2023 and we were never given a copy of this lease for our records by bankruptee Paul William Kent.” Although the issue was not explored in the course of the hearing, I conclude the most likely inference is that any such lease until January 2023 had been proffered by Mr Kent for execution by the occupants of this property; that is, had been proffered at a time when he was bankrupt.
From his evidence, an available inference is that any ‘lease’ between themselves and Mr Kent is, at best, for a term expiring in January 2023.
As concerned improvements to this property, Mr Ingram deposed to a number of matters that I have considered. As raised with him in the course of submissions it is no part of the present application to determine whether such improvements are tenant’s fixtures or fixtures to the property and for that reason he was encouraged to pursue his discussions with the trustee.
Although Mr Ingram deposed that the occupants of the property opposed the making of orders for vacant possession, in the course of submissions he contended that he would be content with the giving of at least 90 days’ notice to vacate. His affidavit identified a number of events and concerts up to late September 2022 that would be disrupted if other orders were made.
On the evidence presently before me, I cannot conclude if the occupants of these properties are squatters, trespassers or tenants in possession on a month-to-month basis.
49, 49A and 49B Smith Street, Brunswick West – C/T, Vol 06428 Fol 481
Mr Kent purchased these properties in about 7 November 1979. From the trustee’s investigations, there is one residential dwelling on the land that may be subdivided internally.
The Smith Street properties are encumbered by a mortgage to St George Bank Ltd, a statutory charge with respect to unpaid land tax and is subject to a caveat in favour of the former trustee in bankruptcy, Kristen Jennifer Beadle, upon which the Bankrupt estate still relies.
The Smith Street properties comprise a residential premises. From the trustee’s investigations, the Smith Street properties are privately tenanted but to date no contact has been established with the occupant. By letter dated 25 October 2021, the trustee sought to ascertain the identity of the occupant. No response was received to the notice issued by his office claiming rent and seeking details of tenancy. Mr Kent states his address as being 49 Smith Street, Brunswick.
11 Midway Street, Heidelberg West – C/T, Vol 09186 Folio 163
Mr Kent purchased this property on about 19 February 2007. The Midway Street Property is subject to a mortgage to the Commonwealth Bank of Australia registered on 28 February 2012.
The Midway Street Property is a residential premises. The trustee established contact with the tenant, but despite repeated requests, he has failed to co-operate and has failed to comply with the notice requirements to remit rent to the bankrupt estate. The trustee expressed a belief that the tenant was paying rent to Mr Kent. The trustee has not issued a notice to vacate to the tenant of this property but intends to do so upon service of the orders sought in the application.
Unit 1, Southernhay St, Reservoir – C/T Volume 08993 Folio 519
The applicant conducted investigations on the Southernhay Property. Background information for this property has not been included for reasons that the property, which was previously tenanted, has been vacated and now sold. Mr Shanahan’s evidence is that he has realised this property for the bankrupt estate and that of the net proceeds of sale, the vast majority has been paid and accounted for under four broad categories: secured creditors; legal fees and disbursements; tax payments, and; miscellaneous expenses.
Some of the net proceeds of sale of this property have been applied in part-satisfaction of Mr Kent’s indebtedness to Mr Bunting. The trustee’s evidence is that Mr Bunting has lodged a proof of debt for $710,961.92 of which he received $210,450.16 from the settlement of this property and so leaving a balance to his claim of $500,241.76.
George Finance Pty Ltd
Mr Kent registered this company in 2008 and became its sole director and shareholder. He also registered Boom Parts & Repairs Pty Ltd, doing so for the stated purpose of preventing any other company from passing itself off as the owner of the Pau Street properties.
However loosely described, Mr Kent’s further objectives in securing the incorporation of George Finance was in some way associated with his interest in a land rent scheme then being promoted by the ACT Government. His evidence was that he regarded the investment as speculative. Mr Kent stated that Mr Neve owns 166 of the 4000 shares in this company. By his affidavit he described the manner in which Mr Neve was persuaded to invest in this scheme and stated that although he “provided mortgages to Mr Neve in March 2010 Mr Neve agreed not to register those mortgages unless I died or disappeared.”
