Ambrose v Badcock, in the matter of Badcock

Litigation history 7 Some of the history is indicated by the following chronology of litigation activity: 13 July 2000: The District Court of South Australia enters judgment for Adelaide Bank Ltd against the respondent in Action DCCIV-99-48 in the sum of $110,922.39 in addition to costs and interests (save to the extent that costs and interest had been included in the judgment sum). 4 April 2001: The Official Receiver issues a Bankruptcy Notice to the respondent in respect of the judgment sum of $110,922.39. 7 September 2001: Registrar Carey in the Federal Magistrates Court (FMC) dismisses the respondent's application seeking the setting aside of the Bankruptcy Notice, noting that the respondent has not established that there are proceedings on foot to set aside the District Court judgment or that he has a counterclaim, set off or cross-demand which he could not have set up at the hearing in the District Court. 19 September 2001: Adelaide Bank Ltd issues a creditor's petition claiming the total sum of $434,283.69 which sum includes the sum of $110,922.39 which was the subject of the Bankruptcy Notice. The creditor's petition referred to the respondent's non-compliance with the requirements of the Bankruptcy Notice served on him on 2 May 2001 in respect of the judgment obtained in the District Court. 21 December 2001: Registrar Christie in the FMC makes a sequestration order against the respondent's estate. 30 January 2002: Raphael FM in the FMC dismisses the respondent's application for review of the orders made by Registrar Christie on 21 December 2001: Adelaide Bank Ltd v Badcock [2002] FMCA 10. Raphael FM noted at [25] that the respondent owed $110,922.39 when the Bankruptcy Notice was issued; that Adelaide Bank asserted that that sum was still owed; but sought, as an unsecured creditor, to recover from the respondent's bankrupt estate the sum of $43,475.09. 25 May 2004: Lander J refuses an application by the respondent for leave to appeal against his order affirming the decision of a Registrar refusing the respondent's application for an adjournment of his examination pursuant to s 81 of the Bankruptcy Act: Badcock v Ambrose [2004] FCA 691. Lander J noted that the respondent had sought the adjournment on two grounds: he was not a bankrupt and the form of the order made by the Registrar on 21 December 2001 had not been effective to result in his bankruptcy. In refusing the grant of leave to appeal, Lander J noted, at [10], "the evidence before me showed that the applicant was adjudged bankrupt and is a bankrupt. The order of the Court is in regular form". 6 July 2006: A Master in the District Court of South Australia dismisses an application brought by the respondent against PriceWaterhouseCoopers (REG) on the basis that the respondent, as an undischarged bankrupt, had no standing to institute or maintain the action. In those proceedings, the respondent sought to put in issue the validity of the sequestration order of 17 December 2001. 1 September 2006: The District Court of South Australia dismisses the respondent's appeal against the District Court Master's decision of 6 July 2006: Badcock v PriceWaterhouseCoopers (Reg) [2006] SADC 101. 16 October 2006: Finn J dismisses an application of the respondent in so far as it sought an annulment of his bankruptcy, noting that no grounds in support of such an application has been provided despite the opportunity given to the applicant to amend his application and to provide further evidence: Badcock v Ambrose [2006] FCA 1372. 14 November 2006: The Supreme Court of South Australia dismisses the appeal against the District Court order, noting that, while the sequestration order stood, the Supreme Court was required to give effect to it and that it did not have jurisdiction to set aside the sequestration order: Badcock v PriceWaterhouseCoopers [2006] SASC 346 at [2]-[3]. 28 January 2010: The FMC dismisses an application of the respondent by which he sought, amongst other things, the setting aside of the creditor's petition of the Adelaide Bank of 19 September 2001 and the sequestration order made in the FMC on 21 December 2001: Badcock v Adelaide Bank Ltd [2010] FMCA 35. Simpson FM noted that the applicant had exhausted his ability to challenge the sequestration order when he had decided not to appeal against the decision of Raphael FM confirming the validity of the sequestration order made by Registrar Christie. 25 June 2010: Lander J dismisses the application of the respondent seeking an extension of time in which to appeal against the judgment of Raphael FM noting, at [15], that the respondent had not provided satisfactory reasons for his delay in bringing the application: Badcock v Pirie Street Holdings Ltd [2010] FCA 627. Lander J also noted that the affidavit material provided by the respondent showed that the bulk of the material had been available to the respondent when Registrar Christie heard the creditor's petition and at the time of the review by Raphael FM. His Honour also noted that the material which the respondent annexed to his affidavit did not establish that he had been solvent at the relevant time, at [32]-[33]. 25 June 2010: Lander J dismissed the respondent's appeal against the orders made by Simpson FM on 28 January 2010 dismissing the application to set aside the creditor's petition of 19 September 2001: Badcock v Pirie Street Holdings Ltd [2010] FCA 628. 6 October 2011: The High Court (Hayne and Crennan JJ) dismissed the respondent's application for special leave to appeal against the orders made by Lander J on 25 June 2010 dismissing the respondent's application for an extension of time in which to appeal against the orders made by Raphael FM.

