Woods (Trustee), in the matter of Magnaye (Bankrupt) v Magnaye
[2018] FCA 117
•5 February 2018
FEDERAL COURT OF AUSTRALIA
Woods (Trustee), in the matter of Magnaye (Bankrupt) v Magnaye [2018] FCA 117
File number: VID 1343 of 2017 Judge: O'CALLAGHAN J Date of judgment: 5 February 2018 Catchwords: BANKRUPTCY – application by trustee of bankrupt estate – application for declaration that proceeds of sale of bankrupt estate’s property is vested in trustee – application for declaration that bankrupt and others have no interest in the property – where bankrupt asserts that property was held beneficially and does not form part of bankrupt estate. Legislation: Bankruptcy Act 1966 (Cth), ss 30(1), 27(1), 31(1)(f), 58(1)
Land Tax Act 2005 (Vic), s 46K(1)
Date of hearing: 5 February 2017 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 32 Counsel for the Applicant: Mr M McKillop Solicitor for the Applicant: Mills Oakley Lawyers Pty Ltd Counsel for the First Defendant: The First Defendant did not appear Counsel for the Second Defendant: The Second Defendant did not appear ORDERS
VID 1343 of 2017 IN THE MATTER OF THE BANKRUPT ESTATE OF JEFFREY MAGNAYE
BETWEEN: ROBERT WOODS (IN HIS CAPACITY AS THE TRUSTEE OF THE BANKRUPT ESTATE OF JEFFREY MAGNAYE)
ApplicantAND: JEFFREY MAGNAYE (IN HIS CAPACITY AS TRUSTEE OF MAGNAYE INVESTMENTS PTY LTD) (ACN 148 884 253)
First DefendantMAGNAYE INVESTMENTS PTY LTD) (ACN 148 884 253) AS TRUSTEE OF THE MAGNAYE FAMILY TRUST
Second Defendant
JUDGE:
O'CALLAGHAN J
DATE OF ORDER:
5 FEBRUARY 2018
THE COURT DECLARES THAT:
1.Pursuant to section 30(1)(b) of the Bankruptcy Act 1966 (Cth), the net proceeds of the sale of the property known as and situated at 697 – 703 Ballarat Road, Ardeer, in the State of Victoria standing in the trust account of the solicitors of the applicant, Mills Oakley (surplus funds) are vested in the applicant.
2.Pursuant to section 30(1)(b) of the Bankruptcy Act 1966 (Cth), the respondents have no interest in the surplus funds.
THE COURT ORDERS THAT:
3.The surplus funds, together with any interest that has accrued on those funds, be paid to the applicant.
4.The respondents pay the applicant's costs of the proceeding.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(Revised from transcript)O’CALLAGHAN J:
These reasons for judgment were made ex tempore at the hearing on 5 February 2018 and accompany the declarations and orders set out above.
Mr Woods, the applicant in this proceeding, is the trustee of the bankrupt estate of Mr Jeffrey Magnaye, “the bankrupt”. Mr Woods was appointed trustee of that estate on 12 July 2016. Mr Woods claims that the net sale proceeds of a property at 697 - 703 Ballarat Road, Ardeer in the State of Victoria, “the property,” by a mortgagee in possession in November 2016 vested in him as the trustee. The amount of the proceeds in question is $830,174.63 (the surplus funds).
Mr Woods seeks the following relief. First, he seeks two declarations as follows:
(1)Pursuant to section 30(1)(b) of the Bankruptcy Act 1966 (Cth), that the net proceeds of the sale of the property standing in the trust account of the solicitors for the applicant, namely Mills Oakley, are vested in the applicant; and
(2)Pursuant to subsection 30(1)(b) of the Bankruptcy Act 1966 (Cth), the respondents have no interest in the surplus funds.
Secondly, the applicant also seeks orders that the surplus funds together with any interest that has accrued on those funds be paid to him and that the respondents pay the applicant’s costs of the proceedings.
The court’s jurisdiction and power to make the declaration and orders sought is derived from ss 27(1), 30(1) and 31(1)(f) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). For the reasons that follow I will make the declarations and orders sought by the applicant.
The bankrupt has asserted in correspondence addressed to Mr Woods, which was in evidence before me, that the property was held by him, the bankrupt, on trust for the corporate trustee of his family trust, Magnaye Investments Pty Ltd, which is the second respondent in this proceeding, and that the surplus funds are not therefore vested property.
