Srbinovska & Srbinovska (No 2)
[2025] FedCFamC1F 155
•14 March 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Srbinovska & Srbinovska (No 2) [2025] FedCFamC1F 155
File number: SYC 754 of 2019 Judgment of: ALDRIDGE J Date of judgment: 14 March 2025 Catchwords: FAMILY LAW – PROPERTY – BANKRUPTCY – Where the husband is bankrupt and the trustees in bankruptcy are parties – History of proceedings in the Supreme Court – Where there is a shortfall in funds required to annul the bankruptcy – Whether the trustees improperly distributed proceeds of sale – Where the dispersed sale proceeds do not form part of the pool of assets – Where there is one real property available for division – Where the wife made substantial contributions – Where there should not be any adjustment between the wife and the trustees – Property to be sold – Wife to retain 50 per cent of proceeds of sale – Trustees to retain 50 per cent of the proceeds of sale and repay to the wife any surplus following annulment of the bankruptcy. Legislation: Bankruptcy Act 1966 (Cth) s 120
Family Law Act 1975 (Cth) ss 4, 79, 80
Revised Explanatory Memorandum Family Law Amendment Bill 2005 (Cth)
Supreme Court Act 1970 (NSW) s 67
Cases cited: Biltoft and Biltoft (1995) FLC 92-614; [1995] FamCA 45
Srbinovska & Srbinovska [2014] FamCA 592
Srbinovska & Srbinovska [2022] NSWSC …
Srbinovska & Srbinovska [2023] NSWSC …
Srbinovska & Srbinovska [2024] NSWSC …
Trustee of the Property of G Lemnos, a Bankrupt & Lemnos (2009) FLC 93-394; [2009] FamCAFC 20
Valder & Saklani (2021) FLC 94-042; [2021] FamCAFC 142
Walton, Raymond, Kerr on the Law and Practice as to Receivers and Administrators (Sweet & Maxwell; 17th edition, 1989)
Division: Division 1 First Instance Number of paragraphs: 93 Date of hearing: 27 and 28 November 2024 Place: Sydney The Applicant: Litigant in person The First Respondent: No appearance Counsel for the Second and Third Respondents: Ms Holmes SC Solicitor for the Second and Third Respondents: Polczynski Robinson ORDERS
SYC 754 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS A SRBINOVSKA
Applicant
AND: MR R SRBINOVSKA
First Respondent
MR ROMANO
Second Respondent
MR AMATO
Third Respondent
ORDER MADE BY:
ALDRIDGE J
DATE OF ORDER:
14 MARCH 2025
THE COURT ORDERS THAT:
VACANT POSSESSION
1.Within 60 days of the date of these orders, the applicant wife (“the wife”):
(a)Vacate the property situated at B Street, Suburb M in the state of New South Wales being the whole of the land in folio identifier … (“the B Street property”);
(b)Leave the B Street property in good order and repair and in a presentable condition; and
(c)Provide vacant possession of the B Street property to the second and third respondents (“the trustees”).
2.Prior to providing vacant possession of the B Street property to the trustees, the wife is solely responsible for and must pay as and when they fall due, all outgoings and costs associated with the B Street property and must indemnify the husband and the trustees in relation to those costs.
TRUSTEE FOR SALE
3.Pursuant to s 80(1)(e) of the Family Law Act 1975 (Cth), the second and third respondents are appointed as trustees for the sale of the B Street property.
CONDUCT OF SALE
4.Within 90 days of the date of these orders, the trustees are to do all acts and things and sign all documents necessary to list the B Street property for sale by private treaty:
(a)With an agent selected by the trustees as follows
(i)the trustees are to provide the names of three agents to the wife in writing;
(ii)the wife is to select one of the three nominated agents who shall then have the carriage of the sale; and
(iii)if the wife does not select one of the agents within 14 days of the list being provided to her, the trustees shall choose the agent to have the carriage of the sale;
(b)At a price nominated by the trustees in consultation with the agent;
(c)For an advertising campaign of the trustees’ choice, in consultation with the agent; and
(d)If an offer is made from a prospective purchaser where the purchase price is at or above 95 per cent of the list price, the offer must be accepted.
5.In the event a contract for sale is not entered pursuant to Order 4 within 30 days of the date the B Street property is listed for sale by private treaty in accordance with Order 4, then the B Street property is to be listed for auction, with the first auction to take place within 60 days of the date on which the B Street property is listed for auction:
(a)With an auctioneer selected by the trustees;
(b)With a reserve price nominated by the trustees in consultation with the agent and/or auctioneer; and
(c)In the event that the bidding does not reach the reserve price, the trustees must sell the property to any proposed purchaser who makes a bid or offer at or above 95 per cent of the reserve price.
