By a Statement of Claim filed on 19 January 2016, Stacks Managed Investments Ltd seeks orders pursuant to s 568F of the Corporations Act 2001 (Cth) for the vesting in it of a property in Kenneth Road, Manly Vale ("the property").
The registered proprietor of the property is T D Preece & Co Pty Ltd. That company was deregistered in June 2013.
In December 2009 the company gave a mortgage over the property to the plaintiff to secure repayment of an advance of $2.34 million. The advance was repayable on 1 January 2011. That did not occur.
On 16 February 2011, Mr Mark Roufeil was appointed as liquidator of the company. On 6 July 2011 the liquidator disclaimed the property pursuant to s 568 of the Corporations Act. Notice of the disclaimer was given pursuant to s 568A of that Act. It appears that there has been no challenge to the disclaimer.
Section 568F of the Corporations Act relevantly provides:
1. The Court may order that disclaimed property vest in, or be delivered to:
1. a person entitled to the property; or
2. a person in or to whom it seems to the Court appropriate that the property be vested or delivered; or
3. a person as trustee for a person of a kind referred to in paragraph (a) or (b).
1. The Court may make an order under subsection (1):
1. on the application of a person who claims an interest in the property, or is under a liability in respect of the property that this Act has not discharged; and
2. after hearing such persons as it thinks appropriate.
The plaintiff, who claims an interest in the property as a mortgagee, has named the State of New South Wales as first defendant and Mr Glenn Preece as second defendant. Mr Preece is a former director of the company, a guarantor of the company's obligations under the mortgage, and a current occupier of the property. The State of New South Wales has filed a submitting appearance, save as to costs. Mr Preece, who is an undischarged bankrupt, filed a defence and opposes the relief sought by the plaintiff. Mr Preece has only been joined to the proceedings because he is in occupation of the property. The plaintiff seeks only consequential relief against him in the nature of an order for possession if the plaintiff is otherwise successful.
The plaintiff has also given notice of the proceedings to the Australian Government Solicitor, as solicitors for the Commonwealth. The Australian Government Solicitor has indicated that the Commonwealth will not be intervening in the matter.
A second mortgagee, RTS Super Pty Ltd, has also been made aware of the proceedings. It consents to the orders sought by the plaintiff.
Both the first mortgage and the second mortgage to which I have referred are registered on the title.
Section 568D(1) of the Corporations Act provides:
1. A disclaimer is taken to have terminated, as from the day on which it is taken because of subsection 568C(3) to take effect, the company's rights, interests, liabilities and property in or in respect of the disclaimer property, but does not affect any other person's rights or liabilities except so far as necessary in order to release the company and its property from liability.
The company's rights, interests, liabilities and property in or in respect of the property were thus terminated when the disclaimer took effect. The plaintiff's rights in respect of the property were not affected, save so far as necessary to release the company from liability. In this situation, an escheat to the Crown occurs, but the Crown takes subject to any mortgages or charges (see Re Middle Harbour Investments Ltd [1977] 2 NSWLR 652 at 662; Re Tulloch Ltd (1978) 8 ACLR 808 at 813; Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (1998) 45 NSWLR 556 at 564). In Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (supra) Bryson J stated (at 564):
"The view that the Crown takes on escheat, subject to existing charges, was also expressed in Re Middle Harbour Investments Ltd at (664) by Bowen CJ in Equity and in Re Tulloch by Needham J at (813). It is established in the modern law that it is only the interest of the fee simple owner which goes out of existence on an escheat, charges over land do not go out of existence and the land reverts to the Crown subject to those charges. This operates in the same way for land under the Real Property Act as for land under the general law."
See also National Australia Bank Ltd v New South Wales [2009] FCA 1066 at [22]; Muir v Mid Murray Fire Protection Pty Ltd [2014] VSC 547 at [14]; and Australia and New Zealand Banking Group Ltd v Fairfield City Council [2016] NSWSC 668 at [33].
As pointed out by Rares J in National Australia Bank Ltd v New South Wales (supra) at [24], in the context of property disclaimed pursuant to s 133 of the Bankruptcy Act 1966 (Cth), the escheat that arises by force of disclaimer is not absolute, given the existence of legislative provisions (such as s 133(9) of the Bankruptcy Act and s 568F of the Corporations Act) that empower courts to make vesting orders.