Before turning to the substance of that submission, I should record the fact that neither the first respondent nor the second respondent appeared at the hearing of this application and neither of them has filed any material in response to the application or the evidence relied upon by the applicant, which is contained in an affidavit sworn by Mr Woods dated 6 December 2017. The first respondent’s mother emailed the court last Friday seeking an adjournment of the hearing of this application. I refused that application because the court has previously informed the bankrupt that any request for an adjournment of today’s hearing was required to be made on oath by the applicant or someone on his behalf. No such application was made and, in any event, I do not regard the contents of the email sent to the court on Friday as being sufficient grounds to adjourn the hearing of this application. It is for those reasons that I declined it.
Mr Woods’ affidavit dated December 6 2017 establishes the following facts. On his appointment, Mr Woods conducted investigations to establish the assets of the estate. The bankrupt did not disclose any interest in any property in his statement of affairs. Having conducted appropriate investigations, Mr Woods discovered that, contrary to the bankrupt’s statement of affairs, the bankrupt was, in fact, the sole proprietor of the property.
Mr Woods also discovered that the property was subject to a mortgage in favour of Westpac. Westpac sold the property at public auction as mortgagee in possession on 26 November 2016. The settlement of the sale occurred on 16 January 2017 and the surplus, being the sum of $830,822.85, was paid. Those funds are currently held by Mills Oakley, the solicitors for the applicant. The affidavit of Mr Woods also establishes that at the time of the sale of the property by Westpac there were a number of caveats on the title placed by parties claiming an interest in the property, either as secured creditors or otherwise.
The surplus funds were transferred to Mills Oakley on condition that each of the caveators agreed to the transfer. An agreement among the various claimants or caveators was reached and is recorded in a deed of agreement, which Mr Woods swears was executed in about June 2017. That agreement permits the surplus funds to be paid to Mills Oakley’s trust account. The deed further provides for the distribution of the surplus funds among the caveators, either by agreement or failing that, by a court declaration or order.
Mr McKillop of counsel, who appeared for the applicant on the hearing of this application informed the court that in Mr Woods’ view, it is likely that the caveators will be able to reach an agreement as to the distribution of the surplus funds, although if that turns out not to be the case, it may be necessary to make an application to the court in the future in that regard. I should also note that the bankrupt is not a caveator and was not a party to the deed of agreement.
Although neither the first respondent nor the second respondent appeared at the hearing of the application and the hearing proceeded on an ex parte basis, Mr McKillop, quite properly, took me to all the material provided by the bankrupt in support of the contention that the bankrupt has made to the applicant that the property was not purchased beneficially for himself but was, so the bankrupt contends, purchased by him as trustee for the second respondent. Mr McKillop took me to a bundle of correspondence and documents sent by the bankrupt to Mr Woods in that regard. The bankrupt claims that the second respondent, in turn, held its interest in the property as a trustee of a family trust called the Magnaye Family Trust.
The bankrupt contended to the applicant that he is entitled to rely on a declaration of trust contained in the document headed Declaration of Trust dated 27 March 2015(the deed). One of the recitals to the deed purports to record that the company, being the second respondent, requested the bankrupt to purchase the property as trustee for the company on the grounds that the company was unable to obtain finance to purchase the property on its own behalf. The document also records that the bankrupt agreed that the company would have the property transferred to it by the bankrupt once the company had obtained its own finance. As counsel for Mr Woods submitted, that agreement, as reflected in the recitals, is not found in the operative part of the deed.
The operative part of the deed contains a declaration of trust in clause 2. It also contains a reservation of rights provision in clause 3 which apparently reflects the agreement recorded in the recitals. That clause reads:
Nothing in this deed entitles the trustee – [the bankrupt]
…to beneficial ownership of the trust estate or to deprive the beneficiary – [the second respondent]
…of the rights of beneficial ownership, including the right of possession of the trust estate, except where the rights of the trustee or of a third party may become paramount by reason of the failure of the beneficiary to carry out and perform matters required to be carried out and performed by the beneficiary.
Clause 4.1(b) of the deed notes the obligations of the beneficiary which include an obligation to pay all of the costs and expenses incurred by the trustee in the execution of the trusts in the deed. Mr Woods has sworn in his December 2017 affidavit that he has investigated the claims of the bankrupt. His key conclusions, which I accept, are as follows.
First, it does not appear that the terms of the deed were ever carried out because the contract for the purchase by the bankrupt of the property was manifestly in his own name. The contract of sale does not record the bankrupt being the trustee for the company nor, as counsel pointed out in his written submissions, was the contract jointly in the name of Mr Magnaye and Magnaye Investments Pty Ltd. On the contrary, the contract of sale, which was in evidence before me, has the name of the second respondent struck from it on the front page,in the particulars, and in the schedule. In my view, the fact that the contract, on its face, shows that the words “Magnaye Investments Pty Ltd, ATF Magnaye Investments Family Trust” were excised from the contract of sale is overwhelming evidence that the parties intended and deliberately chose to nominate the bankrupt as the purchaser. In my opinion, that is overwhelming objective evidence of the proper identity of the purchaser and the proper capacity of the purchaser.