6.In the event that the B Street property is not disposed of at auction in accordance with Order 5, the B Street property be re-listed for sale by private treaty for a further period of 30 days with a further auction to be held forthwith at the expiration of the 30 day period:
(a)The sale by private treaty is to be conducted as specified in Order 4;
(b)The auction is to be conducted as specified in Order 5; and
(c)The process specified in this order (Order 6) will be repeated until such time as the B Street property is sold.
PROCEEDS OF SALE
7.The proceeds of sale of the B Street property shall be paid in the following manner and priority:
(a)Payment of the agent’s commissions, auctioneer’s fees and advertising or other expenses payable on the sale;
(b)Payment of the legal costs and outlays relating to the sale;
(c)To pay all rates, electricity, water or other service accounts outstanding as at the date of sale;
(d)50 per cent to the wife; and
(e)50 per cent to the second and third respondents.
8.In the event the proceeds of sale paid to the second and third respondents in accordance with Order 7(e) above exceed the amount required to annul the bankruptcy, the surplus amount is to be paid to the wife.
OTHER ORDERS
9.Pending the sale of the B Street property, the parties are restrained from further charging, encumbering, creating, or increasing any liability secured against the property.
10.The parties do all acts and things and sign all documents necessary to give effect to these orders.
11.In the event that any party refuses or neglects to sign or execute and return a document within 48 hours of a written request to do so then a registrar may be appointed pursuant to s 106A of the Family Law Act 1975 (Cth) to execute such deed or instrument in the name of the party and to do all acts and things to give effect to these orders upon the registrar being provided with verification of such failure by way of affidavit.
12.Subject to these orders, each party shall otherwise be solely entitled to the exclusion of the other to all property and chattels of whatsoever nature and kind in their possession, ownership or control as at the date of these orders.
13.All outstanding applications are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Srbinovska & Srbinovska has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALDRIDGE J:
These are property settlement proceedings between Ms A Srbinovska (“the wife”), Mr R Srbinovska (“the husband”) and Mr Romano and Mr Amato as trustees of the bankrupt estate of Mr R Srbinovska (“the trustees”).
The husband took no active role in the proceedings.
The dispute between the parties focused on three properties, all at Suburb M, which can conveniently be described as the B Street, G Street and E Street properties.
The wife sought orders which would see her receive the entirety of the B Street property and payment to her from the trustee of the sale proceeds of the G Street property, and all of the rent received by them from the B Street and G Street properties. She sought that the proceeds of sale from the E Street property be included in the asset pool.
It is apparent from the orders sought by the wife and her Case Outline document that the E Street and G Street properties have been sold by the trustees. The wife contends that they were and remain obliged to account to her for one-half of the proceeds of sale of G Street and that all of the proceeds of E Street are available to be divided between her and the trustees.
The trustees’ response is that the sales were conducted under orders made by the Supreme Court of New South Wales and that the proceeds of sale were disposed pursuant to those orders. Thus, they deny any liability to pay the wife anything.
The resolution of that dispute will require close attention to the orders of the Supreme Court.
The proceeds realised by the trustees from the sale of the G Street and E Street properties were insufficient to annul the bankruptcy. They seek an order that the wife pay them the sum necessary to annul the bankruptcy. In the event the wife is unable to do so, they ask that the B Street property be sold and they receive the amount necessary to annul the bankruptcy or 50 per cent of the proceeds, whatever is lesser.
The wife also sought an order that the trustees transfer 50 per cent of their interest in the property at K Street and H Street, Suburb M (one property with two street frontages) (“the K Street property”) to Mr S Srbinovska, the husband’s brother. By the end of the hearing, the wife seemingly withdrew her application in respect of this property as she made no submissions on it. I will address it, nonetheless.
There is a fatal difficulty with the order sought by the wife. The ownership of the K Street property was the subject of contested Supreme Court proceedings between the husband and his brother. In November 2020, Robb J ordered the bankrupt to deliver to the brother a duly executed memorandum of transfer of the property in registerable form and in default, ordered that a registrar of the court may execute that transfer.
The trustees have disavowed any interest in the property. The orders implicitly recognise that the brother is the beneficial owner of it and the husband is a bare trustee. That is so even though the transfer has not taken place.
The brother was subsequently made bankrupt in 2021. Neither the brother nor his trustee in bankruptcy were parties to the present property division proceedings. There is no interest of the husband in the property that would be capable of division between the parties, and no such order was sought by the wife. The enforcement of the transfer order is a matter for the brother or his trustee. That proposed order will not be made.
The wife has an interest in a vehicle, bank account and household contents. She will retain all of those and also bear any liabilities she presently has. These reasons will focus on the B Street, G Street and E Street properties in issue between the wife and the trustees.
