The Federal Court’s recent decision in Kellendonk concerned a $350,000 loan made by the applicants, Mr and Mrs Kellendonk, to Ms Maria Jasienska-Dudek to help her buy a property in Midland, Western Australia (Property). Ms Jasienska-Dudek defaulted under the loan agreement and the parties subsequently entered an informal agreement which, after Ms Jasienska-Dudek became a bankrupt, led to some novel circumstances and a novel application of section 133 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act).
Mr and Mrs Kellendonk applied for orders under section 133(9) of the Bankruptcy Act that the Property vest in them absolutely “with the same effect for the purposes of entering them as registered proprietors as an order for foreclosure …”
Section 133 of the Bankruptcy Act relates to the disclaimer of onerous property, and subsection 133(9) provides that:
The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.
The issue for the Court to consider, therefore, was essentially whether title in the Property could and should be transferred to Mr and Mrs Kellendonk.
Firstly, the Court considered whether Mr and Mrs Kellendonk had standing to bring the application under section 133(9) as “a person either claiming an interest in …. disclaimed property“.
Although the result of the Official Trustee’s disclaimer was that the land escheated to the Crown (as Ms Jasienska-Dudek’s legal title and the Official Trustee’s equitable title were terminated), the Court accepted that Mr and Mrs Kellendonk had standing on the basis that they had an equitable interest in the Property: “once Ms Jasienska-Dudek had given the executed transfer of the Property to the applicants with the intention that they would lodge it for registration, that created (or brought closer to perfection) an equitable interest in the Property.” The Court also confirmed that the determination of the rights of Ms Jasienska-Dudek and the Official Trustee by way of the disclaimer did not terminate that equitable title held by Mr and Mrs Kellendonk.
The Court then considered whether Mr and Mrs Kellendonk were “a person entitled to [the Property]“, or whether they were “a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested“.
The Court noted that the question of what was just and equitable would turn on the proper characterisation of the agreement for the transfer of the Property: “Was it an agreement to transfer the land absolutely, in consideration of a release and discharge of all claims? Or was it an agreement that the property would be transferred to the applicants so that they could use it to obtain recovery of the principal and interest on the loan (and other costs and amounts payable under the mortgage)?“
The Court considered it clear that there was a mutual intention for the Property to be transferred to Mr and Mrs Kellendonk in return for a release of all claims against Ms Jasienska-Dudek. Moreover, as valuation evidence showed the value of the Property was only around $230,000, Mr and Mrs Kellendonk did not stand to receive a windfall if the Property vested in them. Accordingly, the Court held it was just and equitable to vest the Property in Mr and Mrs Kellendonk absolutely, so as to give effect to the agreement, and made the orders as sought.
This was a case where novel facts gave rise to a novel (but sensible) application of section 133 of the Bankruptcy Act, resulting in an order being made akin to an order for foreclosure. The Court’s decision gives practitioners a better insight into the utility of section 133(9) and the circumstances in which it may be considered “just and equitable” for property to vest in a person claiming an interest in disclaimed property.
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Guy Edgecombe, Partner
Mitchell Byram, Senior Associate
 Kellendonk at , citing Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt)  FCA 696 at  and Rams Mortgage Corporation Ltd v Skipworth (No 2)  WASC 75 at .
 Kellendonk at , citing Brunker v Perpetual Trustee Co (Ltd) (1937) 57 CLR 555 at 599.
 Kellendonk at , citing National Australia Bank Limited v State of New South Wales  FCA 298 at -.
 Kellendonk at .