Vrsecky (Trustee), in the matter of Xu (Bankrupt) v Xu
[2024] FedCFamC2G 272
•25 March 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Vrsecky (Trustee), in the matter of Xu (Bankrupt) v Xu [2024] FedCFamC2G 272
File number: MLG 1798 of 2023 Judgment of: JUDGE FORBES Date of judgment: 25 March 2024 Catchwords: BANKRUPTCY –trustee has beneficial interest in property of bankrupt estate – application for orders directing Registrar of Titles to cancel Certificate of Title and issue new one to trustee – where property to be sold to satisfy creditor claims – where bankrupt has not produced certificate of title despite trustee demands – where administration of bankrupt estate has been hindered - where trustee seeks cancellation of current certificate of title – whether discretion to be exercised – declaration and orders made – sale of property stayed for 60 days Legislation: Bankruptcy Act 1966 (Cth) s 30, 58, 77, 116
Transfer of Land Act 1958 (Vic) s 103
Cases cited: Marchesi v Registrar of Titles [2010] VSC 524
Marshall v Williams [1974] VR 592
Division: Division 2 General Federal Law Number of paragraphs: 54 Date of hearing: 20 March 2024 Place: Melbourne Solicitor for the Applicant: White Cleland Lawyers & Consultants First Respondent: In person Second Respondent: No appearance ORDERS
MLG 1798 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF XU (BANKRUPT)
BETWEEN: PETR VRSECKY AS TRUSTEE OF THE BANKRUPT ESTATE OF BEIJI XU
Applicant
AND: BEIJI XU
First Respondent
GUO XIONG XU
Second Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
20 MARCH 2024
THE COURT DECLARES THAT:
1.The Applicant in his capacity as Trustee of the Bankrupt Estate of the First Respondent is the beneficial owner of the whole of that piece of property comprised in Certificate of Title Volume 08571 Folio 404, being the land described in Lot 28 on Plan of Subdivision 051179 and known as 8 Pine Road, Bayswater in the State of Victoria 3153 (the Property).
AND THE COURT ORDERS THAT:
1.The First Respondent produce to the Applicant the Certificate of Title to the Property within 21 days of the date of these Orders.
2.In the event the Certificate of Title is not produced in accordance with Order 1, and on production of an affidavit from the Applicant to that effect, the Registrar of Titles for the State of Victoria is to cancel Certificate of Title Volume 08571 Folio 404 containing the land in Lot 28 on Plan of Subdivision 051179 (being the Certificate of Title in respect of the Property).
3.The Registrar of Titles for the State of Victoria is to create a new folio of the Register and an electronic Certificate of Title for the land in Lot 28 on Plan of Subdivision 051179.
4.For the purposes of s 27B(6) of the Transfer of Land Act 1958 (Vic), the Court hereby determines and declares that the Applicant is the person entitled to control of the electronic Certificate of Title to be created pursuant to Order 3.
5.The Property be sold.
6.The Applicant have the sole conduct of the sale of the Property and be authorised to:
(a)instruct an agent and/or auctioneer for that purpose;
(b)decide whether the Property is to be sold by public auction or by private treaty; and
(c)decide whether or not to set a reserve price for any auction of the Property, and if set, at what price.
7.The Applicant be empowered to sign all documents and do all things on behalf of the Respondents as necessary to give effect to the sale.
8.The Respondents deliver vacant possession of the Property to the Applicant together with all keys for all buildings and improvements on the Property to the Applicant’s solicitors within 60 days.
9.In the event the Respondents fail to deliver up vacant possession of the Property in accordance with these Orders, a writ of possession shall issue forthwith in favour of the Applicant.
10.The Respondents must remove from the Property all vehicles, chattels, personal property and rubbish which has not vested in the Applicant (the personal property) within 60 days.
11.In the event the Respondents fail to comply with Order 10 above, the Applicant is empowered to remove and dispose of the personal property on the Property as he sees fit.
12.The net proceeds of sale of the Property, after payment of what shall be due to any encumbrancer or encumbrances according to their priorities and of all other proper costs, charges and expenses of the sale, be paid to the Applicant in full.
13.Order 5 to Order 12 above shall not commence operation until the expiration of 60 days from the date of these Orders.
14.The Applicant’s costs of this application shall:
(a)in the case of the First Respondent, be paid out of her bankrupt estate; and
(b)in the case of the Second Respondent, shall be paid by the Second Respondent, such costs to be taxed in the absence of agreement.