By his account, George Finance had no employees and, as its sole director and shareholder, Mr Kent was the only person involved in seeking suitable projects for the purpose of investment including, as he deposed, of Mr Neve’s funds.
Newport property
Another investment identified by Mr Kent in late 2012 was a property situated at 10 McRobert Street, Newport. He described it as a large industrial site being zoned, Industrial Zone 1, and approximately 8,709 sq.m in area where a flour mill had previously operated and with several dilapidated warehouses remaining on the site.
While Mr Kent gave a detailed account of his efforts to acquire and realise this investment, including by encouraging Mr Neve to join with him in this adventure, the terms contract entered into by his company, Boom 2, with the registered proprietor, Allied Mills, was rescinded.
On 16 March 2016, VCAT made orders granting summary dismissal of an application brought by Boom 2 against the local council under s 149A of the Planning and Environment Act 1987 (Vic) for a series of declarations relating to existing use rights for the subject land. VCAT’s reasons record “At the hearing, the council advised that Mr Kent had been evicted from the subject land by the owner, Allied Mills Pty Ltd (Allied Mills), and that Allied Mills had commenced proceedings in the Supreme Court to confirm that the contract of sale between Allied Mills and the applicant had been terminated and that the applicant had no right to occupy the land.” Thus, the investment in this property appears lost.
Legislative framework
In Pt IV of the Act, Proceedings in connexion with bankruptcy, Div 4 addresses the Effect of bankruptcy on property and proceedings, and comprises ss 58-63. As s 58 of the Act provides that, subject to the Act, upon a debtor becoming bankrupt, his or her property vests, relevantly, in his or her trustee. Section 58 of the Act relevantly provides:
58 Vesting of property upon bankruptcy – general rule
(1) Subject to this Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
(2)-(6) . . .
In Pt V of the Act, Control over person and property of debtor and bankrupts, Div A, General, comprises ss 77-81. Absent illness or other sufficient cause and unless excused by his or her trustee, a bankrupt must lend aid to the utmost or his or her power in the administration of his or her estate: Act, s 77(1)(g). Other coercive powers are provided by Div A of Pt V.
In Pt VI of the Act, Property available for payment of debts, Subdiv A, General, of Div 3, comprises ss 115-128N. In the case of a sequestration order made on a creditor’s petition, a person’s bankruptcy is taken to commence on the date of earliest act of bankruptcy within six months before the petition was presented: Act, s 115(1).
Section 116 which concerns the subject Property divisible among creditors provides in extensive detail as to the property which does, and that which does not, constitute property divisible amongst the creditors of a bankrupt estate. Insofar as is material to the present application, s 116 of the Act reads:
116 Property divisible among creditors
(1) Subject to this Act:
(a)all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and
(b)the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and
(c)-(g) . . .
is property divisible amongst creditors of the bankrupt.
(2)-(4) . . .
In Pt VI of the Act, Div 4 addresses the subject Realisation of property, and comprises ss 129-138. Section 134 of the Act concerned the subject, Powers exercisable at discretion of trustee and, as relevant to the present application, provides, subject to the Act, as follows:
134 Powers exercisable at discretion of trustee
(1)Subject to this Act, the trustee may do all or any of the following things:
(a) sell all or any part of the property of the bankrupt;
(aa)-(i)
(j)bring, institute or defend any action or other legal proceeding relating to the administration of the estate;
(k)execute powers of attorney, deeds or other instruments for the purpose of carrying the provisions of this Act into effect; and
(m)-(n) . . .
(o) administer the property of the bankrupt in any other way.
(1A) . . .
(3) administer the property of the bankrupt in any other way.
No other provisions of the Act were said to be relevant to the trustee’s application.
