Rambaldi (The Trustees of the Estate of John Edward Atkinson, a Bankrupt) v Woodward

Supreme Court of NSW|2012-05-02|Before: Davies J

Judgment 1The Plaintiffs are trustees of the bankrupt estate of John Edward Atkinson. The Defendant and John Edward Atkinson were the co-owners of the property in Folio Identifier 2/301535 ("the Property"). 2By reason of the appointment of the trustees to Mr Atkinson's estate the trustees have now become the registered proprietors of his share of the Property. They seek the appointment of trustees for sale pursuant to s 66G Conveyancing Act 1919 and ancillary orders. 3The Defendant resists the appointment of trustees for sale chiefly on the basis that there is no equity in the Property by reason of a mortgage to Westpac Banking Group.

4The bankrupt and the Defendant purchased the Property on 28 August 1997 for $637,500. It appears to have been purchased with the assistance of funds from Westpac with the original loan being somewhere between $500,000 and $600,000. Four facilities from Westpac are secured over the Property. It appears that the Property must have been security for borrowings obtained after 1997 but not apparently since about 2006. Some of the facilities have been used to assist companies and business matters associated with the bankrupt. 5The Defendant is also the owner of a property at 12 Brodies Road, Golden Valley in Tasmania. The Plaintiffs assert that one of the Westpac facilities secured against the Property was utilised to purchase the Tasmanian property. 6The Property was purchased as the matrimonial home of the bankrupt and the Defendant. It appears that they separated about 4-5 years ago and the Property had not been occupied since about 2005. 7The current debt owing to Westpac is $1,644,026.62. 8There is also a caveat over the Property by BNY Trust (Australia) Registry Ltd pursuant to the terms of a business line of credit agreement dated 10 August 2005. I was informed that the amount outstanding to BNY Trust is $37,990.21. 9The estate of the bankrupt was sequestrated on 27 May 2010 when the present Plaintiffs were appointed trustees. 10On 25 January 2011 the trustees wrote to the Defendant saying that it had come to their attention that she had recently moved back into the Property although without the trustees' consent. The trustees said they wanted to take appropriate steps to realise the Property for the relevant creditors of the estate. They had obtained a market appraisal of the Property from a real estate agent in June 2010 and were advised that the Property was estimated to have a market value of approximately $1.7 million. They wanted to obtain a sworn valuation of the Property and requested access for that purpose. 11The trustees set out a calculation of what, on the real estate appraisal they had obtained, would be the equity in the Property taking into account also the value of the Tasmanian property: Market value of the Property as at 29/06/10 (est)1,700,000 Market value of the Tasmanian property as at 19/10/10 (est) 380,000 Total value of properties 2,080,000 Less: Loan facilities owed to Westpac as at 25/01/11 (1,769,498) Less: Selling costs (est of 3%) ( 51,000) Net equity in properties 259,502 50% Total Equitable Claim 129,751 12The trustees then put two options to the Defendant with regard to the Property. The first was that she could pay them 50% of the equity in accordance with the calculation. Alternatively, she could join with them in a sale of the Property with the Defendant to pay half the costs of the sale, and she must also pay 50% of the market value of the rent from 8 February 2011 to the date of settlement. 13A full valuation was then undertaken by WBP Property Group for the trustees but they were not prepared to allow the Defendant to have a copy of the valuation unless she paid half the cost of it. That half share of the cost was $600. The Defendant was not prepared to do that. 14The valuation assessed the market value of the Property at $1,250,000. 15The valuation by WBP Property Group noted that the Property had been offered for sale on 28 March 2004 with an asking price of $1.6 million. It also noted that the most recent listing was 26 February 2005 with an asking price of $1,450,000 with no sale achieved. 16The valuation also noted that the rear yard of the Property was affected by a substantial unregistered storm water easement bisecting the yard and cutting across the rear north-eastern corner of the home exiting on the eastern side boundary. It said the affected area exhibited a noticeable depression with boundaries to either side of the Property retained or built up increasing the channelling of overflow waters to the subject property. 17On 22 August 2011 the trustees arranged for Raine & Horne Commercial to conduct a kerbside appraisal of the Property. The appraisal opinion was in a range of $1,750,000 and $1,950,000. The document also assessed the marketing costs between $9,500 and $11,000 and quoted a commission rate on any sale of 2.2% including GST. 18The trustees commenced the present proceedings by Summons on 23 December 2011. No explanation was provided for the delay between their appointment and the commencement of proceedings, nor particularly for the period from the time they obtained the valuation until the Summons was filed. 19It appears that the Westpac mortgage had fallen into arrears at some time before the Defendant moved back into the Property. However, she brought those arrears up to date and continued to pay the instalments under the facilities until she was served with the Summons in the present proceedings. The position is that no monies have been paid to Westpac since that time but it does not appear that a s 57(2)(b) Notice has been served by Westpac, nor does it appear that any proceedings have been commenced by it for possession of the Property.

