“The three C’s arising from the bankrupt’s ownership of real estate”: Property Issues in Bankrupty

1. “The three C’s arising from the bankrupt’s
ownership of real estate”:
Property Issues in Bankruptcy
Friday, 24 August 2012
Presented by:
Catherine Pulverman
Partner
Wisewould Mahony

2. INTRODUCTION
 The main asset in a bankruptcy will be real estate owned by
the bankrupt and which vests in the Trustee – section 58(1)
Bankruptcy Act 1966 (Cth).
 The three C’s which are relevant for Trustees are:
a) Caveats;
b) Change of ownership arising from transmission
applications and Transfers of Land; and
c) Co-ownership disputes requiring an application for an
order for sale and partition of the proceeds.

3. CAVEATS: WHAT IS CAVEATABLE?
 A caveat must establish a “caveatable interest” which is:
“Any estate or interest in land under any unregistered
instrument or dealing or by devolution in law or
otherwise”: section 89(1) of the Transfer of Land Act
1958 (Vic).
 A number of fact situations clearly give rise to a caveatable
interest:
• The claim of a beneficiary under a trust;
• The interest of an optionee under an option to purchase;
• The rights under an agreement for a mortgage or
charge;
• The rights under a lease;
• The interest of a purchaser under a contract for sale;
• A vendor’s lien.

4. REMOVAL OF CAVEATS
An application for a removal of a caveat can be made to the
Registrar of Titles: section 89A Transfer of Land Act 1958 (Vic).
Alternatively, any person adversely affected by a caveat may
make an application for its removal to the Supreme Court:
section 90(3) of the Transfer of Land Act.
The test for the removal of a caveat is the same as the test
applicable for an application for an interlocutory injunction:
• There is a serious question to be tried:
There is a prima facie case: Australian Broadcasting
Corporation v O’Neill (2006) 277 CLR 57.
• The balance of convenience favors the removal of the
caveat.

5. CASE STUDY 1
Transfer of Land between Mum and Dad to Daughter 1 (who
was the bankrupt) and Daughter 2.
Caveat lodged around the time of the transfer with grounds of
claim being “pursuant to a constructive trust between Daughter 1
and Daughter 2 and Mum and Dad”.
An undated agreement was produced in support of the
caveatable interest – essentially an acknowledgement between
all parties of an outstanding debt owed to Mum and Dad (being
settlement moneys on the transfer of the property).

6. CASE STUDY 1
Equitable charge: see McMillan v Dunoon [2005] VSC 440.
 Determining whether there was an interest by the wording
of a loan agreement.
 It is a question as to whether or not the Court can infer an
intention to constitute a security.
 The Court found that it was the common intention of the
parties to create a charge over the property by the
specific wording of the loan agreement.

7. CASE STUDY 1
Constructive trust: see Handberg v Walter and the Registrar of
Titles [2001] VSC 145:
• Must be shown that a contribution was made where the
parties had agreed or intended that a trust be created.
• Evidence of a clear agreement for an intention to have
arisen.
A mere financial contribution does not of itself give rise to a
caveatable interest: see Burgtreus Pty Ltd v Burgin [2005] VSC
339.

8. CASE STUDY 2
Caveat was lodged by a supplier in respect of a debt.
The grounds of claim merely stated that it was “a charging
clause pursuant to an agreement between the caveator and
registered proprietor”.
The supplier relied upon a clause of a Guarantee and
Indemnity which accompanied a Credit Application and stated
that:
“The Guarantor charges in the Supplier’s favour with payment
of all monies owed to the Supplier by the Customer and/or the
Guarantor, all of its/their estate and interest in any land… in
which the Guarantor now has any legal and/or beneficial
interest… and the Guarantor agrees to execute on request, a
registrable instrument and/or any other necessary documents
to register such charge with ASIC or any other relevant body”.

9. CASE STUDY 2
McMillan v Dunoon is relevant – by examining the wording of
the purported charge in the documentation.
Whilst the clause purported to be a charging clause, it was not
sufficient to show that the parties’ common intention was that a
charge would be created over the specific property as security
for the outstanding debt (in accordance with the principles
arising from McMillan v Dunoon).
Important consideration was the fact that the clause stated that
the bankrupt as guarantor agreed to execute on request, a
registrable instrument to register the charge.
.

10. CASE STUDY 3
Caveat was lodged by a financier – based on a charging
clause contained in a Guarantee which supported a Hire-
Purchase Agreement.
Guarantee document could be rendered invalid for several
reasons including:
• The principal debtor and the guarantor were the same
person.
• Hire-Purchase Agreement did not include a charging
clause.
• Legal impossibility to guarantee your own debt.

11. TIPS FOR TRUSTEES
Examine the documentation which purportedly gives rise to a
caveatable interest – Hire/Purchase agreement, Credit
Application incorporating Terms and Conditions, Guarantee and
Indemnity.
Does the clause give rise to a charge which would give the
caveator a right to lodge a caveat?
Ensure that the bankrupt is a party to the relevant agreement
which incorporates a charging clause.
Obtain all necessary documentation which purports to create a
trust.