More contemporary matters 8 In 2019, Mr Ambrose received information indicating that Mr Badcock had been deriving, and was continuing to derive, income from the buying and selling of second hand motor vehicles. In particular, Mr Ambrose received information that, between December 2011 and June 2018, Mr Badcock had been employed as a used car salesperson and that, since June 2018, he has been buying and selling vehicles on his own account. 9 Mr Ambrose's investigations revealed the following. On 4 July 2018, Mr Badcock had applied to the Fair Work Commission (the FWC) under s 394 of the Fair Work Act 2009 (Cth) (the FW Act) for a remedy in respect of his alleged unfair dismissal from employment with N & HM Cooper Motor Search (SA) & Car Clearance Centre (SA) T/A Motor Search (Motor Search). On 26 November 2018, the FWC found that the parties had reached, informally, a binding settlement of the unfair dismissal claim involving the payment by Motor Search to Mr Badcock of $8,000. 10 In October 2018, Mr Badcock had lodged an underpayment of wages claim in the South Australian Employment Tribunal (the SAET) seeking payment of an amount of approximately $140,000. That claim remains undetermined by the SAET. However, on 13 August 2019, Motor Search deposited $73,433.21 into Mr Badcock's "Complete Freedom" Account No 108444940 held with BankSA (the Complete Freedom Account). The solicitor for Motor Search informed Mr Ambrose that his client had paid that sum "as a form of admission of liability" for one of the claims made by Mr Badcock in his proceedings in the SAET. It seems that there is an undetermined dispute concerning the balance of the amount claimed by Mr Badcock in those proceedings. 11 In filed his Defence, Mr Badcock pleaded: [12(d)] The Respondent's former employers paid $73,433.21 into the Respondent's bank account as a consequence of their acknowledgement being part of the Respondent's claim for underpaid and unpaid income. 12 By his Reply to that plea, Mr Ambrose admitted the payment of $73,433.21 and the characterisation pleaded by Mr Badcock. I proceed therefore on the basis that the sum of $73,433.21 represented an amount of "underpaid and unpaid income" acknowledged by Motor Search to be due to Mr Badcock in respect of his previous employment. 13 On 15 August 2019, Mr Badcock transferred $73,000 from the Complete Freedom Account to his "Incentive Saver" Account No 108445640, also held with BankSA. The latter account is an interest bearing account. 14 Shortly after 16 August 2019, BankSA, apparently acting in accordance with s 125 of the Bankruptcy Act, applied a "freeze" on withdrawals from the Incentive Saver Account. Mr Ambrose had not asked BankSA to apply that freeze but had, before 13 September 2019, sought information from BankSA concerning the accounts. On being informed of the "freeze" Mr Ambrose requested BankSA to keep it in place. 15 On 30 August 2019, Mr Ambrose provided Mr Badcock with an income contribution assessment made by him pursuant to Div 4B of Pt VI of the Bankruptcy Act for the contribution assessment periods (CAPS) 11-17. He assessed Mr Badcock's liability in respect of those periods as totalling $63,367. The term "contribution assessment period" is defined in s 139K of the Bankruptcy Act. In issuing the income contribution assessments, Mr Ambrose was exercising the power in s 139W of the Bankruptcy Act. Section 139P(1) imposes the obligation on a bankrupt to pay the amount so assessed. 16 In 29 October 2019, Mr Badcock requested the Australian Financial Security Authority (AFSA) to review Mr Ambrose's assessment of the income contribution liability for CAPS 11-17. At the request of AFSA, Mr Ambrose provided it with documentation concerning the income contribution assessments. He provided still further information on 20 and 21 November 2019. By an email of 28 November 2019, AFSA requested Mr Ambrose to withdraw the income contribution assessments for CAPS 11-17 on the basis that Mr Badcock did not appear to have actually received during CAPS 11-17 the amounts on which Mr Ambrose had relied. It indicated, however, that an income contribution assessment could be made in respect of CAP 18, being the period in which Mr Badcock had in fact received the money. 17 By letter dated 19 December 2019, Mr Ambrose withdrew his income contribution assessments for CAPS 11-17 and issued an assessment for CAP 18 based on the income received by Mr Badcock in the period 21 December 2018 to 20 December 2019 even though the entitlement to that income had accrued in earlier years. This was in accord with s 139M of the Bankruptcy Act. The assessed liability was $30,094. That amount constituted 50% of the sum of $60,187.50, being the balance after the deduction of the threshold amount of $58,331 from the net amount derived ($118,518.50) by Mr Badcock in CAP 18. 18 On 10 January 2020, Mr Badcock sought review by AFSA of Mr Ambrose's income contribution assessment for CAP 18. However, by letter dated 3 March 2020, AFSA indicated that it had decided not to perform a review of the assessment because Mr Ambrose had withdrawn the assessment for CAP 18. AFSA went on to indicate, however, that, with one qualification, the method of assessment adopted by Mr Ambrose was appropriate. The qualification concerned the inclusion in the calculation of imputed income of $3,000 from a "side business". 19 Mr Ambrose issued the revised income contribution assessment for CAP 18 on 3 March 2020. He assessed Mr Badcock's liability for CAP 18 at $31,279 and indicated that that amount was payable by 17 March 2020. 20 On 25 May 2020 and on the application of Mr Ambrose, a delegate of the Official Receiver issued, pursuant to s 139ZL of the Bankruptcy Act, a notice to BankSA requiring it to pay to Mr Ambrose the sum of $31,279 from Mr Badcock's Incentive Saver Account. BankSA complied with that notice on 29 May 2020. This left a balance $44,937.31 in the Incentive Saver Account.