15.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
JUDGE FORBES
INTRODUCTION
The applicant, Petr Vrsecky (the Trustee), is the trustee of the bankrupt estate of the first respondent, Beiji Xu.
The first respondent, Ms Xu, is the sole registered proprietor of a property comprised in Certificate of Title Volume 08571 Folio 404, being the land described in Lot 28 on Plan of Subdivision 051179 located at 8 Pine Road, Bayswater, Victoria (the Property or the Bayswater Property).
The second respondent, Mr Guo Xiong Xu, is the first respondent’s father. He resides in the Property.
By an application made on 18 October 2023, the applicant seeks a declaration that, in his capacity as Trustee of the bankrupt estate of the first respondent, he is the beneficial owner of the Property. The applicant also seeks an order directing the Registrar of Titles for the State of Victoria to cancel the Certificate of Title in respect of the Property and to create a new electronic Certificate of Title in respect of which the applicant will be entitled to control. Furthermore, the applicant also seeks orders that the Property be sold and that the respondents provide vacant possession.
The first respondent opposes the application.
BACKGROUND
In support of the application, the applicant relies on the affidavit of Petr Vrsecky sworn on 16 October 2023. Unless otherwise stated, the following background is based on the applicant’s affidavit and other documents contained in the court file.
On 24 November 2022 pursuant to orders made by Registrar Allaway of this Court, the estate of the first respondent was sequestrated under the Bankruptcy Act 1966 (Cth) (the Act or the Bankruptcy Act)[1]. The petitioning creditor for the bankruptcy was Kennedy Partners Lawyers who were a creditor of the first respondent after having acted for her in family law proceedings. The petitioning creditor claimed $24,421 and had obtained a default judgment against the first respondent.
[1] Affidavit of Petr Vrsecky sworn 16 October 2023, annexure PV-1, 11-12
The applicant was appointed trustee of the first respondent’s bankrupt estate.
The Trustee has given evidence that as at the date of his appointment the first respondent held the following assets:
(a)an interest as sole proprietor of the Bayswater Property, which save for a caveat registered by Kennedy Partners Lawyers, is otherwise unencumbered. Based on investigations the Bayswater Property is a residential house and is valued at about $780,000-$850,000;
(b)an interest as sole registered proprietor of an apartment in Box Hill. The Box Hill property is a single bedroom apartment currently valued at between $100,000 and $130,000. It is currently encumbered by mortgage, the outstanding amount of which is about $113,500. Owners corporation rules limit the use of the Box Hill apartment to student accommodation;
(c)two motor vehicles registered in the name of the first respondent, being a 2000 Nissan Sedan valued at $2,500 and a 2022 Honda Wagon valued at $39,500. These vehicles are believed to be unencumbered; and
(d)cash held in two Commonwealth Bank of Australia accounts totalling about $17,700.
A report to creditors filed by the applicant indicates that the only unsecured creditor of the bankrupt estate is the petitioning creditors judgment debt of $24,421 plus interest.
In his affidavit sworn 16 October 2023, the applicant deposes to the bankrupt having failed to cooperate with the administration of the bankrupt estate. In the 12 months prior to the date of making his affidavit, the applicant gives evidence that the first respondent had failed to complete a Statement of Affairs, failed to produce the original Certificate of Title to the Property, failed to deliver motor vehicles which were owned by her, failed to provide documents such as insurance policies, failed to disclose particulars of income or expected income and had failed to attend his office for an interview. As a result of this non-cooperation, the applicant contends that his investigations into the assets and liabilities of the bankrupt estate and his administration of the estate have been hindered.
As at the date of swearing his supporting affidavit, the Trustee estimated that the total amount that will be payable prior to any dividend to unsecured creditors will exceed $165,000. The amount over and above the judgment debt is made up of the petitioning creditor’s costs, Commonwealth realisation fees and charges, the Trustees remuneration and the Trustees legal fees and disbursements. That amount has now increased even more.
The Trustee has determined that it is not commercially feasible to pursue a sale of the Box Hill property to meet creditor claims. Taking into account the outstanding mortgage to the Commonwealth Bank and other potential claims such as council and water rates, owners corporation fees and sale costs, it is unlikely that the sale will realise sufficient funds to pay the mortgagee and other secured creditors in full.
In respect of the Bayswater Property, the Trustee has made numerous requests for the first respondent to deliver the original Certificate of Title. Investigations undertaken by the Trustee reveal that the original Certificate of Title was last issued by Land Use Victoria (then the Titles Office) on 2 October 2003 to the solicitors who acted on behalf of the bankrupt in the conveyance of the Property. The relevant solicitor has informed the Trustee that the Certificate of Title was handed to the bankrupt and the second respondent on or about 3 October 2003.