Section 568F enables the Court to make a vesting order in respect of disclaimed property in favour of a person entitled to the property or a person to whom it seems to the Court appropriate that the property be vested.
In my opinion the plaintiff is a person in whom it is appropriate that the disclaimed property be vested. The plaintiff is the first registered mortgagee of the property. The amount owing under the mortgage is, as of 1 September 2016, $3,092,275. A further amount of $1,234,452.12 is owing under the second registered mortgage. The evidence suggests that it is questionable whether the property would realise sufficient money upon sale to cover those amounts.
The orders sought by the plaintiff include an order which effectively requires the plaintiff, upon vesting, to only deal with the property pursuant to its powers as mortgagee, and upon any sale of the property to retain the amount owed to it, provide an account and pay any surplus into Court. It seems to me that such an order is appropriate in the circumstances. As Rares J put it in National Australia Bank Ltd v New South Wales (supra) at [29], the land should be vested in the mortgagee "for the purpose for which it was originally mortgaged, namely to secure payment of all principal, interest and other moneys due to it notwithstanding the effect of the disclaimer".
Mr Preece, who appeared for himself upon the hearing of the application, (which proceeded following the rejection of an application for an adjournment made by counsel on his behalf), filed a Defence to the Statement of Claim on 28 April 2016. Mr Preece was given an opportunity to put submissions to the Court in relation to the matters raised in that Defence, but Mr Preece stated that he was not in a position to do so.
Nevertheless, I have considered the matters raised by Mr Preece in his Defence. First, insofar as it is said that the Commonwealth should be a party to the proceedings, I consider that such joinder is not necessary in circumstances where notice of the proceedings has been given, the Commonwealth has indicated that it does not want to intervene, and in any event any rights in the Commonwealth would be subject to the two mortgages on the title. I also note that on the current state of the authorities, the prevailing view seems to be that on an escheat following disclaimer, the relevant property goes to the Crown in right of the State where the land is situated, rather than the Crown in right of the Commonwealth (see National Australia Bank Ltd v New South Wales (supra) at [25] and [28]; Australia and New Zealand Banking Group Ltd v Fairfield City Council (supra) at [34]).
Secondly, even if a variation to the mortgage in 2012 (which purported to extend the term to 1 July 2012) was of no effect, the plaintiff's mortgage remains in force and the company was in default at the time of the disclaimer.
Thirdly, the fact that the company is now deregistered does not seem to me to be relevant to the question that arises under s 568F of the Corporations Act.
Fourthly, it is not the case that simply because Mr Preece is an undischarged bankrupt, no proceeding can be taken against him without the leave of a court exercising jurisdiction in bankruptcy (cf s 60 of the Bankruptcy Act).
Fifthly, there is no substance in the complaint that the plaintiff has failed to comply with s 92 of the Conveyancing Act 1919 (NSW). That section would only operate if, after expiry of the term of the mortgage, the mortgagor observed all the covenants in the mortgage other than the payment of the principal sum. The evidence shows that not to be the case.
I further doubt that these proceedings can be said to fall within the purview of s 92. They are not proceedings against the mortgagor, which is the party intended to have the protection afforded by s 92. The mortgagor's interest in the property came to an end upon the taking effect of the liquidator's disclaimer. In these circumstances, the seeking of orders which, after the vesting of the property in the plaintiff, would enable the plaintiff to exercise powers as mortgagee (including a power of sale), does not seem to me to be a proceeding of a type intended to be caught by s 92 of the Conveyancing Act.
For the reasons given above, it seems to me appropriate for orders to be made substantially as sought by the plaintiff in the Statement of Claim.
Mr Young SC has indicated that the plaintiff would have no objection to including Mr Preece as one of the persons to whom an account be given after settlement of any sale of the property, and that an amendment to order 2 (c) to that effect could be made. I think that amendment is appropriate. The Court will make orders 1 and 2 (as so amended) as sought in the Statement of Claim.
An order should also be made for Mr Preece to yield possession of the property to the plaintiff. I will give Mr Preece until 26 October 2016, which is five weeks from today, to vacate the property. I grant leave to the plaintiff to have a writ of possession issued. I direct that such writ not be executed prior to 27 October, 2016.
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Decision last updated: 22 September 2016