I will deal first with a brief history of the matter before turning to the Supreme Court orders. That history will be severely truncated and deal only with matters relevant to the present issues. There were a number of complicated proceedings in various courts which are not directly relevant for present purposes.
BACKGROUND
The spouse parties married in 2001. They have three children who were aged 15, 19 and 21 at the time of the hearing. The evidence was that they separated in 2012, however they each continued to live in the B Street property.
The husband became the registered proprietor of the G Street property in mid-1999. He transferred that interest to himself and the wife as joint tenants on 28 November 2002. On 31 May 2013 the spouse parties transferred all interests in the property to the wife.
The husband and his mother became the registered proprietors of the E Street property, as joint tenants, on 17 July 1991. After the death of his mother, the husband became the sole owner. The husband transferred his interest in the E Street property to the wife on 31 May 2013.
The husband acquired the B Street property as an inheritance from his mother and transferred his interest to himself and the wife as joint tenants on 13 July 2009. They transferred their interests in the property to the wife on 31 May 2013.
The spouse parties commenced proceedings in the Family Court of Australia (as it then was) on or around 2 May 2013. Those proceedings were resolved by consent orders made on 7 May 2013, which required the husband to transfer his interests in the B Street, G Street and E Street properties to the wife. The three transfers dated 31 May 2013 gave effect to those orders.
On 30 July 2014, on application of the husband’s brother, Foster J set aside the consent orders finding that the spouse parties had deceitfully failed to disclose a “prospective and pending third party interest” (Srbinovska & Srbinovska [2014] FamCA 592 at [42]).
Justice Le Poer Trench dismissed an application by the wife to set aside the orders of Foster J on 18 May 2015.
The trustees were appointed in June 2017 with the effective date of bankruptcy being in March 2016.
At that time the Supreme Court proceedings involving the husband and the brother were part-heard before Robb J and further delays ensued as a result of the husband’s bankruptcy. In late 2018 the trustees filed a Notice of Motion seeking to cross claim against the wife who was also a party. They sought to set aside the transfers made pursuant to the May 2013 consent orders, which significantly had still not been reversed despite the setting aside of the consent orders. The wife was collecting rent from both the G Street and E Street properties.
In late 2018, Ward CJ in Equity determined the cross claim and declared the transfers made on 31 May 2013 void pursuant to s 120 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). The wife was required to execute appropriate transfers to the trustees of what would have been the husband’s interest and declared that until those transfers were effected, the wife held that interest on trust for the trustees.
The trustees were also appointed as receivers of any rent being paid in respect of the G Street, B Street and E Street properties. The wife was ordered to pay the costs of the trustees, which were later assessed to be $72,280.25.
The wife did not comply with the orders and in early 2019 the Registrar in Equity signed the necessary transfers which were subsequently executed with the New South Wales Land Registry in May 2019.
The effect of all of this was that the trustees and the wife owned the B Street and G Street properties as tenants in common in equal shares and the trustees owned the E Street property.
On 8 February 2019, the wife commenced the present proceedings.
In late 2021, the trustees filed a motion in the Supreme Court seeking orders for the payment of their costs, expenses and remuneration as trustees and as receivers.
That application ultimately came before Lindsay J who in early 2022 found that orders should be made for the trustees to sell property to create a fund for payment of their renumeration, costs and expenses, for the payment of creditors and for the balance to be paid to the Federal Circuit and Family Court of Australia to abide the dispute between the husband and the wife (Srbinovska & Srbinovska [2022] NSWSC …). An application to transfer the dispute to this court was dismissed.
In early 2022, Lindsay J ordered the wife to file an affidavit, by no later than 6 May 2022, setting out the rent received by her in relation to the E Street and G Street properties since the late 2018 orders. She was also ordered to pay $2,120 plus any further rent disclosed by her in the affidavit, plus interest, to the trustees “in their capacity as receivers appointed by the Court” by 13 May 2022 (Order 1(b) of the orders of Lindsay J dated early 2022).
In accordance with those orders, the wife paid the trustees $2,444.70 as an account of rent paid to her from the G Street and E Street properties following the trustees’ appointment as receivers of that rent under the late 2018 orders.
Subsequently, in mid-2022, Lindsay J, by consent, dismissed the contempt application filed by the trustees in respect of the wife’s continued receipt of rental payments following the late 2018 orders. The wife was ordered to pay the trustees’ costs on an indemnity basis.