I note that by s 4A of the Act, Sch 2, being the Insolvency Practice (Bankruptcy) Schedule has effect. Within Sch 2, Div 45 addresses Court oversight of registered trustees and by s 45-1(1), authorises the Court to make such orders as it thinks fit in relation to a registered trustee. Within Div 90 of Part 3, s 90-15(1) also authorises the Court to make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate. For the purposes of Sch 2, s 5-5 contains a Dictionary in which the terms ‘regulated debtor’ and ‘regulated debtor’s estate’ bear the meanings given by ss 5-15 and 5-16 respectively and include a bankrupt, and (putting to one side an irrelevant exception), the estate of a bankrupt. Furthermore, s 5-20 defines the meaning of the term, ‘trustee of a regulated debtor’s estate’ and includes a trustee.
Within Div 105, The Insolvency Practice Rules, of Pt 4 of Sch 2, s 105-1 authorises the making of rules providing for matters as may be required, permitted, necessary or convenient in order to carry out or giving effect to the Act. In Pt 2 of the rules, Div 42 addresses standards for registered trustees and by r 42-40 authorises a registered trustee in relation to an administration, in imperative terms, to realise assets in a manner that will give a cost-effective return to creditors, or, relevantly, contribute to the payment of the costs of the administration. The duties of a trustee in the administration of an estate are well settled: Hacker v Weston [2015] FCA 363, [10]-[15] (Flick J). No suggestion of a breach of duty was raised in this case.
Applicable principles – jurisdiction
In the present case, the trustee of Mr Kent’s bankrupt estate seeks orders for vacant possession of certain properties, each of which is located in the state of Victoria. Ordinarily, a proceeding for possession of property would be brought in the state court where that property is situate.
Before this Court may exercise jurisdiction there must be a federal matter. Two elements are comprised in the concept of ‘matter’. First, there must be a subject matter involving a controversy arising under a federal law. Secondly, the controversy must be justiciable.
The element, subject matter, is satisfied by it being established that there is a claim made within the scope of a controversy that arises under a federal law: Clarence City Council v Commonwealth of Australia (2020) 280 FCR 265, [52]-[54]; aff’d Hobart International Airport Pty Ltd v Clarence City Council (2022 96 ALJR 234.
The element of justiciability requires there to be a justiciable controversy, identifiable independently of the proceeding, that has been brought forward for determination and encompassing all claims made within the scope of the controversy. To answer the description of matter, the controversy must be real and immediate and not merely hypothetical or abstract: Clarence City Council v Commonwealth of Australia (2020) 280 FCR 265, [52]-[54]
A federal court cannot exercise state jurisdiction unless the constituent elements of a matter are satisfied: see, e.g. Re Wakim, Ex parte McNally (1999) 198 CLR 511. Once there is a ‘matter’, a federal court exercising state jurisdiction may ‘pick up’ the laws of the state in which that Court is operating, including the laws relating to procedure and evidence: Judiciary Act 1903 (Cth), Australian Securities and Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559, [72]-[74] (Gleeson CJ, Gaudron and Gummow JJ), [129]-[130] (McHugh J).
In the present case, Order 53 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) provides a mechanism for recovery of land. However, the procedure provided by Or 53 has long been recognised as being constrained by a number of principles which render more difficult its application in cases where a right of possession is in genuine dispute: Framlingham Aboriginal Trust v McGuiness [2014] VSC 241 at [39], (Derham AsJ) and cases cited.
Consideration
In the event, jurisdiction was not in issue and I am satisfied of this Court’s jurisdiction to hear and determine the matters the subject of this application by the trustee.
A federal question arising under the Act is whether or not the trustee has title to the Pau Street Property: Act, ss 27, 30 and 31(1)(f). Presently, orders for vacant possession and sale have not been made as against those persons in possession of the Properties, several of whom assert and maintain some right of tenancy, licence or other ill-defined entitlement to occupancy.