The affidavit of the Trustee annexed significant correspondence between his solicitors and the respondents. That correspondence includes solicitor’s demands for the bankrupt to deliver the original Certificate of Title and deliver vacant possession of the Bayswater Property.
File notes of discussions between the respondent and the Trustee’s staff record the second respondent’s acknowledgement that the Bayswater Property was owned by his daughter and that he lived in the Property rent free. This state of affairs has never been contradicted by the first respondent, although she contends that while the Property is legally hers it was gifted to her by her parents.
There is no doubt that the Trustee has on numerous occasions notified the first respondent of his interest in the Bayswater and Box Hill properties, of his intention to sell one or both of the properties and of the requirement of the first respondent to deliver the original Certificate of Title to the Bayswater Property. A formal Notice of Demand for the original Certificate of Title and for production of the 2022 Honda Wagon was issued on 17 July 2023. A further demand for the original Certificate of Title followed on 28 July 2023.
The Trustee deposes to ongoing attempts to secure the original Certificate of Title from the first respondent and demands for the respondents to deliver vacant possession of the Bayswater Property. Those demands included correspondence which had been translated to Mandarin, which is understood to be the first language of the respondents.
At final hearing of this application on 20 March 2024, the Trustee’s solicitor conceded that the first applicant had now provided (at least in part) a Statement of Affairs and certain particulars of her past and expected income. However, as at the date of hearing this application, the first respondent bankrupt still had not:
(a)delivered the original Certificate of Title for the Bayswater Property;
(b)submitted a formal proposal to annul her bankruptcy or otherwise allow the Trustee to realise the Bayswater Property;
(c)delivered the Honda Wagon; or
(d)provided vacant possession of the Bayswater Property.
THE APPLICATION
The Trustee submits that he is legally obliged to sell the Bayswater Property for the benefit of creditors of the bankrupt estate. In order to facilitate the sale and realisation of funds, the applicant seeks the assistance of the Court to remedy issues arising from the first respondent’s failure to cooperate.
The Trustee says that the orders sought in this proceeding are necessary and appropriate. Save for the Bayswater Property, the Trustee is not aware of any other assets that could be sufficient to satisfy unsecured creditor claims. The Trustee submits that numerous requests and demands have been sent to the respondents notifying them of the applicant’s interest in the Property, requiring them to submit a proposal by which the Trustee may realise the Property and/or requiring the respondents to deliver vacant possession of the Property so that it may be sold. In the circumstances all of these efforts have proven futile, establishing the need for the Court to declare the Trustee’s interest and clear the path for the Property to be sold.
The applicant submits that the major stumbling block preventing the realisation of funds for secured creditors has been the first respondent’s failure to produce the original Certificate of Title. The applicant does not submit that it has been intentionally withheld or that the first respondent has engaged in other transactions secured by the title. However, the evidence clearly establishes, and the first respondent does not dispute, that demands for the Certificate of Title have been made and that the respondent has not met those demands.
The Trustee argues that in circumstances such as the present, it is appropriate and within the power of the Court, to order the Registrar of Titles for the State of Victoria to cancel the Certificate of Title and to require the creation of a new Certificate of Title which is to be issued to the Trustee. The applicant submits that this Court, as a “court of competent jurisdiction”[2], has power to issue such a direction to the Registrar of Titles.
[2] Transfer of Land Act 1958 (Vic) s 103(1)
The applicant submits that in the present circumstances it is confronted with a binary choice. In order to remedy the first respondent’s failure to provide the Certificate of Title, the applicant could seek an order of the Court under the Bankruptcy Act requiring its production and then, in the event of non-production, initiate steps for the first respondent to be held in contempt. Alternatively, the applicant could pursue the course adopted here, which would involve the cancellation of the current Certificate of Title and the creation of a new certificate which would be issued to the Trustee.
The applicant submits that in the interests of discharging his statutory duties as Trustee, the latter course is more cost-effective and efficient than the former. He also submits that any further demand of the first respondent for the Certificate of Title is unlikely to be any more successful than previous demands and it is only likely to result in additional delay and costs against the bankrupt estate.
The first respondent submitted that the orders should not be made.
Although given the opportunity to do so, the first respondent did not file an outline of submissions or any affidavits. She indicated that she had tried to obtain legal advice but had not done so, due to the costs demanded by lawyers and by reason of her inability to trust legal advisers given her past experience with the petitioning creditor who represented her in family law proceedings.