In mid-2022 the trustees were appointed as receivers of the G Street and E Street properties, pursuant to s 67 of the Supreme Court Act 1970 (NSW) (“Supreme Court Act”), with a power to sell them. I shall return to the detail of that order shortly. The proceeds of sale were to create a fund, the “Receivers Fund”, which was to be dispersed as follows:
8.ORDER that the fifth and sixth defendants shall pay from the Receivers Fund the following amounts in the following order of priority:
j.the reasonable costs and expenses properly incurred by the fifth and sixth defendants in the performance of their duties and the exercise of their powers as trustees of the bankrupt estate in relation to steps taken by them in the preservation and protection of assets of the bankrupt estate specifically the Properties from claims in these proceedings (the Priority Costs);
k.the reasonable costs and expenses properly incurred by the fifth and sixth defendants in the performance of their duties and the exercise of their powers as receivers of the rent of the Properties pursuant to their appointment as such by the Court [in late] 2018 (the Receivership Costs);
l.any reasonable costs and expenses properly incurred by the fifth and sixth defendants, in their capacity as trustees of the bankrupt estate of the first defendant, and incurred in the performance of their duties and the exercise of their powers as trustees, which are not included in (a) above, and which have been approved in accordance with the provisions of the Bankruptcy Act1966 (Cth) (the Bankruptcy Costs);
m.an amount sufficient to annul the bankruptcy of the first defendant, provided that all other legal requirements are complied with, including but not limited to reporting requirements contained in the Bankruptcy Act 1966 (Cth);
n.any balance is to be paid into an appropriate account held by this Court pending final determination of proceedings number (P) SYC 754 of 2019 in the Federal Circuit and Family Court of Australia or further order of this Court.
(As per original)
(Orders of Lindsay J dated mid-2022)
The trustees were ordered to file an affidavit setting out a breakdown of the sale costs and their costs, expenses and renumeration in their various capacities. A procedure for the other parties to challenge those items was put in place.
The trustees sold the two properties but there was no agreement on their costs, expenses and renumeration. An application was brought by them for determination of those sums by the Supreme Court. After a contested hearing, McGrath J made the following orders in late 2023 (Srbinovska & Srbinovska [2023] NSWSC …):
(1)Order that the Priority Costs as defined in the orders of the court made [in mid] 2023 ([mid-2023] Orders) be fixed in the sum of $1,555,193.44 (Priority Costs) to be paid to the fifth and sixth defendants in accordance with order 8(j) of the [mid-2023] Orders.
(2)Order that the Receivership Costs as defined in the [mid-2023] Orders (and not otherwise claimed as Priority Costs) be fixed in the sum of $245,267.18 to be paid to the fifth and sixth defendants in accordance with order 8(k) of the [mid-2023] Orders.
(3)Order that the Sale Costs as defined in the [mid-2023] Orders be fixed in the sum of $154,648.60 to be deducted from the proceeds of sale of the Properties in accordance with order 6(i) of the [mid-2023] Orders.
(4)Direct that in the absence of agreement between the fifth and sixth defendants and the fourth defendant, any further Receivership Costs as defined in the [mid-2023] Orders (and not otherwise claimed as Priority Costs) relating to the period from January 2023 to date shall be determined by McGrath J in chambers following receipt of any further evidence and brief submissions (no more than 2 pages, 1.5 spacing, 12 font) to be served and provided to the associate to McGrath J by 14 February 2024.
(5)Order that the fourth defendant pay the fifth and sixth defendants’ costs of and occasioned by the application.
In April 2024, McGrath J made the following further orders (Srbinovska & Srbinovska [2024] NSWSC …):
(1)The Sale Costs and the Receivership Costs as defined in the orders of the court made [in] May 2022 (May Orders) be fixed in the further sum of $238,235.56 to be paid to the fifth and sixth defendants in accordance with orders 6(i) and 8(k) of the May Orders.
(2)The fourth defendant pay the fifth and sixth defendants’ costs of and occasioned by this further application.
In January 2023, the trustees held the sum of $2,535,128.33 in the fund established by the orders of Linday J. This was comprised of the proceeds of sale of the E Street and G Street properties, interest, rent and the amount paid by the wife.
By December 2023, a further $39,904.35 accrued by way of interest on the sum held.
The trustees’ evidence is that the fund did not cover the costs ordered to be paid, leaving a shortfall of $141,127.65 (Case Outline of the trustees filed 19 November 2024, Annexure B).
THE WIFE’S CONTENTIONS
The wife’s case is that the entire net proceeds of the sale of the G Street and E Street properties constitute property that is available for distribution between the spouse parties.
She also seeks an order for the payment of all rent received in respect of the B Street and G Street properties since the date of separation, despite the trustees being appointed receivers of that rent.