A federal court can make orders upon the application of a trustee for possession of a property previously owned by a bankrupt and, subject to any legally enforceable rights of occupation, as against property occupied by non-bankrupts: Prentice v Constantinidis (No.2) [2015] FCCA 904 (Manasouridis J).
As concerns the four remaining Properties, despite repeated requests, Mr Kent has not filed a statement of affairs. He has insisted on being paid in cash by the ‘tenants’ and has otherwise not acted in the manner required in the administration of his estate. As a result, the trustee has been left to undertake his own investigations so as to identify the property of the bankrupt that is capable of being realised and distributed, subject to the interests of others, amongst the creditors of the bankrupt estate. I am well satisfied that Mr Kent has not discharged his duty pursuant to s 77(1)(g) of aiding the trustee in the administration of his estate. To the contrary, there is abundant evidence of his unexplained failure, refusal or neglect to do so.
Section 30(1) of the Act provides that the Court has power to decide all questions, whether of law or of fact, in any case of bankruptcy and may make such orders (including declaratory orders) as it considers necessary for the purposes of carrying out or giving effect to the Act in any such case. “The provision is not to be construed narrowly or in a confined or limited way”: Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio [2013] FCA 18, [21] (McKerracher J). In Hacker v Weston [2015] FCA 363, [148] Flick J stated:
Section 30(1)(b), in particular, confers a power which it has been said should be “generously construed”: Vale v Sutherland [2009] HCA 26 at [19] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ. Section 30(1), it has been said, “is a facultative provision giving the court full power, within the limits of its jurisdiction to be found elsewhere, to make such orders as it considers should be made in order to carry out and give effect to the Act”: Re Bilen; Ex parte Sistrom (unreported, Federal Court of Australia, Neaves J, 11 April 1985). In Talacko v Talacko [2010] FCAFC 54 at [18] to [19], (2010) 183 FCR 311 at 321 Gray, Mansfield and McKerracher JJ similarly observed that the “words used are not words of limitation but of extension”. See also: Verge, Re Underdown (a bankrupt) v Fazio [2013] FCA 18 at [21] per McKerracher J.
I am satisfied that the trustee makes claims that arise under a federal law; namely, the Act and that there is a controversy in relation to each of the Properties in the circumstance that Mr Kent has opposed the application on grounds now addressed and disposed of in Ex parte Bunting [2022] FedCFamC2G 630. So too, I am satisfied that the several occupants of the Properties have either contested their entitlement to be in possession of a Property or have otherwise adopted a stance of non-engagement with the trustee including in not paying rent to the trustee despite notice to do so. The occupants of the Pau Street properties are the singular exception and have participated in this proceeding. Mr Ingram demonstrated, at best, that the persons in occupation of that Property are tenants on a month-to-month tenancy. Even that is doubtful, but in any event, he submitted that no less than 90 days notice to vacate would be tolerable.
It was not in dispute that title to the Properties have vested in the trustee: Act, s 58. Here, those Properties comprise the vast majority of the property which is divisible by the trustee amongst the creditors of Mr Kent’s estate. This too was not in issue: Act, ss 5(1), 116(1)(a). As a result, the trustee fell under a duty to take appropriate steps to preserve and secure the Properties from loss: Hacker v Weston [2015] FCA 363, [89]. As Flick J noted, this duty is not unqualified.
It was properly submitted that although the proceeding had been commenced in an available forum, relief ought not be granted unless the Court was satisfied that sufficient notice had been given to persons who may seek to assert an interest or claim contrary to that of the trustee. As to this, I am satisfied as to service and notice of the application, including upon those occupants.
There was evidence of such service, and I am satisfied, absent proof to the contrary, that the application was taken to have been received by, and served, when it would have been delivered to Mr Kent’s last known address: see Bankruptcy Regulations 2021 (Cth), reg 102; Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth), r 4.05(a). Service at the last known address of a person is to be determined objectively and it does not matter under this regulation whether or not the debtor or other person is in fact living at that last known address: Toyota Finance Australia Ltd v Berro [2022] FCA 497, [41]-[45] (Burley J) citing Civic Video Pty Ltd v Warburton (2013) 216 FCR 61, [74]-[80] (Jacobson J).