The motor vehicle claim 21 When Mr Ambrose commenced these proceedings on 2 July 2021, he considered that several motor vehicles owned by Mr Badcock were a form of after-acquired property to which ss 58, 59 and 116 of the Bankruptcy Act refer and that, with the exception of one vehicle which may be required for Mr Badcock's personal transport, the vehicles did not constitute one of the excluded items of property listed in s 116(2) of the Bankruptcy Act. The consequence, he contended was that the motor vehicles are available for distribution amongst Mr Badcock's creditors. 22 On 21 July 2021, on the application of Mr Badcock heard ex parte, Besanko J issued an interim injunction restraining Mr Badcock from dealing with all the motor vehicles owned or possessed by him. The injunction was made operative to 5 pm on Tuesday, 27 July 2021. It was later extended by orders made on 26 July and 6 September 2021. 23 However, on 27 September 2021, Mr Ambrose, acting under s 133 of the Bankruptcy Act, after ascertaining the condition and likely value of the motor vehicles, disclaimed them. By an order made on 8 October 2021, the injunction was discharged.

Mr Ambrose's claims 24 Pursuant to the Court's orders, Mr Ambrose has filed a Statement of Claim detailing his claims. 25 Mr Ambrose seeks the following relief: (a) a declaration that $37,437.31 of the balance of the sum of $44,937.31 held in the BankSA "Incentive Saver" Account No 108445640 plus accrued interest is after-acquired property of Mr Badcock which has, pursuant to s 58(1)(b) of the Bankruptcy Act, vested in him as trustee of Mr Badcock's bankrupt estate and, pursuant to s 116(1)(a) of the Act, is divisible amongst Mr Badcock's creditors; (b) an order requiring Mr Badcock to authorise BankSA to release and transfer to him the sum of $37,437.31 plus accrued interest on that amount; and (c) consequential orders. 26 The figure of $37,437.31 is derived by Mr Ambrose by deducting $7,500 from the remaining balance in the Incentive Saver Account of $44,937.31. The sum of $7,500 is an allowance for Mr Badcock's living expenses. 27 As is apparent, Mr Ambrose does not make his claim to the sum of $37,437.31 pursuant to Div 4B of Pt VI of the Bankruptcy Act. He relies instead on the provisions concerning after-acquired property in ss 58 and 116. 28 It is to be noted that Mr Ambrose does not seek any relief in respect of the $31,279 previously transferred to him by BankSA on 29 May 2020. As Mr Badcock has not commenced any cross-claim, the Court is not required to make any determination in respect of that sum. In particular, the Court is not required to adjudicate the claim made by Mr Badcock in [47] of his closing submissions for the "return" of the funds transferred to Mr Ambrose by BankSA nor to assess the complaints made in the filed Defence concerning the quantification of the figure of $31,279.

Mr Badcock's defence 29 Mr Badcock has filed a Defence to the Statement of Claim. The Defence, Mr Badcock's affidavit of 27 August 2021 and his written opening and closing submissions indicate that the principal bases on which Mr Badcock resists Mr Ambrose's underlying claims are as follows: (a) the remaining funds in the Incentive Saver Account No 108445640 are not "after-acquired property" to which ss 58(1)(b) and 116(1)(a) refer; (b) the underlying debt on which the petitioning creditor (Adelaide Bank) relied in 2001 was not extant and there was inappropriate conduct by Adelaide Bank in presenting the petition; (c) the sequestration order concerning him made in the Federal Magistrates Court of Australia on 21 December 2001 is invalid. This is based on a challenge to the appointment of Registrar Christie (who made the order) as a Registrar of the Federal Magistrates Court and to the power of Registrars to make such orders; (d) the Certificate of Appointment issued by the Insolvency and Trustee Services Australia by which Mr Ambrose was appointed trustee of Mr Badcock's bankrupt estate pursuant to s 156A(3) of the Bankruptcy Act is invalid; (e) he has not committed an act of bankruptcy; and (f) he has at all times been solvent. 30 In his affidavit, Mr Badcock admits that Motor Search paid $73,433.21 into his account being (he contends) part of the amount due to him for unpaid amounts due to him in respect of his employment. He also admits that he was employed by Motor Search as a "vehicles sales person" from December 2011 until June 2018. 31 At one stage, Mr Badcock foreshadowed seeking orders setting aside orders made in the Federal Magistrates Court in 2001, in particular the sequestration order made on 21 December 2001 and orders for the repayment of the sum of $31,314 paid to Mr Ambrose by BankSA. By an interlocutory application filed on 27 August 2021, Mr Badcock sought the following relief: 1. An order to set aside the orders of Registrar Carey in AZ113 of 2001. 2. An order to set aside the orders of Registrar Christie in AZ 202 of 2001. 3. The Applicant pay into the Respondent's nominated bank account all monies of the Respondent received by the Applicant including but not limited to the amount of $31,314 withdrawn from the Respondent's Bank SA bank account. 4. Westpac Bank/ Bank SA is to lift the freeze / hold on the Respondent's bank account number. 5. The Applicant, (Mr Colin Louis Ambrose) be restrained from seeking, requesting or in any way obtaining, or dealing with, any funds or monies or assets of the Respondent whether in the possession of the Applicant or any other party including the Respondent with the exception of 3.above. 6. The Federal Court restraining order dated 26 July 2021 in SAD 134 of 2021 be set aside. 7. The Applicant pay the Respondent's costs. 8. Any other order the Honourable court deems fit or appropriate. 32 I dismissed that interlocutory application on 6 September 2021 for reasons which included that Mr Badcock sought substantive relief of a kind which should be sought in a cross-claim. Mr Badcock had acknowledged the need for a cross-claim. I fixed the time within which Mr Badcock should file a Notice and Statement of Cross-Claim. However, Mr Badcock did not file such a claim.