20In the Summons the trustees sought that they be appointed the trustees for sale pursuant to s 66G, that the Property be vested in them, and that the proceeds of sale following deduction for commission and expenses of sale including legal expenses be distributed equally between the Defendant and the trustees as trustees of the bankrupt estate of John Edward Atkinson. 21In an Amended Summons filed on the morning of the hearing without opposition from the Defendant the trustees sought an order for possession of the Property and for leave to issue a writ of possession nor earlier than 28 days after they are registered as proprietors in their capacity as trustees for sale. They also sought an order that they be authorised to charge remuneration at the usual professional rates for service as trustees for sale such remuneration not to exceed $15,000, and that they be authorised to deduct such remuneration from the proceeds of sale of the Property. 22The Defendant submitted that the Plaintiffs should not be appointed the trustees for sale because they had powers and obligations as bankruptcy trustees that differed from their powers and obligations as trustees for sale, that the Plaintiffs were only entitled as bankruptcy trustees to sell assets and that by reason of the extent of the Westpac mortgage (and the BNY indebtedness) there was no asset constituted by the Property, and that contrary to cl 2.8 of Schedule 4A of the Bankruptcy Regulations the bankruptcy trustees were not permitted to realise the Property because such realisation would not give a cost effective return to creditors. 23The Defendant's principal submission was that the evidence showed without any real doubt that there would be no equity left in the Property after sale. She said that the only matters suggesting otherwise was the kerbside valuation of Raine & Horne. She said it was clear that Raine and Horne did not know of the difficulties with such matters as the easement traversing the back of the Property, nor could they have any idea what the place was like inside. 24She submitted that even if Raine and Horne's bottom figure was correct there would still be no equity in the Property for the following reasons. The amount owing to Westpac was $1,644,026.62; the amount owing to BNY was $37,919.21; on Raine and Horne's own assessment marketing costs would be between $9,500 and $11,000; the commission on $1.75 million of 2.2% was $38,500; the trustees were seeking remuneration up to $15,000; the ongoing default to Westpac meant that $10,000 a month was accruing and that a minimum of three months would be necessary before settlement of any sale. These amounts totalled $1,774.945.83. 25The Defendant submitted, therefore, that there was no point in the Property being sold and that for the trustees to do so would be contrary to duties they had under s 19 Bankruptcy Act 1966 (Cth), provisions in the Bankruptcy Regulations 1996 and in Practice Direction No. 14 issued by the Inspector General. Essentially, those provisions are all said to concern the cost effectiveness and reasonableness of taking particular actions. 26Section 19 of the Bankruptcy Act relevantly provides: 19 Duties etc. of trustee (1)The duties of the trustee of the estate of a bankrupt include the following: ... (b)determining whether the estate includes property that can be realised to pay a dividend to creditors; ... (f)taking appropriate steps to recover property for the benefit of the estate; ... (j)administering the estate as efficiently as possible by avoiding unnecessary expense; (k)exercising powers and performing functions in a commercially sound way. The Defendant drew attention in particular to paragraphs (b), (j) and (k). 27Schedule 4A of the Bankruptcy Regulations concerns performance standards for trustees. The Defendant pointed particularly to clauses 2.8; 2.10, 2.11 and 2.14 which relevantly provide: 2.8.Realising assets The trustee must realise only those assets: (a)that will give a cost-effective return to creditors; ... 2.10.Obtaining advice about interest or value If the value of divisible property is likely to have a material impact on the administration, the trustee must obtain advice from an independent expert in assessing: (a)the extent of the trustee's interest in any realisable asset; and (b)the value of the property or offers for the property. 2.11.Disposal of property The trustee must act independently and impartially in undertaking transactions and dealings relating to the disposal of the property of a bankrupt, debtor or deceased person. ... 2.13.Costs incurred to be necessary and reasonable In conducting an administration, the trustee must: (a)incur only those costs that are necessary and reasonable; and (b)before deciding whether it is appropriate to incur a cost, compare the amount of the cost likely to be incurred with the value and complexity of the administration. 28The Defendant also pointed to clauses 67 and 68 of the Practice Direction No. 14 issued by the Inspector-General which relevantly provide: 67.A trustee must act independently and impartially in undertaking transactions and dealings relating to the disposal of the property of a bankrupt, debtor or deceased person and when claiming assets must act reasonably and claim only the amount that fairly represents the interest in, or value of, the asset. 68.A trustee must realise only those divisible assets (a)that will give a cost-effective return to creditors; or (b)that contribute to the payment of the costs of the administration; or (c)that may be realised in accordance with a personal insolvency agreement. 38 and in doing so needs to maximise the return both to creditors, maximise any possible surplus to the bankrupt and demonstrate fairness. 29The Defendant pointed also to the fact that s 66G(1) imparts a discretion to the Court because it says "The Court may ... appoint trustees".

