Tick-tock: Timeframes for Realising Property in Bankruptcy

Tick-tock: Timeframes for Realising Property in Bankruptcy
Posted on 25 May 2020

The property of the bankrupt (including real property) vests in the Trustee from the date a debtor becomes bankrupt, being either the date a sequestration order is entered or the date a debtor’s petition is accepted by the Official Trustee.  Any property acquired after the date of bankruptcy vests as soon as it is acquired by the bankrupt.

Revesting of property of discharged bankrupts

Section 129AA of the Bankruptcy Act 1966 (“the Act”) deals with time limits for realisation of property (other than cash) that was either disclosed in the bankrupt’s statement of affairs, or after-acquired property that is disclosed in writing to the trustee within 14 days of the bankrupt acquiring it.  Such property revests in the bankrupt as follows:

  1. For property disclosed in the bankrupt’s statement of affairs – 6 years after the date the bankrupt is discharged;
  2. For after-acquired property disclosed before the bankrupt is discharged - 6 years after the date the bankrupt is discharged; and
  3. For after-acquired property disclosed after the bankrupt is discharged – 6 years after the bankrupt disclosed the property to the trustee.

The exception to the above is if the trustee gives written notice prior to the time for revesting, stating that a later revesting time applies to a particular property. The time specified in such a notice must be either no more than 3 years after the existing revesting time, or a time that is relevant to a specific event (but not more than 3 years after that event).

Revesting of property of discharged bankrupts

Section 127(1) of the Act outlines that a Trustee in Bankruptcy shall make no claim to any property of the bankrupt, after a period of 20 years from the date on which a person became a bankrupt. The section further goes on to state that property is deemed to be vested in the bankrupt after the 20-year period has expired (to the extent that no third party holds a claim over that property).

While section 127(1) has been considered by the Court in minimal case law, the matter of Madden v Official Trustee in Bankruptcy [2014] FCA 446 (“Madden”) considers the section in reasonable detail. In Madden, Mr Madden sought a declaration from the Court that real property which was acquired by him via a resulting trust after the date of discharge from his bankruptcy, revested in him pursuant to section 127(1) of the Bankruptcy Act. 

The issues considered by His Honour included:

  1. whether it was necessary for the Trustee to make a "claim" over the interest in order to perfect his title to it; and
  2. if so, whether the second limb of section 127(1) operates so that Mr Madden's interest in the property "revests" in him. 

In relation to point one, His Honour considered that the Trustee did in fact need to make a claim to Mr Madden's interest in order to perfect the Trustee’s interest. His Honour referred to the matter of Re Quirk (1968) ALR 53 in this regard, which considers a claim in the sense of a “demand” for something that is due. He further outlined the position that after 20 years the Trustee shall not be able to obtain a proprietary interest in land, however once the Trustee has perfected his interest (for example by registering his interest on title), he is not obliged to turn it into money within the 20-year period or else lose the benefit.  

An important distinction to note here is that section 127(1) does not operate so as the Trustee will “have” no claim to the property, only that the Trustee does not have a right to “make” a claim to that interest.  

As the Trustee’s interest had not been registered on title within the 20 year period, and His Honour deemed that the Trustee shall have no right to make a claim to the property, orders were made that Mr Madden’s interest in the real property revested in Mr Madden pursuant to section 127 subject to the rights of any other third party persons.

At this point you may be wondering, surely a failure to disclose the property renders section 127(1) moot? The Madden case considered this point; however, this was not held to affect the application of section 127(1) and instead the Trustee was left to the relevant remedies pursuant to the Bankruptcy Act for non-disclosure. 

 

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