Statutory provisions 33 A full survey of the provisions in the Bankruptcy Act relevant to Mr Ambrose's claim is set out in the judgment of the Full Court (Edmonds, Gordon and Beach JJ) in Di Cioccio v Official Trustee in Bankruptcy [2015] FCAFC 30; (2015) 229 FCR 1 at [6]-[23]. This is the principal decision on which Mr Ambrose relied and I will return to it shortly. The completeness of the survey in Di Cioccio means that it is unnecessary to essay a similar survey in these reasons. Apart from setting out in these reasons those provisions which are immediately relevant, I incorporate by reference the survey of the Full Court. 34 Section 58(1) of the Bankruptcy Act provides (relevantly): 58 Vesting of property upon bankruptcy - general rule (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. … 35 Section 116(1) provides (relevantly): 116 Property divisible among creditors (1) Subject to this Act: (a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and … is property divisible amongst the creditors of the bankrupt. 36 Section 116(2) provides that s 116(1) does not extend to certain identified property, one of which is the bankrupt's "household property" of a kind proscribed by the Regulations. Property acquired by bankrupt using funds of a kind protected by s 116(2) is not property which vests in the trustee so as to be available for payment of a bankrupt's debts. 37 The term "property" is defined in s 5(1) of the Bankruptcy Act in very general terms: property means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property. 38 The term "after-acquired property" is defined in s 58(6) of the Bankruptcy Act to mean (for the purposes of that section): Property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt. 39 The expression "property that is divisible amongst the creditors of the bankrupt" is addressed in s 116 of the Bankruptcy Act. 40 Division 4B of Pt VI of the Bankruptcy Act contains a scheme by which a bankrupt who derives income during the bankruptcy may be required to pay a contribution towards the bankrupt's estate. The essential elements of the scheme are that the bankrupt must pay to the trustee one half of the income derived by him or her which exceeds a threshold amount (ss 139P and 139R). The threshold amount is fixed by reference to a pension rate under the Social Security Act 1991 (Cth) (s 139K). The liability to contribute is contingent upon the bankrupt's trustee making an assessment of the income and of the required contribution.

Are the funds in the Incentive Saver Account after-acquired property of Mr Badcock? 41 There is no doubt that funds held in a bank account constitute a form of property for the purposes of the s 5(1) definition. It is not necessary for present purposes to characterise the nature of that property, but it is probably best described as a chose in action. 42 However, there is an issue as to whether funds held in a bank account which are an accumulation of income which a bankrupt would not be required to contribute to his bankrupt estate pursuant to Div 4B of Pt VI of the Bankruptcy Act do constitute after-acquired property. Both parties referred to authorities bearing on the issue.

The authorities 43 In Re Gillies; Ex parte Official Trustee in Bankruptcy v Gilles [1993] FCA 289; (1993) 42 FCR 571, one of the questions on an application by a trustee in bankruptcy for directions was whether a fund accumulated from the income earned by a bankrupt from employment during his bankruptcy was after-acquired income for the purposes of s 58(1) and s 116(1). After a detailed examination of the history of legislative provisions and of the structure and purpose of Div 4B of Pt VI of the Bankruptcy Act, French J concluded that the scheme in the Division was inconsistent with the application of ss 58 and 116 to after-acquired income, at [376]-[377]. His Honour held that the scheme in Div 4B of Pt VI was based on the continuing assumption that the income of a bankrupt does not vest in a trustee, and that a bankrupt's liability with respect to income is confined to the liability to make the income contribution for which Div 4B in Pt VI provided. 44 French J went on to say that he was inclined to the view that assets purchased by a bankrupt with after-acquired income would, if not within any of the exclusions to which s 116(2) refers, constitute property divisible among the creditors and vest in the trustee. However, his Honour refrained from expressing a final view, at [577]. 45 The decision of French J in Re Gillies has been followed, or referred to with approval, in a number of subsequent decisions. These include Re Hawkins; Ex parte Worrell (1996) 71 FCR 371 at 375 (Spender J) (in relation to payments made pursuant to a maintenance agreement between husband and wife); Re Sharpe; Ex parte Donnelly (1998) 80 FCR 536 at 540 (Lockhart J) (in relation to fees earnt by a barrister before his bankruptcy but paid during the bankruptcy); Trustee of the Property of O'Reilly v Law Society of New South Wales [2001] FCA 701, (2001) 110 FCR 574 at [8] (Katz J) (in relation to the fees and disbursements due to a solicitor in respect of work performed before his bankruptcy); Combis v Harding [2014] FCA 1391 at [20] (Siopis J) (in relation to income under a testamentary trust); Michell, in the matter of Lee [2012] FCA 1046, (2012) 207 FCR 96 at [18]-[19] (Gray J) (in relation to the pre-bankruptcy fees earnt by a barrister); Davey v Dessco Pty Ltd [2017] VSC 744 at [29]-[30] (J Forrest) (in relation to the ability of a bankrupt to sue in his or her own name for personal income earned during the bankruptcy). 46 These authorities support the proposition that the after-acquired income of a bankrupt remains vested in the bankrupt rather than in the bankrupt's trustee pursuant to ss 58 and 116, subject, however, to the bankrupt's obligations to make a contribution under Div 4B of Pt VI of the Bankruptcy Act: Barwick v Goodridge [2011] NSWSC 1233; (2011) 255 FLR 245 at [24]. 