Secondly, if further evidence were required, the loan application by the bankrupt to Westpac dated 17 March 2015 does not record that the bankrupt was applying for the loan in his capacity as trustee for the company.
Thirdly, the bankrupt did not, after the purchase of the property, lodge a notice with the State Revenue Office in Victoria asserting that he was acquiring the property in his capacity as trustee, as a trustee must do if property is purchased qua trustee pursuant to section 46K(1) of the Land Tax Act 2005 (Vic) (I note that that provision exists because differential rates of land tax apply, depending upon whether a purchaser is purchasing property in his, her or its own name or whether as trustee for a beneficiary.)
Fourthly, the bankrupt did not lodge any caveat on title to record the interest of the company as a beneficial owner.
I should also note that the bankrupt appears to have been advised at all relevant times with respect to the purchase by a solicitor. And, if the fact of the matter was that the property was intended to be purchased by the bankrupt as trustee for the second respondent, one would surely have expected commercial lawyers (because that is what they were) to have filed a notice of the type I have described pursuant to the Land Tax Act 2005 (Vic) and to have lodged a caveat to record the interest of the company as a beneficial owner. As I say, the evidence is that no such things were ever done. Understandably enough, Mr Woods has concluded, based on the facts set out above that the agreement referred to in the declaration of trust document was not carried out, and the property was in fact purchased by the bankrupt personally, and not as the trustee.
For the reasons set out above, I agree with that conclusion and I so find.
Through his counsel, Mr Woods also contends that, even if that conclusion was wrong and the property was purchased in accordance with the terms of the deed, the property, or the surplus proceeds of it, nonetheless vest in Mr Woods for the following reasons.
First, by reason of the agreement recorded in the recitals to the deed and also in clause 4.1(b) of that document, the transfer of the beneficial interest in the property to the second respondent from the bankrupt is contingent upon the company paying the cost of the purchase price of the property, either by obtaining refinancing or otherwise. So much is readily apparent from recital G of the deed and from clause 4.1(b), which obliges the beneficiary company to pay the costs and expenses of the bankrupt in the execution of the trust contained in the deed.
Secondly, clause 2.3 of the deed appears to permit the bankrupt, as trustee, to retain beneficial ownership of the property by reason of the failure of the company to perform all matters required under the deed, which would include reimbursement of the cost of purchase of the property.
Thirdly, the company has never reimbursed the cost of the purchase of the property, either by refinance or otherwise, and it follows that the bankrupt was entitled to retain the beneficial interest in the property, assuming the declaration to be valid, which interest reduced to the surplus funds is now vested in the applicant as trustee.
I accept that those submissions are correct.
As I noted earlier, Mr Woods seeks declarations under the Bankruptcy Act that the proceeds of the property have vested in him as trustee of the bankrupt estate. He also seeks a declaration that the respondents have no interest in the surplus funds. The court’s jurisdiction to grant the relief sought by the applicant is derived from s 27 of the Bankruptcy Act. Section 31(1)(f) of the Bankruptcy Act relevantly provides that:
In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open court:…
(f) applications to declare for or against the title of the trustee to any property…
The application in this proceeding is an application meeting that description. I should also make reference to the general powers of the court in bankruptcy set out in s 31 of the Bankruptcy Act. As counsel for the applicant correctly submitted, the vesting of property on bankruptcy is a consequence of s 58(1) of the Bankruptcy Act, which provides as follows:
(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.
As I have recorded earlier, Mr Woods is the registered trustee. For the reasons set out above, it follows that the property, to the extent that it was the property of the bankrupt, vested in him on 12 July 2016 (when he was appointed trustee of the bankrupt estate) and that the surplus funds vested in him, subject to other caveator claims, once the property was sold and converted into cash.
Accordingly, I will make the following declarations and orders.
The court declares that:
(1)Pursuant to section 30(1)(b) of the Bankruptcy Act 1966 (Cth), the net proceeds of the sale of the property known as and situated at 697 - 703 Ballarat Road, Ardeer, in the State of Victoria, standing in the trust account of the solicitors for the applicant, Mills Oakley, (surplus funds) are vested in the applicant.
(2)Pursuant to section 30(1)(b) of the Bankruptcy Act 1966 (Cth), the respondents have no interest in the surplus funds.
And the court orders that:
(1)The surplus funds, together with any interest that has accrued on those funds, be paid to the applicant.
(2)The respondents pay the applicant’s costs of the proceeding.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan. Associate:
Dated: 5 February 2018
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