As to the G Street property, the wife submitted that as she was a co-owner of the property, entitled to one-half of the proceeds, and that the orders of the Supreme Court, properly understood, did not permit the trustees to deduct any sum at all from the proceeds, the remaining half interest in the proceeds, whilst vested in the trustees, remains available for distribution between the parties. She contends that it has been prematurely distributed by the trustees who are therefore liable to account for it. She submitted that the orders of the Supreme Court did not authorise any disbursement of the proceeds and merely quantified the costs of the trustees.
Whilst the wife does not contend that she had any direct interest in the E Street property, she submitted that the entire proceeds of sale, which vested in the trustees, are property available for division in the same way as the one-half share of the G Street property is available for division.
Thus, the wife seeks an order that she receive the entirety of the B Street property, together with a payment equal to the net sale proceeds of the G Street property.
THE PROPERTY POOL
It is necessary to turn to the orders of Lindsay J made in mid-2022:
By and with the consent of the parties Lindsay J makes the following notations and orders:
1.ORDER that the fifth and sixth defendants have the power to conduct and complete the sale of [E Street, Suburb M] NSW (the E Street Property) and [G Street Property] NSW (the G Street Property) in accordance with these Orders and convey the Properties upon completion of the sale, together with the power to do anything necessarily ancillary to these steps.
2.Pursuant to section 67 of the Supreme Court Act 1970 (NSW), ORDER that the fifth and sixth defendants:
a.be appointed as receivers of the [E Street Property] and [G Street Property];
b.are given the power to sell the [E Street Property] and [G Street Property].
3.ORDER that the proceeds of sale of the [E Street Property] and the [G Street Property] (together the Properties) shall constitute a fund (the Receivers Fund).
4. ORDER that no later than 30 May 2022 the fourth defendant shall:
c.deliver to the fifth and sixth defendants such Certificates of Title for the Properties which are in her possession or under her control;
d.take all steps to remove any caveat registered against the Properties so as to facilitate the sale of the Properties.
5.ORDER that within 7 days of receiving any request in writing from the fifth and sixth defendants, the fourth defendant shall deliver to the fifth and sixth defendants any documents in her possession or under her control relating to the Properties which are reasonably required by the fifth and sixth defendants to conduct or complete the sale of the Properties.
6.In order to exercise the power or powers granted by order 2, ORDER that the fifth and sixth defendants:
e.are entitled to take all reasonably necessary steps required (including, but not limited to, appointing a real estate agent and auctioneer) to sell the Properties by public auction.
f.are to obtain a valuation of the Properties by a registered valuer appointed by the fifth and sixth defendants and upon receipt of the valuation is to apply to the Court for the setting of a reserve price for the sale of the Properties by public auction (the Reserve Price).
g.must not sell the Properties for less than the Reserve Price except by leave of the Court
h.if, at a public auction of the Properties the Reserve Price is not reached, then the Properties are to be passed in and the fifth and sixth defendants are to take all reasonably necessary steps required to sell the Properties by further public auction or by private treaty at or above the Reserve Price.
i. The fifth and sixth defendants have the Power to:
i.appoint agents, valuers, solicitors and/or conveyancers as required to sell the Properties;
ii.make all necessary adjustments of rates and taxes on settlement of sale of the Properties;
iii.do all things necessary and incidental to effect the sale of the Properties;
iv.deduct, from the proceeds of sale of the Properties, the commission and other expenses of any real estate agent employed by the fifth and sixth defendants;
v.deduct, from the proceeds of sale of the Properties, the remuneration and expenses of the fifth and sixth defendants relating to the sale of the Properties at the rates charged from time to time for work of that type by the firm [C Lawyers];
vi.deduct, from the proceeds of sale of the Properties, the legal expenses of and relating to transferring the Properties to the respective purchasers;
vii.deduct, from the proceeds of sale of the Properties, the legal expenses and disbursements in respect of the sale including (without limitation) valuation fees, insurance premiums and all other out of pocket expenses;
viii.deduct, from the proceeds of sale of the Properties, any legal costs ordered in respect of these proceedings.
7.RESERVE to the fourth defendant liberty to purchase the Properties on whatever terms or basis the fifth and sixth defendants determines the Properties should be sold.
8.ORDER that the fifth and sixth defendants shall pay from the Receivers Fund the following amounts in the following order of priority:
j.the reasonable costs and expenses properly incurred by the fifth and sixth defendants in the performance of their duties and the exercise of their powers as trustees of the bankrupt estate in relation to steps taken by them in the preservation and protection of assets of the bankrupt estate specifically the Properties from claims in these proceedings (the Priority Costs);
k.the reasonable costs and expenses properly incurred by the fifth and sixth defendants in the performance of their duties and the exercise of their powers as receivers of the rent of the Properties pursuant to their appointment as such by the Court [in] December 2018 (the Receivership Costs);
l.any reasonable costs and expenses properly incurred by the fifth and sixth defendants, in their capacity as trustees of the bankrupt estate of the first defendant, and incurred in the performance of their duties and the exercise of their powers as trustees, which are not included in (a) above, and which have been approved in accordance with the provisions of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Costs);
m.an amount sufficient to annul the bankruptcy of the first defendant, provided that all other legal requirements are complied with, including but not limited to reporting requirements contained in the Bankruptcy Act 1966 (Cth);
n.any balance is to be paid into an appropriate account held by this Court pending final determination of proceedings number (P)SYC 754 of 2019 in the Federal Circuit and Family Court of Australia or further order of this Court.