47 It is for this reason that several authorities have recognised that the entitlement to sue for unpaid wages or salary due to a bankrupt does not vest in the trustee in bankruptcy: Randall v Deputy Commissioner of Taxation [2008] FCA 1939; (2008) 174 FCR 441; Davey v Dessco at [33]. It was no doubt for this reason that Mr Ambrose informed Mr Badcock on 28 August 2019 that he took the view that Mr Badcock's underpayment of wages claim in the SAET did not vest in him as the trustee in bankruptcy. 48 Mr Ambrose relied on authorities which have concerned the question of whether property acquired from the bankrupt's post-bankruptcy income is after-acquired property for the purposes of s 58(1)(b). In Rodway v White [2009] WASC 201; (2009) 233 FLR 262, one question was whether shares in public companies acquired by the bankrupt using income which he had, in accordance with Div 4B of Pt VI, been entitled to retain was after-acquired property. As EM Heenan J noted at [33]-[35], this was a question on which there had, to that time, been no authoritative determination although, as noted, French J in Re Gillies had expressed a preliminary view that property of that kind could be after-acquired property which vested in the trustee. 49 In his reasons for concluding that the shares were after-acquired property, EM Heenan J adverted to the status of income held by the bankrupt in a bank account: [51] It is immediately apparent that there is some incongruity in speaking of after-acquired income as not vesting in the trustee yet maintaining that after-acquired property (whether acquired with the use of that income or not) does. The incongruity arises from the difference in character assumed to exist between income and property. Plainly there is a difference in those concepts but income generally means money (or other valuable consideration) itself constituting property, obtained by a person over some period. Such income, take wages or salary for example, once received will probably be in the form of cash or credit in a bank or similar account. The accumulating cash on hand, and the accumulating balance in the bank or other account will each be a form of property of the bankrupt from the moment it is paid or received. There is no suggestion by the respondents, nor does the decision in Gillies (supra) appear to contemplate, that the proceeds of income, whether it be cash or credits in bank accounts, as originally received or accumulated will constitute 'after-acquired property' within the meaning of s 116. This is probably due to the effect of Div 4B and the idea that after-acquired property does not include income at least in the form in which it was earned. That concept may need a little extension to cater, for example, with a situation where income is received in cash, and is then converted by the recipient to a credit in a bank or deposit account, and is then transferred to a second, third or subsequent bank or deposit account, each transition constituting, strictly speaking, the acquisition of property in the form of the subsequent account or accounts. The inconsistencies between this analysis of what constitutes property and the notion of 'after-acquired property' in s 116 can probably be ignored for the present notwithstanding that they reveal some special and fundamental changes to the conventional notion of 'property'. (Emphasis added) 50 EM Heenan J also noted at [66], that the respondents (the persons who had successfully prosecuted the bankrupt for a bankruptcy offence) had accepted that the "mere depositing of [post-bankruptcy] income in a bank account, or the transfer of all or part of it to another bank account, so converting the case or the chose in action from one form of property to another is not within the meaning of the submission or the reach of the [Bankruptcy] Act". 51 The status of shares in public companies acquired with post-bankruptcy income below the contribution threshold fixed by Div 4B of Pt VI was considered again by the Full Court in Di Cioccio. Their Honours noted that the Bankruptcy Act does not prohibit a bankrupt from acquiring a specific item of property but simply deems that after-acquired property will vest in the bankrupt's trustee unless the property is a kind specified in s 116(2). They went on to note that s 116(2) does not refer expressly to property representing income previously derived by the undischarged bankrupt or to property acquired by the bankrupt using property representing income previously derived and there was no implication in the scheme of the Act to that effect, at [33]-[37]. 52 Having reached that conclusion, their Honours rejected a submission of counsel for the bankrupt based on the status of income deposited into a bank account: [41] During the course of argument, counsel for Mr Di Cioccio submitted that if this construction of the Act was adopted, it would create an anomaly. An anomaly was said to arise because an amount standing to the credit of a bank account in the name of the bankrupt would be property … that would immediately vest in a trustee (s 58) and be divisible amongst the creditors of the bankrupt (s 116(1)) even if the amounts standing to the credit of the bank account were in fact income derived by the bankrupt below the actual income threshold amount applicable to that bankrupt. [42] There are a number of answers to that contention, all found in the Act. First, s 134(1)(ma) provides that, subject to the Act, a trustee may "make such allowance out of the estate as he or she thinks just to the bankrupt, the spouse or de facto partner of the bankrupt or the family of the bankrupt": see [17] above. Section 134 operates as a safety value. It is a provision which assumes that a trustee will act sensibly and fairly. A decision of the trustee is reviewable: s 178 of the Act. Second, it is not uncommon for a bankrupt to be required to open a supervised account: s 139ZIE of the Act. Under the supervised account regime, a bankrupt must not make a withdrawal from the supervised account unless, amongst other things, the bankrupt has the consent of the trustee: ss 139ZIG(1), (2)(a) and (3). The Act, or at least those provisions of the Act dealing with supervised accounts, suggests that the safety valve provided by s 134 is intended to operate in relation to a bank account into which income derived by the bankrupt below the actual income threshold amount applicable to that bankrupt is deposited. [43] Third, s 116 of the Act. The fact that an amount standing to the credit of a bank account in the name of the bankrupt would constitute after acquired property under s 116(1) is not a complete statement. If, for example, the bankrupt retained the credit balance in the bank account to build up sufficient funds to later buy tools of trade for use in earning income by personal exertion, the amount may arguably fall within the exception provided under s 116(2)(c) as "property that is for use by the bankrupt in earning income by personal exertion …". In this context, "property" is defined both for s 116(1) and s 116(2): see [9] above. There is no anomaly. (Citation omitted and emphasis in the original) 53 Accordingly, the appeal against the primary judge's conclusion that the shares were after-acquired property was vested in the trustee in bankruptcy was dismissed. 