Bankrupt Estate of Atkinson v Woodward [2012] NSWSC 434

A husband and wife co-owned a property. The husband became bankrupt and bankruptcy trustees were appointed to his share. The bankruptcy trustees sought orders for the sale pursuant to section 66G Conveyancing Act 1919. The wife resisted on the basis that there was no equity in the property because it was mortgaged to the bank. The trustees disagreed.

The law
Generally, a co-owner of a property is entitled to an order under s66G as an incident of co-ownership. The entitlement to an order is “almost as of right”. Although the word “may” in the section imports a discretion, the discretion is a limited one. There is no general discretion to refuse an application on the grounds of hardship or unfairness. Even the possibility or probability that a sale of the property will not realise value does not provide a basis for declining to appoint a trustee for sale under s66G since the best way of determining the value of property and whether there is equity in it, is to sell it.

The court rejected the notion that a property encumbered means that it is not an asset for the purposes of the Bankruptcy Act. The court also found that 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 section 19(f) of the Bankruptcy Act) that it will not be for the benefit of the estate.

The court found that the sale of the property would result in the bank being repaid some or all of the amounts owing to them. Since there are personal covenants in the mortgages, and both the husband and wife have 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. The result will be that creditors will receive a higher dividend out of the estate. It cannot be said that there will not be a cost-effective return to creditors from the sale of the Property.

The cost also found a clear cost saving appointing the bankruptcy trustees for the sale  compared to appointing outside trustees for that purpose. Secondly, if other trustees were appointed, including the wife, 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 the bankruptcy trustees’ costs results in a very small added expense relative to the likely sale price of the property.

The court granted the bankruptcy trustees a section 66G order that the property be vested in them to be held upon statutory trust for sale; that the proceeds of sale be distributed equally between the wife and the trustees and that the trustees were entitled to charge all reasonable costs incurred by them, up to the cap agreed.

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