9.ORDER that the fifth and sixth defendants shall file and serve on the fourth defendant an affidavit or affidavits containing a detailed breakdown of:
o.the work, costs and expenses incurred by them and which are said to be the Priority Costs
p.the work costs and expenses incurred by them and which are said to be the Receivership Costs;
q.the amounts referred to in order 6(e)(v)-(viii) above (the Sale Costs).
10.ORDER that, within 14 days of the provision by the fifth and sixth defendants to the fourth defendant of the affidavit referred to in order 9 above, the fourth defendant shall file and serve any objections to the costs being claimed by the fifth and sixth defendants as Priority Costs, Receivership Costs and/or Sale Costs.
11.ORDER that, within 14 days of the receipt of any objections referred to in order 10 above, the fifth and sixth defendants shall be at liberty to file and serve any response to the objections (if any) raised by the fourth defendant to either the Priority Costs, Receivership Costs and/or the Sale costs.
12.ORDER that any issue as to the quantum of the Priority Costs and the Receivership Costs be listed before Lindsay J [in] August 2022 for directions.
13.RESERVE to the fifth and sixth defendants liberty to seek directions from the Court on any matter arising from their appointment or these orders.
14.ORDER that the fourth defendant’s motion dated 7 February 2022 be dismissed.
15.ORDER that the fourth defendant pay the fifth and sixth [defendants’] costs of the further amended notice of motion filed by the fifth and sixth defendants and dated 25 February 2022 and also the fourth [defendant’s] notice of motion dated 7 February 2022.
16.RESERVE liberty to apply to Lindsay J on three (3) days’ notice.
17. ORDER that these orders be entered forthwith.
Order 2 appoints the trustees as receivers under s 67 of the Supreme Court Act with the power to sell the E Street and G Street properties. The object of such an appointment is as the safe‑guardian of property for those who are entitled to it (Raymond Walton, Kerr on the Law and Practice as to Receivers and Administrators (Sweet & Maxwell, 17th edition, 1989), p.130). A common reason for the appointment of receivers for the sale of property is where co‑owners do not agree. Such a receiver is an officer and representative of the court that appointed him or her.
It is a distinct office. In dealing with the sale of the E Street and G Street properties and the distribution of the proceeds of sale, the trustees were not acting in their capacity as trustees in bankruptcy, but rather as receivers appointed by the Supreme Court. The orders of Lindsay J and McGrath J clearly make that distinction and recognise it.
Order 3 creates a fund from the proceeds of sale from the two properties.
It is impossible to derive any intention from those orders that the receivers’ fund is to comprise only one-half of the net proceeds of the E Street and G Street properties. This is because the receivers’ fund was clearly comprised of all of the proceeds of those properties and the first payment includes the costs of preserving and realising the properties on behalf of all co-owners.
Order 8 then authorises payments from the fund by the trustees in their capacity as receivers. Receivers for sale of a property fill a completely different office to trustees in bankruptcy. It is true that the order provides for payment to the trustees in both of their capacities, but it is clearly delineated as to each payment.
Justice McGrath described the application before him as follows (Srbinovska & Srbinovska [2023] NSWSC …):
70By way of this application, the Trustees/Receivers seek that the Priority Costs be fixed at $1,555,193.44, the Receivership Costs (not otherwise claimed as Priority Costs) be fixed at $245,267.18 and the Sale Costs be fixed at $154,648.60, totalling $1,955,109.22. Each of these categories covers amounts for the remuneration of the Trustees/Receivers and for the disbursements incurred by them, including the fees and disbursements charged by Polyczynski Robinson.
Justice McGrath did not vary the orders of Lindsay J but simply quantified the amounts claimed by the trustees.
The wife’s contentions cannot be accepted. The orders of May 2022 clearly create a fund from the sale proceeds of the properties and not simply from the husband’s share. Order 3 (creating the receivers’ fund) and Order 8 (dispersing the receivers’ fund) are clear and unequivocal. Further, if the wife’s interest was to have been preserved for payment to her, then the orders could simply have said so.
It is important to note that these orders were by consent.