54 In Gittins v Field (Trustee) [2018] FCA 976, Charlesworth J referred to the difficulty which Di Cioccio represented to an application of the reasoning in Re Gillies: [59] Mr Gittins submits that since the decision of the Full Court in Di Cioccio there is a "degree of difficulty in applying" Re Gillies and the line of authority that followed. To an extent, I agree. If the Act were to operate so as to vest in the trustee of a bankrupt's estate an amount standing to the credit of a bank account in the bankrupt's name comprised of money in the nature of income payments (and so confer proprietary rights in the money as income) it is difficult to comprehend what meaningful work the income contribution scheme would have to do. The closing paragraphs of the judgment in Di Cioccio appear to be an unexplained departure from the historical position that the income of a bankrupt does not vest in the trustee … 55 In Devine v State of Queensland [2020] QSC 229 Holmes CJ referred to a similar difficulty. In that case, the issue was whether a sunken ship was after-acquired property of a bankrupt which vested in the trustee of his estate. Holmes CJ reviewed several of the authorities referred to above and concluded that the ship could not reasonably be regarded as "income" for the purposes of Div 4B of Pt VI. In reasoning to that conclusion, her Honour said (relevantly for the purposes of the present litigation): [36] I agree with Charlesworth J that Di Cioccio presents difficulties for the application of Re Gillies. The statement that Div 4B plays no part in the determination of what property is divisible among creditors under s 116 seems on its face a rejection of the reasoning in Re Gillies, that the Division's scheme was inconsistent with the application of s 116 to income. The rejection in Di Cioccio of any distinction between income and capital for the purposes of ss 58 and 116, combined with the statement that any property not within s 116(2) is caught by s 116(1), would also seem to suggest the application of s 116(1) to after-acquired income, at odds with French J's conclusion. Yet one would expect that if some major departure from the reasoning and result in Re Gillies were intended, that would have been said, given the volume of judicial approval of the case over the years. [37] The Court's view in Di Cioccio that, although a bankrupt was entitled to retain income derived below the actual income threshold amount, such income as represented by a credit in a bank account was after-acquired property also seems, at first blush, at odds with the conclusion in Re Gillies that accumulated after-acquired income did not vest in the trustee. However, there is nothing in Re Gillies to indicate in what form the funds under consideration there were held. Although there was in Di Cioccio no explicit statement to this effect, I infer from the reference to Foley v Hill that the Court proceeded on the basis that an account credit representing income would be after-acquired property in the form of a chose in action acquired with that income. At a time when most remuneration is received by way of bank deposit, and few people would hold their income, however received, in hard currency, that approach would seem to have significant implications for the conventional approach that a bankrupt's income and rights in relation to it are protected; and as Charlesworth J observed in Gittins, it would leave little work for Div 4B. But if my analysis is correct, the court in Di Cioccio did not in this part of its judgment say that the income itself was property divisible amongst creditors. [38] There is obiter of the Court of Appeal of this State in Geia v Palm Island Aboriginal Council as to the correctness of French J's conclusion in Re Gillies that income did not vest in the trustee. I propose to adhere to the view, widely accepted in the cases, that a bankrupt is entitled to retain his or her income, subject to the obligation to contribute. I would not accept the defendant's submission that Di Cioccio has the effect of dooming the plaintiff's action to failure, whether the Defender is after-acquired income or not. (Citations omitted)

Evaluation 56 Mr Ambrose relies on the decision of the Full Court in Di Cioccio. It is accordingly important to identify what it is that Di Cioccio decided. 57 As noted above, the issue in Di Cioccio was whether shares in public companies acquired using money or a credit in a bank account representing income derived during the bankruptcy which was below the income contribution threshold was after-acquired property for the purposes of ss 58 and 116. The Full Court resolved that question by the following steps of reasoning: (i) section 58(6) defines the term "after-acquired property" for the purpose of s 58(1)(a) as meaning "property" which is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being (critically) "property that is divisible amongst the creditors of the bankrupt", at [28]; (ii) section 116 identifies the "property" which is "divisible amongst the creditors of the bankrupt", at [29]; (iii) section 116 does so in a broad way in subs (1) but then qualifies that breadth by excluding the particular forms of property listed in subs (2), at [30]-[31]; (iv) the shares purchased by the bankrupt were an item of property and were not within any of the exclusions in s 116(2). That being so they were "caught" by s 116(1) and were divisible amongst the bankrupt's creditors, at [34]; and (v) the fact that the bankrupt had acquired the shares using income derived by him which was below the income contribution threshold was immaterial. This was so because Div 4B of Pt VI says nothing about how a bankrupt may spend earnings which are below the income contribution threshold and the Bankruptcy Act does not prohibit a bankrupt from acquiring a specific item of property. What the Bankruptcy Act does do is to specify that the after-acquired property of a bankrupt will vest in the trustee, unless it be property of a kind referred to in s 116(2), at [34]-[40]. 