Self-evidently, at all times each of Mr Kent and Mr Ingram have appeared in the proceeding. At the first directions hearing a number of other persons who also claimed to be occupants of the Pau Street property appeared before me, however, they did not appear subsequently and seemed, I infer, quite content to leave matters in the hands of Mr Ingram. I record that Mr Ingram alluded to having obtained legal advice in relation to the issue the subject of the proceeding. Before being stopped, he also referred to discussions being undertaken with the trustee including in relation to the potential purchase of the Pau Street property.
Apart from the first mortgagee, who was represented by counsel, and the bankrupt, who was ably represented by pro bono counsel, Mr Ingram was the only other person to appear at any stage in the proceeding. Mr Ingram and those persons whom he sought to represent are only interested in the proceeding to the extent it may affect their use of the Pau Street property.
Mr Kent’s submissions against this application were grounded entirely upon the success of his own application which has now been dismissed. The position of the occupants of Pau Street has been addressed above. Above or beyond any month-to-month tenancy, they have not established an entitlement to remain in occupation of that Property. No other occupant has established any entitlement to remain in occupation of any other Property. It was not necessary that they be named in the proceeding or served personally with process: cf Supreme Court (General Civil Procedure) Rules 2015 (Vic), Or 53.03(2). I am prepared to infer from the evidence that other occupants of other Properties have been afforded proper notice of this application and, to this point, have not engaged with the trustee in any meaningful way.
Relief
For the foregoing reasons, I am satisfied the applicant has established an entitlement to relief. I am fortified by this conclusion by the matters addressed in Ex parte Bunting at [190]; see also, Hacker v Weston [2015] FCA 363, [128]-[129], [182].
The trustee is entitled to relief confirming his authority to seize possession and to sell each of the Properties in the discharge of his duties to administer the estate efficiently: Act, ss 31(1)(f); 134(1)(a). Orders for sale may be made where a person in occupation plays no part in the proceeding: Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio [2013] FCA 18, [18]-[19], [23] (McKerracher J). Ancillary order should also be made.
I have noted the failure of Mr Kent to discharge his duties conformably with par 77(1)(g) of the Act. I have also noted the other coercive powers in Pt V of the Act.
By par 77(1)(e) of the Act, Mr Kent is also obliged to “execute such instruments and generally do all such acts and things in relation to his or her property and its realization as are required by this Act or by the trustee or as are ordered by the Court upon the application of the trustee.” Failure to comply with such a requirement is a ground for objecting to a bankrupt’s discharge: Act, par 149D(1)(k). It will also ground an entitlement in a trustee to exercise the power conferred by ss 134(1)(k), 134(1)(o) and 134(3) of the Act to do such things and execute such documents as is required in cases where a bankrupt declines to do so within a reasonable time of being requested by his or her trustee to do so: see also, Act, Sch 2, ss 45-1(1), 90-15(1).
I have considered the careful submissions made on behalf of the first mortgagee.
I agree that the present case is not one in which the trustee proposes to sell as mortgagee in possession. To the extent the Transfer of Land Act 1958 (Vic) provides for the order in which the net proceeds of sale are to be applied, the trustee’s proposed minute has dealt with this.
Counsel for the trustee submitted a detailed minute of proposed orders that proposed for the grant of relief in relation to each of the properties in a near-identical fashion. I have moulded that relief in a global way so as to simplify its terms. Although I will grant liberty to apply, I note that the Rules of Court address issues of enforcement in comprehensive terms. While liberty to apply was reserved in the distinct circumstances arising in Re Verge, an application pursuant to liberty to apply should be understood a last, rather than first, resort in this case.
Conclusion
The trustee’s application for vacant possession and sale orders should be allowed.
I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment of Judge A Kelly. Associate:
Dated: 9 August 2022
14
0