12. TRANSMISSION APPLICATIONS
To become a registered proprietor of the bankrupt’s property,
the Trustee must lodge a Transmission Application: section 51 of
the Property Law Act 1958 (Vic).
Caveat should be lodged immediately upon appointment: see
Star Poultry Pty Ltd v Ryan [2009] FCA 688.
Procedure to be undertaken:
 Transmission Application together with a Statutory
Declaration.
 Endorsement (or consent) of mortgagee and production
of Certificate of Title at Land Victoria.
 Lodgment of Transmission Application and Statutory
Declaration.
Relevant case law: Marchesi v Apostolou [2009] FCA 259
Marchesi (as Trustee of Bankrupt Estate of Vasiliou) v Registrar
of Titles in State of Victoria [2010] VSC 524.

13. TRANSFERS OF LAND
Procedure to be undertaken:
• A Transfer of Land has to be executed by the Trustee
and the Respondent.
• Statutory Declaration by transferor for Transfer to be
stamped non-dutiable: section 48(a) Duties Act 2000
(Vic).
• Transfer of Land to be endorsed by the mortgagee and
production of the Certificate of Title.
• Original Transfer endorsed by the mortgagee and the
original Statutory Declaration is lodged with the State
Revenue Office to be stamped non-dutiable.
• Once stamped non-dutiable, the Transfer is lodged with
Land Victoria for registration on the title.

14. TIPS FOR TRUSTEES
Ensure a caveat is lodged at the earliest opportunity.
Be familiar with the requirements of different financiers.
The Statutory Declaration to accompany Transfers of Land
should be as detailed as possible – the purpose is for the
Transfer to be stamped non-dutiable.
General rule of thumb on the procedural steps for becoming a
registered proprietor pursuant to a Court order is
• Transfer of Land and Statutory Declaration to be
executed;
• Transfer of Land to be endorsed by the mortgagee (and
title to be produced);
• Transfer of Land to be stamped non-dutiable;
• Transfer of Land to be lodged with Land Victoria.

15. CO-OWNERSHIP DISPUTES -
SALE OF PROPERTY
Where the bankrupt and their spouse are joint tenants of a
property, the bankruptcy severs the joint tenancy: Peldan v
Anderson [2005] HCA 48.
The Trustee will become a tenant in common with the spouse
in respect of the property.
If no agreement can be reached with the spouse in respect of
the Trustee’s interest, the Trustee needs to seek partition orders
under Part IV of the Property Law Act 1958 (Vic).
VCAT is the relevant jurisdiction although applications can also
be made to the Federal Court of Australia.
A co-owner of property can apply to VCAT for orders in respect
of the property: section 225(1) Property Law Act 1958 (Vic).

16. CO-OWNERSHIP DISPUTES -
SALE OF PROPERTY
 Co-owner is defined as a person who has an interest in land
or goods with one or more other persons as joint tenants or
tenants in common: section 222 PLA and see Kalotihos v
Bulzomi [2007] VCAT 1734.
 The sale of the property and division of the proceeds is the
preferred option of VCAT: section 229 PLA.
 VCAT also has wide discretionary powers to make an order
for a co-owner to account or compensate another co-owner
on the grounds of “fairness”: section 234 and 234B PLA.

17. CO-OWNERSHIP DISPUTES -
SALE OF PROPERTY
There are a range of usual orders which would be sought in
these applications (section 232 PLA) which include:
• Sale of the property.
• Sale by a licensed real estate agent to be agreed
between the parties.
• Sale by public auction.
• Property to be sold for a reserve price to be agreed
between the parties or by certified valuation.
• Proceeds to be applied in payment of commission and
expenses, payment of rates and taxes, to discharge any
registered encumbrances and the net balance to be
divided between the parties.

18. Can a co-owner oppose the sale and
partition?
The caselaw recognises that the discretion may be exercised
against an order for sale and partition in certain circumstances:
• The co-owner has a contractual right to occupy the
property.
• An order made under section 79 of the Family Law Act in
respect of the alteration of property interests is protected
from challenge by the Trustee (Oliver v Malanos [2011]
FCA 1354).
• The order would be inconsistent with a contractual or
equitable duty binding the Trustee.

19. Yeo v Brassil [2010] VSC 344
The Trustee had sought orders for the sale of the family home
and the application was opposed by the bankrupt's wife.
VCAT dismissed the Trustee’s application and he appealed.
In allowing the appeal, Justice Judd held that section 225 of
the PLA was not a jurisdictional requirement and that VCAT had
erred insofar as it had decided that there was no jurisdiction
because there would be no proceeds for distribution once the
mortgagee had been paid.
Furthermore, Justice Judd held that VCAT did not have an
open or unfettered discretion to refuse an order. Mere hardship
or unfairness was not a proper basis upon which to refuse to
exercise the power.

20. TIPS FOR TRUSTEES
The Application will be made pursuant to the provisions of Part
IV of the Property Law Act 1958 (Vic).
The orders which are sought will be an order for sale and
division of the proceeds together with any necessary orders for
vacation of the property by the occupants; changing the locks at
the premises; ensuring the occupants keep the premises neat
and tidy and properly maintained as well as ensuring that it is
kept neat and tidy when presented for inspection.
Are there any other additional orders which need to be sought,
for example, accounting.
Ensure that the relevant notice of the application is made to
any person holding a security interest over the property.