30Generally, a co-owner of a property is entitled to an order under s 66G as an incident of co-ownership: Re Fettell (1952) 52 SR (NSW) 221. The entitlement to an order is "almost as of right": Callahan v O'Neill [2002] NSWSC 877 at [8]. Although the word "may" in the section imports a discretion, the discretion is a limited one: Ngatoa v Ford (1990) 19 NSWLR 72 at 77. The cases are otherwise conveniently summarised in the judgment of Black J in Scott Darren Pascoe as Trustee of the Property of Arthur Linden Dyason, a Bankrupt v Lindsey Jane Dyason [2011] NSWSC 1217 at [5]-[8]. 31The Defendant accepted, as the cases show, that there is no general discretion to refuse an application on the grounds of hardship or unfairness.

32In Pascoe v Dyason one of the bases upon which the order was opposed was that the subject property had no equity available to the trustee by reason of an incumbrance upon it. The proceedings in that case were heard on 23 September 2011. Black J said this: [10]... However, the proposition that there is no equity in the property available to the Plaintiffs is not established on the evidence before me. There is no evidence before me as to the current value of the property although it was valued on 23 September 2008 at $435,000 and on a forced sale valued at $370,000, the figure adopted in the Defence filed by the Defendants. There is also no evidence before me as to the terms of any agreement between the Defendants and IIB Global as to the repayment of the amount secured by such a mortgage or as to any obligation to pay interest on it or the amount of any such interest. [11]There is also real uncertainty as to the status of such a mortgage, since, prior to the purported transfer of the mortgage by PTAL to IIB Global on 9 May 2008, a discharge of that mortgage had already been executed by PTAL and lodged for registration. It is, however, not necessary for me to reach any finding as to that matter, since the absence of evidence as to the current value of the property on the one hand and any amount due to IIB Global on the other means that I could not in any event conclude that there is no equity available to the Plaintiffs on a sale of the property. Moreover, even if the possibility or probability that a sale of the property would not realise value for the Plaintiffs were established, I do not consider that this would provide a basis for declining to appoint trustees for sale on a co-owners' application under s 66G of the Conveyancing Act on the basis of the principles to which I have referred above. 33The Defendant relied particularly on Black J's determination that the evidence before him did not enable him to conclude that there was no equity in the property. However, I respectfully consider that his Honour was correct in observing that even if the possibility or probability that a sale of the property would not realise value for the Plaintiffs were established that would not provide a basis for declining to appoint Trustees for Sale under s 66G. One very good reason for the correctness of that statement must be that the best indication of the value of a parcel of real property would ordinarily be what sale price is achieved after proper marketing of the property. It does not seem appropriate to foreclose the issue of whether there is any equity in the Property by not appointing the trustees for sale and thereby precluding the best way of determining the value of the Property and whether there is equity in it. 34The Defendant suggested that there was no possibility on the evidence (cf Pascoe v Dyason) that a sale of the Property could be achieved for a figure that would produce any surplus by way of equity for her and the estate of the bankrupt. However, the only sworn valuation was obtained more than 14 months ago and there is some, albeit weak, evidence from the kerbside appraisal that the Property might produce an amount which would result in a surplus. Further, the property in Tasmania has not, apparently, been sold, 35The Defendant submitted that the bankruptcy trustees are only entitled to sell assets and, by reason of the encumbrances on the Property with no resulting equity for the registered proprietors, the Property is not an asset. Nothing in the Bankruptcy Act or the Regulations speaks of the trustees only being entitled to dispose of "assets". In any event, whether or not there is a liability on the Property does not mean that it is not an asset as properly understood. Section 19(1) includes amongst the duties it requires of the trustee: (f)taking appropriate steps to recover property for the benefit of the estate; 36The Defendant submitted that Clause 2.8 only entitles the bankruptcy trustee to realise assets "that will give a cost-effective return to creditors". She submitted that by reason of the amounts owing on the Property there would be no cost-effective return to creditors. 37In the first place, the argument depends upon an acceptance of the proposition that the Property will sell with no surplus being available. For the reasons I have given that proposition cannot be accepted. 38More significantly, the mere fact that a surplus may not result from a sale does not mean that the sale of the Property will not give a cost-effective return to creditors nor (in terms of s 19(f)) that it will not be for the benefit of the estate. The sale of the Property will result in Westpac, and perhaps BNY Trust, being repaid some or all of the amounts owing to them. Since there are personal covenants in the mortgages, and both the Defendant and the Bankrupt had personal liabilities under the various facilities, the sum total owing to creditors of the estate will be reduced by whatever amounts are repaid from the sale of the Property. The result will be that creditors will receive a higher dividend out of the estate. 39Certainly there will be expenses associated with the sale, but those expenses will be considerably less than any amounts which will be paid to the secured creditors, thereby reducing the overall sum in respect of which a dividend must be paid from the bankrupt estate. In that way, it cannot be said that there will not be a cost-effective return to creditors from the sale of the Property. 40The Defendant also submitted that it would be inappropriate to appoint the bankruptcy trustees as the trustees for sale because they will incur costs, up to a cap of $15,000, in respect of the sale. The Defendant asked that she be appointed the trustee for sale because she would be able to effect a sale without those costs. 41I note in that regard that this was an application made only during the course of, and at the conclusion of, addresses at the hearing of the proceedings. No cross-claim had been filed seeking such an order. There are no affidavits of fitness about the Defendant. 42In the first place, it is appropriate that the bankruptcy trustees should be appointed the trustees for sale. There is clearly a cost saving compared with the appointment of outside trustees for that purpose. Secondly, if other trustees were appointed, including the Defendant, that would not result in no costs on the part of the trustees because they would be obliged to have an involvement in relation to the sale to fulfil their duties under the Bankruptcy Act. Thirdly, the proposed cap on their costs results in an added expense which is very small relative to the likely sale price of the Property.

