Gao v Official Trustee in Bankruptcy

REASONS FOR JUDGMENT 1 Yu Jing Zhu became bankrupt on 10 April 2002 pursuant to a debtor's petition presented to and accepted by the Official Trustee on that day. The respondent is the trustee of her bankrupt estate. The applicant claims to be an unsecured creditor of the bankrupt. The bankrupt is the registered proprietor of property at 168 Hansworth Street, Mulgrave. The Commonwealth Bank of Australia held a registered mortgage over the property. On 10 August 2002 the Bank as mortgagee in possession sold the property for $200,000. Settlement is due "on or before 9 October 2002". In this proceeding the applicant claims that the trustee has acted improperly in the administration of the estate. It is not necessary to particularise his complaints. 2 The applicant now seeks leave to add the Bank as a respondent. The basis of the application is the allegation that the Bank sold the property at an undervalue. The Bank sold as mortgagee in possession. It was a secured creditor and stands outside the bankruptcy. Section 58(1) of the Bankruptcy Act 1966 (Cth) ("the Act") provides that where a debtor becomes bankrupt, his or her property vests in the Official Trustee or a registered trustee. However, s 58(5) provides that "Nothing in this section affects the right of a secured creditor to realise or otherwise deal with his or her security". Thus the Bank was entitled, as it did, to sell the property. It required no permission from the trustee to do so, and the applicant's contention that the trustee wrongfully "transferred" to the Bank the trustee's power to sell the property, or "instructed" the Bank to sell it, is misconceived. The evidence is that in June 2002 a Bank officer advised Mr Bezemer (of the trustee's office) that the Bank had entered into possession of the property and expected to sell it at auction during July. Mr Bezemer denies that he ever instructed the Bank to sell. Further, the applicant lacks standing to claim that the sale was at an undervalue. The sale at $200,000 left nothing for the unsecured creditors. Had there been a sale for $250,000, as the applicant asserts there should have been, the surplus would have vested in the trustee. The trustee alone has standing to assert a sale at an undervalue, to the detriment of the unsecured creditors. The trustee has considered whether to make such a claim, and has decided not to. 3 Even if the applicant had standing, the proper forum in which to propound a case of sale by a mortgagee at an undervalue (see s 77(1) of the Transfer of Land Act 1958 (Vic)) is a State Court, where other matters between the Bank and the applicant in relation to the property have been and are being pursued. Unless associated with some other matter within this Court's jurisdiction, it could not entertain such a claim. 4 No case for the joinder of the Bank has been made out, and the motion must be dismissed with costs. It follows that the applicant's claim in his affidavit of 3 October 2002 that the Bank should be restrained from dealing with the Certificate of Title to the property must be rejected.