Ms Xu informed the Court that she wanted to put a proposal to the Trustee which she hoped would annul her bankruptcy. She submitted that she has or will shortly have the funding to meet the judgment debt and some costs, but not all the costs sought by the Trustee. She informed the Court from the bar table that she had attempted to contact the Trustee some weeks ago, by visiting his office, but was told that he was on leave.
Ms Xu conceded that the Certificate of Title to the Bayswater Property had not been produced in response to requests from the Trustee. She said this was because her father, the second respondent, held the Certificate of Title and she did not feel that she could request it from him, due to his health condition and her sense of responsibility for having caused the problems which led to the current situation. She explained that asking for the Certificate of Title and involving her father was not something she felt she could do.
The first respondent submitted that her immediate objective was to prevent the sale of the Property without there first being an opportunity for negotiations with the Trustee. She submitted that at the very least, as a matter of fairness, the Court should afford her that opportunity.
CONSIDERATION
The application before the Court is made pursuant to ss 30(5) and 77(1) of the Bankruptcy Act.
Section 30 confers general powers upon the Court in bankruptcy matters, including powers to make declaratory orders and orders granting injunctions and other equitable remedies as the Court considers necessary for the purposes of carrying out or giving effect to the Act. Pursuant to s 30(5) the Court may, on the application of, inter alia, a Trustee, order a person who has failed to comply with an order, direction, requirement or request, to comply with it and, if it thinks fit, commit a person to prison for ongoing failure.
Section 77(1) requires a bankrupt to aid the Trustee to the utmost of his or her power in the administration of his or her estate. That includes a requirement that the bankrupt provide the Trustee with all relevant books, documents and information which the Trustee needs to discharge its statutory duty under the Act.
It is not contested that the first respondent is the sole registered proprietor of the Bayswater Property and that the Property vests in the Trustee pursuant to s 58 of the Act. The Property is divisible among creditors pursuant to s 116.
It is also not contested that the Trustee of the bankrupt estate has requested and formally demanded production of the Certificate of Title and that the first respondent has failed to meet the demand.
Based on the evidence presently before the Court, I am satisfied that the first respondent bankrupt has failed to comply with her statutory obligations to assist the Trustee. I am also satisfied that the Trustee and his solicitor have done all that could be expected of them to obtain the Certificate of Title to commence the process of realisation of the Property in order to discharge proven debts.
There is no evidence before the Court which contests the Trustee’s claim to beneficial ownership of the Property. Evidence before the Court indicates no contest about the bankrupt’s registered proprietorship. Statements attributed to the second respondent in discussions with the Trustee, which have not been contested, confirm the bankrupt’s ownership of the Property and the second respondent’s occupation of the Property on a rent-free basis.
There is no evidence of the bankrupt having made an application to set aside the petitioning creditor’s default judgment in the Magistrates Court. No application has been made to the Court by the bankrupt to challenge or set aside the sequestration order.
The Trustee submits that he is unable to realise the Property without the assistance of the Court. In order to facilitate the sale of the Property the Trustee submits that it is necessary and appropriate for the Court to formally declare the Trustee’s beneficial interest and make orders to facilitate the issuing of a new electronic Certificate of Title. I agree and accept that the Court has power to do so.
Section 103(1) of the Transfer of Land Act 1958 (Vic) (the Transfer of Land Act) provides as follows:
(1)In any proceeding in a court relating to any land or any instrument or dealing in respect thereof if the court directs the Registrar to make any amendments to the Register or otherwise do any act or make any recordings necessary to give effect to any judgement decree or order of the court the Registrar shall obey such direction.
For the purposes of s 103(1) a “court” means a “court of competent jurisdiction” which this Court undoubtedly is by reason of the powers conferred upon it by the Bankruptcy Act 1966 (Cth) in relation to property.
In Marchesi v Registrar of Titles [2010] VSC 524 (Marchesi) Justice Ferguson (as her Honour then was) of the Supreme Court of Victoria considered s 103(1) of the Transfer of Land Act in the context of a bankruptcy trustee seeking a replacement Certificate of Title for a property vested pursuant to the Bankruptcy Act.