58 The setting out of these steps of reasoning is sufficient to indicate that the status of monies held in a bank account which represent, or are derived from, a bankrupt's income was not an indispensable part of the Full Court's reasoning. 59 The Full Court did, however, advert to the status of property "representing" income previously derived by an undischarged bankrupt, at [33] and at [41]-[43]. For the reasons just indicated, the Full Court's comments with respect to such monies are in the nature of dicta. Moreover, a close analysis of those paragraphs indicates that the Full Court's comments were not directed to the issue presently before the Court. 60 In [33], the Full Court identified a particular question, namely, whether one could discern from s 116(2) an exemption of (relevantly) property representing income previously derived by an undischarged bankrupt or property acquired by the undischarged bankrupt using that income. Paragraph [33] did not address the antecedent question of whether the income derived by a bankrupt is itself after-acquired property for the purpose of s 58(1)(b) and s 116. The Full Court may be thought to have touched on that question obliquely in [30] in which their Honours said: [30] The nature of the property (whether it is divisible amongst creditors or not) determines whether or not the property vests in the trustee. If an item of property is of a kind which is divisible amongst the creditors of a bankrupt (s 116(1)), it vests in the trustee. If it is property of a kind which falls within one of the categories listed in s 116(2), it is entitled to be retained by the bankrupt. Section 116(1) is broad. It includes property that has been acquired, or is acquired by, the bankrupt after the commencement of the bankruptcy and before discharge: s 116(1)(a). It is to be read, and is able to be read, with s 58 of the Act. 61 It is apparent, however, that the Court did not address directly the status of income. The Full Court touched on the issue again in [34]-[37] when it expressed the view that Div 4B in Pt VI does not have any role to play in the determination of the property that is divisible amongst the bankrupt's creditors. Their Honours said: [34] … As we have seen, ss 58 and 116 are concerned with property, not with the character of property as income or capital. The items of property able to be acquired and retained by an undischarged bankrupt are specified. If an item of property (for example, shares) is not listed in s 116(2) then it is caught by s 116(1) and is divisible amongst the bankrupt's creditors. What role then, if any, does Div 4B have to play in determining the property that is divisible amongst the bankrupt's creditors, and does it, as the appellant contends, conflict with ss 58(1)(b) and 116? Again, the answer is none. [35] Div 4B of Pt VI has two objects. They are set out in s 139J extracted at [18] above. For present purposes, it is sufficient to direct our attention to the first object - to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate. [36] Div 4B of Pt VI defines what is income (s 139L extracted at [20] above). It also: (1) Identifies that certain receipts are to be treated as derived in calculating a bankrupt's income: ss 139M and 139K (see definition of derived); and (2) Provides a formula for working out what contribution of that income (if any) a bankrupt is liable to pay: s 139S. [37] These provisions do not address what is, or what is not, the property of the bankrupt divisible amongst the bankrupt's creditors. The provisions are directed to different concepts. There is no conflict between Div 4B of Pt VI of the Act, and s 58(1)(b) in Div 4 of Pt IV and s 116 in Div 3 of Pt VI of the Act … (Emphasis added and citation omitted) 62 On one view, these passages are capable of being understood as indicating that there is a simple dichotomy between forms of property which a bankrupt is able to acquire and retain and which are not divisible amongst creditors and all other forms of property which the bankrupt may acquire. Although the Full Court did not refer specifically to income as one of the "residual" forms of property, its reasoning may be broad enough to encompass it. 63 However, there are indications that the Full Court was not addressing income per se as an item of property. Instead, [34]-[37] were directed to items of property able to be acquired and retained by the bankrupt. That qualifying expression is used by the Full Court in [34]. Although the same qualifying phrase is not used after the term "item of property" in the sentence which immediately follows, that term seems to be used in the same sense. That suggests that the focus of the Full Court's attention was on property able to be acquired and retained, whatever be the sources of the funds used for the acquisition. 64 While the term "income" is defined very broadly in ss 139K and 139L, it is not customary in ordinary English usage to speak of income as property which is "acquired". There does not seem to be any indication in s 139L that the term "income" is used with a meaning of property which is acquired. 65 A non-conclusive indication that the Full Court was not addressing income is that the example of property not listed in s 116(2) which it gave was an item of property which can be acquired with income, namely shares and not income itself. 