The appellant was an undischarged bankrupt when the application was lodged with the Tribunal and when the matter was heard by the Tribunal. The Tribunal determined that as a result the appellant did not have standing to commence the proceedings and does not have standing to continue the proceedings.
We agree. Accordingly, the appeal must be dismissed.
[2]
Consideration
This matter is perfectly straight forward. It is governed by the Bankruptcy Act 1966 (Cth) s 58 which is titled 'Vesting of property upon bankruptcy - general rule'. It is, relevantly, in the following terms:
(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.
…
(6) In this section, after-acquired property, in relation to a bankrupt, means 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.
The Bankruptcy Act, s 5 defines 'property' to mean:
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.
We note that s 116 of the Bankruptcy Act provides:
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
(b) the capacity to exercise, and to take proceedings for all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge.
is property divisible amongst the creditors of the bankrupt.
Further, s 60 of the Bankruptcy Act is relevantly as follows:
Stay of legal proceedings
(1) The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit:
(a) discharge an order made, whether before or after the commencement of this subsection, against the person or property of the debtor under any law relating to the imprisonment of fraudulent debtors and, in a case where the debtor is imprisoned or otherwise held in custody under such a law, discharge the debtor out of custody; or
(b) stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor:
(i) in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or
(ii) in consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt;
and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non-payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his or her refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody.
(2) An action commenced by a person who subsequently becomes a bankrupt-is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a) any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or
(b) the death of his or her spouse or de facto partner or of a member of his or her family.
(4A) Notwithstanding paragraph (1)(b), this section does not empower the Court to stay any proceedings under a proceeds of crime law.
(5) In this section, action means any civil proceeding, whether at law or in equity.
Faulkner v Bluett [1981] FCA 3 is authority for the proposition that property, as defined in s 5, includes the right to sue. Given that property divisible among the bankrupt's creditors includes the ability to commence legal proceedings, after a person is declared bankrupt that can only be done by his or her trustee since that right to sue is part of the property that vests in that trustee.
As found by the Tribunal below, and which is not disputed by the appellant on appeal, the appellant by a Certificate of Appointment of Trustee dated 22 August 2019 became a bankrupt with the appointment of two trustees by reason of the appellant being declared bankrupt on that date.
The application which commenced these proceedings was lodged on 28 January 2022. This means the proceedings were commenced after the appellant was declared bankrupt and whilst the appellant was an undischarged bankrupt.
The result of the appellant purporting to commence proceedings whilst an undischarged bankrupt is that she has in fact and in law no standing to commence the proceedings.
As the Tribunal below put it, with respect, correctly at [25] and [26]:
"25 Simply stated, where an applicant is not entitled to commence proceedings, they cannot be continued and, for that reason, they must be dismissed and that does not involve an exercise of federal jurisdiction. Support for that view is found in Meriton Apartments Pty Ltd v Industrial Commission of New South Wales [2008] FCA 172 in which it was observed that recognition of the effect of the Bankruptcy Act to determine the status of the proceedings or the standing of the parties does not amount to exercising federal jurisdiction.
26 As to the lack of standing to sue, the position was summarised as follows in Stone v Permanent Custodians Ltd [2016) WASCA 200 at [20):
'Once a person becomes a bankrupt, they are deprived of the right to bring or maintain an action in respect of the property that vests in the Official Trustee. During the period of their bankruptcy a bankrupt has no right to bring or prosecute proceedings to protect, enhance or add to the property which has been divested on bankruptcy.'"
The original application lodged on 28 January 2022 was filed against the respondent seeking various orders under the Strata Schemes Management Act 2015 (NSW). It is plain in our view that the claim under the Strata Scheme Management Act, including an action to remove a strata committee member from an owner's corporation, is inextricably connected to the appellant's property interest in the lot which upon bankruptcy vests in the appellant's trustees in bankruptcy.