In Marchesi, in circumstances not dissimilar to the present case, the beneficial interest in a property had vested in a Trustee following a declaration of bankruptcy under the Bankruptcy Act. The party holding Certificates of Title for the Property refused to give them to the Trustee. The Court made orders that the Certificate of Title be delivered up to the Trustee but that did not occur. Requests made by the Trustee through his lawyers for the Certificates of Title to be produced also yielded no result. The Trustee then made application for orders under s 103(1) of the Transfer of Land Act directing the registrar to cancel the existing Certificates of Title and to issue a replacement Certificate of Title for the property in the name of the Trustee (in his capacity as Trustee of the bankrupt estate).
In the course of her Honour’s judgment, Ferguson J surveyed the few reported authorities which had at that time considered s 103(1) of the Transfer of Land Act. It is not necessary that I do so again, but they are instructive as to the conclusions reached and principles ultimately stated.
Relevantly, her Honour was satisfied that even where the location of the Certificate of Title is known, is not necessary to pursue the person in possession before seeking an order under s 103(1). In the present case, the applicant acknowledges that an alternative course is open to it, namely to seek a formal Court order for production of the Certificate of Title and to institute contempt proceedings in the event of non-compliance. However, the Trustee submits, and I am inclined to agree, that such a course is likely to result in extensive delay, further cost and may bring the Trustee no closer to obtaining the critical document.
As to whether an application pursuant to s 103(1) of the Transfer of Land Act is appropriate in the circumstances, the Court in Marchesi said at [48] that the powers conferred on the Court by s 103(1) should be exercised with caution. Justice Ferguson considered that the following matters are relevant in the exercise of the discretion as to whether or not to make orders under the section[3]:
(a)if the orders are not made, additional costs will be incurred and there will be further delay in the administration and finalisation of the bankrupt estate;
(b)the risks associated with having a second “live” Certificate of Title in existence, can be overcome by the making of orders akin to those made in Marshall v Williams [1974] VR 592 - if such orders are made, the principles of the Torrens system are not undermined;
(c)whilst certain third parties may hold or control the existing Certificates of Title, those parties did not have any beneficial interest in the Property;
(d)the beneficial interest in the Property vested automatically in the Trustee in the bankruptcy; and
(e)there are no practical steps the Trustee in bankruptcy could take to obtain the Certificate of Title.
[3] Marchesi v Registrar of Titles [2010] VSC 524 at [48]
I agree with the applicant’s submission that each of these factors are present in this case and weigh in favour of the ourt making orders for the cancellation of the existing Certificate of Title and creation of a new Certificate of Title for the Bayswater Property, to be issued to the Trustee.
In exercising my discretion I am mindful of the significant ongoing costs which have been incurred by the Trustee in the administration of the estate thus far. Those costs appear to significantly overshadow the unsecured debt payable to the petitioning creditor. The Trustee must manage the bankrupt estate and discharge his statutory duties, and the most effective way of doing so is to find the path of least resistance. In my view an order pursuant to s 103(1) requiring the cancellation of the existing Certificate of Title and the issuing of a new one to the Trustee is the most appropriate way of facilitating the administration and finalisation of the estate.
CONCLUSION AND ORDERS
I propose to make the declarations sought by the applicant. That the applicant in his capacity as Trustee of the bankrupt estate of the first respondent is the beneficial owner of the whole of the Bayswater Property is uncontroversial. A formal declaration to that effect should satisfy any third party, including the Registrar of Titles of the State of Victoria, as to the nature of the Trustee’s interest in the Property.
I also propose to make the orders sought by the applicant save for two adjustments.
First, to satisfy myself that there are no practical steps that the Trustee can take to obtain the Certificate of Title, I have decided that the first respondent should be afforded one final opportunity to produce the Certificate of Title. Based on her evidence from the bar table, I accept that she may not presently be in possession of it and believes that she cannot bring herself to seek it out from her father. Nonetheless, the first respondent is required to produce the document and I will order her to do so within 21 days.
If the Certificate of Title is not produced in accordance with my order, then upon the Trustee producing an affidavit to the Registrar of Titles deposing to the non-production, the Registrar of Titles is to cancel the current certificate and issue a new one.
Secondly, I will order that the Property be sold and will make the necessary anterior orders requiring the respondents to deliver vacant possession and for the Trustee to control the sale and distribute proceeds. However, mindful of the first respondent’s desire to engage in negotiations with the Trustee to explore annulment of the bankruptcy, and there being no opposition from the trustee, I will stay the orders relating to sale of the Property for a period of 60 days.
I am satisfied that the applicant’s costs of this application should be paid as follows:
(a)in the case of the first respondent, out of her bankrupt estate; and
(b)in the case of the second respondent, by the second respondent with such costs to be taxed in the absence of agreement.
I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 25 March 2024
0