66 It is very pertinent that the scheme of Div 4B of Pt VI is that the bankrupt pay, not his or her income, but a contribution, the amount of which is, by definition, a portion of the income exceeding the applicable threshold. Plainly, therefore, the Bankruptcy Act does not intend that all derived income be characterised as an acquisition of property. It is also plain that the Bankruptcy Act intends that bankrupts be able to retain the balance of the income after making the required contribution unless they convert it into some other form of property. It is not readily to be supposed that the Full Court overlooked this obvious circumstance. To the contrary, their Honours referred expressly to the provision for contributions in [35] and [36]. That adds to the impression that, when the Full Court said that Div 4B of Pt VI did not have any role to play in determining the property which was divisible amongst the bankrupt's creditors, their Honours were referring to items of property "able to be acquired and retained" and not to the income which could be used for the acquisition. 67 An indication that the Full Court was not addressing the question of whether income deposited in a bank account constitutes property to which ss 58(1)(b) and 116(1)(a) refer, is that it did not address the interrelationship between Div 4B of Pt VI and ss 58 and 116 which formed the basis of the decision of French J in Re Gillies and of the many decisions which have followed it. It is not readily to be supposed that the Full Court had intended to sweep away, without recognition or explanation, such an established and respected line of authority. The more natural inference is that the Full Court did not consider it necessary to address those authorities because their Honours did regard themselves as stating a position inconsistent with them. 68 Paragraphs [41]-[43] in the Full Court judgment were addressed to the "anomaly" to which counsel for the bankrupt had referred. That anomaly was said to arise from the circumstance that an amount standing to the credit of a bank account in the name of a bankrupt is "property". Counsel for the bankrupt before the Full Court seemed to have assumed that the balance in the bank account would, on the Full Court's reasoning, immediately invest in a trustee and divisible amongst creditors. Whether that anomaly exists is doubtful, having regard to the reasoning adopted in Re Gillies and followed in the subsequent cases. 69 The Full Court was satisfied that the anomaly was non-existent. It is true that it did so without reference to the reasoning of French J in Re Gillies but it does not follow that the Full Court was rejecting that reasoning. 70 Counsel for Mr Ambrose noted that the High Court of Australia had refused special leave to appeal against the decision of the Full Court in Di Cioccio. However, as is well established, that does not give any additional status to the decision of the Full Court. 71 For these reasons, I consider that the decision of the Full Court in Di Cioccio does not preclude the Court presently from applying the law as stated by French J in Re Gillies, and that it is appropriate for that law to be applied. 72 Mr Ambrose's contentions in the present case rest on Mr Badcock's action on 16 August 2019 in transferring $73,000 from the BankSA Complete Freedom Account to the BankSA Incentive Saver Account. He accepted that the initial deposit by Mr Badcock's employer of the income into the Complete Freedom Account did not constitute after-acquired property for the purposes of s 58(1)(b) and s 116. Mr Ambrose submitted that, because the Incentive Saver Account is interest bearing, and the Complete Freedom Account is not, this meant that the former was a form of investment account. The implication was that, by transferring the money to an interest bearing account, Mr Badcock had thereby converted the sum representing income in the Complete Freedom Account into a form of investment so as to attract the application of the approach in Di Cioccio. 73 Counsel also submitted: Mr Badcock's act of withdrawing the settlement funds from his [Complete] Freedom Account and depositing them into his Incentive Saver Account represented the acquisition of property in that Incentive Saver Account which therefore immediately vested as after-acquired property. 74 I do not accept these submissions. The mere change in the account in which the monies were held cannot reasonably be regarded as changing the character of the monies as income. BankSA continued to hold the monies. The change in the contractual terms as between banker and customer on which the monies were held did not alter the nature of the property held by Mr Badcock. 75 It would in any event be unrealistic to regard the transfer of monies from one bank account to another bank account which carried interest as the making of an investment. In ordinary experience, that is not how the deposit of monies in a bank account is regarded. Instead, the placement of monies in bank accounts such as the Complete Freedom or Incentive Saver Accounts is more usually regarded as the holding of those monies in a secure place while retaining their accessibility. The earning of some interest on the monies deposited is usually an incident of the holding of monies in this way. 76 Put slightly differently, Mr Badcock's income continued to be held in specie. It had not been converted to, or transferred to, some other form of property. The mere change of account did not alter the nature of the property.

Conclusion 77 For these reasons, I conclude that Mr Badcock's transfer of the substantial portion of his income to the Incentive Saver Account on 15 August 2019 did not constitute the acquisition of a form of property to which ss 58(1)(b) and 116(1)(a) refer. Accordingly, Mr Ambrose is not entitled to the relief he seeks in the proceedings with respect to the sum of $37,437.31 held in the Incentive Saver Account or the consequential relief. 78 That makes it unnecessary to consider the other defences of Mr Badcock. The formal order of the Court is that Mr Ambrose's application of 2 July 2021 is dismissed. I will hear from the parties with respect to costs. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice White.