In any event, the orders are binding on the parties and cannot be ignored by this Court.
This forestalls any consideration of whether the priority costs and receivership costs should be borne by the owners of both properties (the wife and the trustees) with the bankruptcy costs to be borne only by the interests of the trustees (i.e. from the net proceeds of the E Street property and one-half of the net proceeds of the G Street property).
Finally, the orders of McGrath J quantified the amount of the costs and encompassed an order for payment. The trustees have acted in accordance with that order and those of Lindsay J in dispersing the proceeds of sale. There is no basis for suggesting that they did so wrongfully.
The funds that have been dispersed no longer exist and cannot be included in the property to be divided. There is similarly no basis for them being considered as a notional asset, being funds that would have been available for division but were prematurely disposed of, or for an order being made for their repayment.
Section 79(1) of the Family Law Act 1975 (Cth) (“the Act”) provides:
79 Alteration of property interests
(1)In property settlement proceedings, the court may make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them—altering the interests of the parties to the marriage in the property; or
(b)in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage—altering the interests of the bankruptcy trustee in the vested bankruptcy property;
including:
(c)an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i) either or both of the parties to the marriage; or
(ii) the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
“Property” in relation to the parties to a marriage or either of them is relevantly described as meaning the “property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion” (s 4 of the Act). “Vested bankruptcy property” is defined as “property of the bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act 1966” (s 4 of the Act).
Section 79, therefore, speaks in the present tense of the property of the parties, or either of them, or the vested bankruptcy property available at the time of the orders. This is because the section empowers the court to alter the interests in that property. Of course, in doing so it can order the payment of a lump sum of money (s 80 of the Act).
There are appropriate provisions in the Bankruptcy Act for persons aggrieved by wrongful acts of trustees in bankruptcy to seek redress.
The wife referred to a passage in the reasons of McGrath J in Srbinovska & Srbinovska [2023] NSWSC … where his Honour said:
42Robb J concluded that [B Street] and [G Street] are to be registered jointly by [the wife] and the Trustees/Receivers as tenants-in-common and [E Street] is to be registered in the names of the Trustees/Receivers.
That is so and implicitly recognised in the orders of Lindsay J. However, the rights of the two owners were subject to those orders, not the other way around.
It follows that the only property capable of division is the B Street property (the remaining property and liabilities being removed from consideration by agreement). The wife and the trustees each have a one-half interest in it, and it has an agreed value of $2,050,000.
IS IT JUST AND EQUITABLE TO EMBARK ON A PROPERTY DIVISION?
In December 2018, Ward CJ in Equity ordered the wife to pay the costs of the trustees. Following assessment and review, these were assessed in the sum of $72,280.25. Interest has accrued and as at 28 November 2024, the amount owing was $100,233,70.
In May 2022, Lindsay J ordered the wife to pay the trustees’ costs of the application for the sale of the E Street and G Street properties, and her unsuccessful cross-vesting application.
The next day, Lindsay J ordered the wife to pay indemnity costs of the trustees, this time in respect of the contempt application for her failure to comply with the orders as to rent.
Justice McGrath made two orders for the wife to pay the trustees’ costs in respect of each of the two applications for the fixing of the trustees’ priority, receivership and sale costs.
The second, third, fourth and fifth costs orders have not been assessed.
The trustees estimate that the costs owing to them, once quantified, will be of the order of $550,000. They do not seek any orders in relation to them.
As noted earlier, there was a shortfall of $141,127.65 under the orders of Lindsay J. The creditors are yet to receive a dividend. The trustees, of course, have incurred further costs, expenses and renumeration. They indicated that approximately $700,000 will be needed to annul the bankruptcy (i.e. to pay the balance of the trustees’ costs, expenses and remuneration and 100 cents on the dollar to proven creditors).
It is obvious that the costs of the trustees greatly exceed the value of the debts proven in the bankrupt estate. In Srbinovska & Srbinovska [2023] NSWSC …, McGrath J closely considered the issue of proportionality when quantifying the amount to be paid to the trustees in their various capacities (at [93]–[125]). His Honour determined that, in the circumstances, the costs, expenses and renumeration were proportionate. Included in those considerations was the following:
108There are several considerations which lead me to the conclusion that the work undertaken by the Trustees/Receivers was at all times reasonably necessary, including:
(1)The Trustees/Receivers were appointed in circumstances where the only significant assets of [the husband’s] bankrupt estate were the Properties, valued in excess of $4,550,000, of which [the wife] was the sole registered proprietor.
(2)The Trustees/Receivers owed fiduciary obligations to the various creditors of [the husband’s] bankrupt estate to recover and preserve the assets subject to potential distribution, which they have done through the court proceedings involving [the husband’s brother] and [the wife] and the enforcement of court orders against [the wife] that have been necessary to secure the interest of [the husband’s] bankrupt estate in the Properties and the rent obtained from them.