Conclusion 43 No reason has been shown that the limited discretion contained in the section should be exercised in favour of the Defendant. The evidence satisfies me of the fitness of the trustees and their consent to be appointed. 44I consider it appropriate that the trustees for sale should be entitled to have their reasonable costs associated with the sale paid out of the proceeds of sale. The Plaintiffs have offered to cap their fees in the sum of $15,000. That should not be regarded as an indication that that is or may be an appropriate amount for them to charge for their work associated with the sale. Although the scale of fees chargeable by the trustees' firm has been put into evidence there is no other evidence, apart from the trustees' assertion, that those fees are reasonable or in line with the fees charged by other firms engaged in insolvency work. I do not consider that I should authorise the trustees to charge for work at their own rates in the absence of the agreement of the Defendant. To do so would be to remove her right to seek any review of those costs to which she is or might be entitled. 45The trustees seek possession of the Property on the basis that the best price will be obtained for a property in respect of which vacant possession can be given. In my opinion an order for possession should be made. No arguments were addressed to me concerning when this should take place, although the trustees seek that it should be no earlier than 28 days after the date on which they are registered as proprietors in their capacity as trustees for sale. 46I will hear the parties on the issues of when possession should be given and on costs. 47There were faint suggestions made during the course of argument that, in the event there was a surplus on sale, each side may claim an entitlement from the other - the Plaintiffs against the Defendant for an occupation fee, and the Defendant against the Plaintiffs on the basis that she has paid all the outgoings on the Property including the mortgage since she went back into occupation. No claim has been made by either party and there is no evidence concerning these matters. Both parties agreed that the better course was to await the outcome of any sale that might be ordered to see if there was any practical purpose in making such claims. Given the relatively small amounts that will be involved it is to be hoped those matters could be resolved without further litigation. Nevertheless, the proceedings will remain on foot to enable such claims to be made. 48In the meantime I make the following orders: 1.Order that Messrs Gess Michael Rambaldi and Andrew Reginald Yeo trustees (Trustees) both care of Pitcher Partners, Level 19, 15 William Street, Melbourne be appointed trustees of the land described as Folio Identifier 2/301535) (the Property). 2.Order that the Property be vested in the Trustees subject to any incumbrances affecting the entirety of the Property but free from incumbrances, if any, affecting any undivided share or shares in the Property to be held by the Trustees upon the statutory trust for sale under Division 6 of Part IV of the Conveyancing Act 1919. 3Order that the proceeds of sale of the Property (following the deduction of the commission and other expenses of the real estate agent, the legal expenses of the Trustees in respect of the sale, the legal expenses of transferring the Property to the purchaser and the costs payable to the Trustees pursuant to Order 4 hereof) be distributed equally to Ms Kim Cherie Woodward and Messrs Gess Michael Rambaldi and Andrew Reginald Yeo jointly as trustees of the estate of John Edward Atkinson, a bankrupt. 4.Order that the trustees are entitled to charge for all reasonable costs and disbursements incurred by them arising from the duty imposed upon them pursuant to these orders up to an amount of $15,000, such costs and disbursements to be deducted from the proceeds of sale.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 May 2012

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