As the Tribunal found below at [22], the right to sue in respect of a lot in a strata scheme is considered 'property' for the purposes of s 5 of the Bankruptcy Act which in turn vests in the appellant's trustees in bankruptcy pursuant to s 58 of the Bankruptcy Act.
The appellant's only submission in opposition to this proposition was to point to the exception in s 60(4) of the Bankruptcy Act to contend that the nature of the action was in respect of 'any personal injury or wrong done to the bankrupt'.
For the reasons we have explained above, we do not agree. Enforcing rights connected with a lot in a strata scheme constitutes property which vests in the appellant's trustees in bankruptcy.
For completeness, we note that the respondent submitted that the Federal Circuit Court (as it was then known) in Clark and Aravanis in their capacity as joint and several trustees of the property of Kimber v Owners Corporation SP48216 (No 2) [2021] FedCFamC2G 62 found the appellant ought retain a 25% interest in the net sales of lot 110 (the lot that forms part of the appellant's estate) pursuant to s 116(2)(g) of the Bankruptcy Act. According to the respondent, it follows that the appellant is a person who has an 'interest in a lot' for the purposes of s 226(1)(d) of the Strata Scheme Management Act 2015. The appellant sought to rely upon this submission.
In our view this decision does not contradict our conclusions. First, the orders were made by consent. Second, the trustees in bankruptcy were parties to the proceedings. Accordingly, the consent order that the appellant enjoys a 25% interest in the net proceeds of the sale of the subject lot was with the consent of the trustees in bankruptcy who were the applicants in the proceedings. Third, we do not agree with the Respondent's position. The order granted the Appellant an interest in the proceeds of sale of the property, not an interest in the property itself.
In our view, there is nothing in this decision which causes us to doubt that the proceedings and the appeal must be dismissed.
These conclusions of ours are enough to dispose of the appeal. However, we briefly touch upon some of the other issues that arose during the hearing as follows.
First, the appellant by her Notice of Appeal sought to raise three other grounds of appeal which did not touch upon the Tribunal's finding that the appellant had no standing to commence the proceedings as she was an undischarged bankrupt. As was pointed out to the appellant, these other grounds are not relevant to the central issue below which led to the application being dismissed - viz, that she was an undischarged bankrupt.
Accordingly, we do not need to comment further on these three grounds.
Secondly, it was contended by the appellant that she needed leave to extend the time in which she needs to lodge her Notice of Appeal. Given our view that the appeal has no prospects of success and ought to be dismissed, we decline to grant an extension of time.
Thirdly, the appellant complained at the hearing that the respondent served upon her a bundle of documents and submissions shortly before the hearing of the appeal and outside the time set for such documents to be served by the directions of the Appeal Panel.
Such documents were directed to grounds 1-3 of the appellant's Notice of Appeal. Accordingly, we decided not to receive the respondent's late material.
It is plain that the appellant was fully apprised from the decision below that the key issue upon which the Tribunal dismissed her application was because of her status as an undischarged bankrupt. She was given a fair opportunity to deal with this issue on appeal.
Finally, the respondent by his legal representative, Mr Radman, sought leave to appear for her. This was opposed by the appellant. We heard Mr Radman only for limited purposes including why he should be allowed leave to appear. Again, we decided, given the limited nature of the issues before us, that we did not need to hear from Mr Radman and, accordingly, declined to grant him leave to appear before us albeit he was permitted to attend the appeal and to listen to the proceedings. Any application to be legally represented should be made well before a hearing and not on the hearing day.
The Tribunal's guideline for Internal Appeals, dated June 2022, relevantly says:
"29. A party is not automatically entitled to be represented by another person on the hearing of an internal appeal. Leave will be required except where the party was entitled to be represented without leave at the original hearing.
30. A party to an appeal can ask the Appeal Panel to grant leave for a person to represent the party on the appeal at the first directions hearing or at any later time."
[3]
Orders
The orders of the Tribunal will be:
1. Application to extend time within which to file the Notice of Appeal is refused.
2. Leave to appeal is refused.
3. The appeal is dismissed.
[4]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
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Decision last updated: 21 July 2022