(3)[The wife] consistently resisted and obstructed the Trustees/Receivers’ efforts to perform their obligations through multiple applications to the court, failing to transfer the Properties and account for the rental income from them, as well as by resisting the sales of [E Street] and [G Street] and generally opposing them at every turn.
(4)Accordingly, if the Trustees/Receivers had not acted in the manner that they had, it is a reasonable conclusion that any relevant interest in the Properties would not have been transferred to [the husband’s] bankrupt estate and been lost.
(5)Therefore, it is clear to me that the acts of the Trustees/Receivers were entirely directed towards augmenting the funds available for distribution to the creditors of [the husband’s] bankrupt estate.
109Relevantly, the Trustees/Receivers have been required to actively participate in numerous legal proceedings of significant complexity over a period of more than 5 years due to consistent attempts by [the wife] to frustrate the performance of their obligations, and have been successful in obtaining four successive costs orders in those proceedings.
The wife gave considerable evidence as to her contributions throughout the marriage.
The husband owned the G Street, E Street and K Street properties at the commencement of the relationship, although some were subject to a mortgage. The husband was not employed for a period of three years during the marriage.
During the marriage, the parties purchased the B Street property.
The wife gave evidence that she paid the mortgages and expenses on the properties, repaying them in full and carrying out significant repairs and maintenance on all the properties. Of course, rent was received and it appears that it was more than enough to cover the expenses as the wife referred to the tax that had to be paid.
The wife was employed throughout the marriage.
The evidence also establishes the wife’s considerable care of the children.
I do not need to refer to the evidence in any greater detail as it was not challenged by the trustees and the husband took no part in the proceedings.
The present position is that one-half of the B Street property is vested in the trustees. If there is a surplus arising from the use of that part of the property to annul the bankruptcy, it would then go to the husband.
These matters combine to persuade me that it is just and equitable to embark on a division of the parties’ property.
DISPOSITION
Having regard to the contributions of the wife throughout the relationship, which have greatly exceeded those of the husband, the weight that is to be given to his initial contributions is greatly diminished. The wife’s unchallenged evidence as to her future needs adds weight to her claim.
As between the husband and the wife, I am satisfied that there should be a significant adjustment between them in favour of the wife.
I am, however, quite unpersuaded that there should be any adjustment as between the wife and the trustees.
In property division proceedings involving a bankrupt spouse, there is no automatic rule of priority between the interests of unsecured creditors and the interests of the non-bankrupt spouse (Trustee of the Property of G Lemnos, a Bankrupt & Lemnos (2009) FLC 93-394 (“Lemnos”) at [99] per Coleman J and at [199] per Thackray and Ryan JJ; Biltoft and Biltoft (1995) FLC 92-614 at 82,128). Instead, interests are to be considered and balanced within the discretion conferred by s 79. The fact that there may be insufficient funds to discharge a liability to a credit does not prevent a property adjustment under s 79 (Lemnos at [96] per Coleman J and at [202] per Thackray and Ryan JJ).
Whilst s 79(10) of the Act would usually operate to allow creditors to become party to the proceedings if they may not be able to recover their debt in light of a proposed alteration of property interests, this subsection does not apply where the relevant party is a bankrupt (see s 79(10A)). This is because the trustee in bankruptcy is to represent the interests of all creditors (with a provable debt under the Bankruptcy Act) (Revised Explanatory Memorandum Family Law Amendment Bill 2005 (Cth), paragraphs 168–170; Valder & Saklani (2021) FLC 94-042 at [32]–[35]).
In this case, as the passage from the reasons of McGrath J makes plain, the reason the trustees’ costs, expenses and renumeration are so high is because of the wife’s conduct. That is the reason why the other properties were insufficient to meet the claims of the creditors.
I bear in mind that if the trustees do not receive sufficient funds from the B Street property to annul the bankruptcy, they will have no recourse but to seek to enforce the costs orders against the wife personally.
It follows from this that the trustees will retain their one-half interest in the B Street property.
The wife did not propose alternative orders if her primary case of retaining the entirety of the B Street property was not successful. There is no evidence that she has the funds to buy the trustees out of that property or pay them an amount to annul the bankruptcy. The property will have to be sold.
In the event there is a surplus, it will be paid to the wife and not to the husband to take into account the contributions matters just discussed. I do not propose to further identify any other adjustments. On the current indications, whatever a surplus may be, it will be just and equitable as between the husband and the wife for the wife to receive it in full.
I certify that the preceding ninety-three (93) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Aldridge. Associate:
Dated: 14 March 2025
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