Hanshaw v NAB [2012] NSWCA 100

The borrower fought a tough rearguard action against possession proceedings commenced in November 2009.
 
This included an approach to the bank’s External Dispute Resolution provider, Financial Ombudsmen’s Service which, according the judge, “put the proceedings to sleep” for five months. During the FOS episode the borrower was bankrupted by another creditor and a trustee appointed. The trustee did nothing on the excuse the borrower had not filed a statement of affairs with him.  

Default judgment was ultimately entered by the bank in January 2011 and on seven occasions, it consented to a stay of eviction. Finally in March 2012 the bank refused to consent to a further stay.

The borrower then sought a stay from the court on the ground that the judgement against her ought to be set aside owing to her being bankrupt at the time it was entered.

s132 of the Bankruptcy Act 1966 (Cth) provides:

Where a trustee is appointed the property of the bankrupt passes to and vests in the trustee without any conveyance, assignment or transfer. However where a law of the State requires the transmission of property to be registered, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not vest in the trustee at law until the requirements of that law have been complied with.

Accordingly the judge commented:

When the borrower was made bankrupt the proceedings for debt were stayed and the equitable title to the borrower equity of redemption passed to her trustee in bankruptcy. Until the trustee applied to be registered as proprietor, the mortgagor’s legal title remained in the borrower.

s58(3) provides that once a debtor becomes bankrupt, a creditor may not:

  • to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
  • except with the leave, commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

However s58(5) provides nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.

Accordingly the judge commented:

The plaintiff is seeking to enforce a remedy, namely the alleged right to possession, which is a dealing with his security within the meaning of s 58(5). Section 58(5) should be construed relatively liberally and it is most common for mortgagees to obtain possession before sale so as to secure a larger sale price. Accordingly, I find that the NAB was entitled to sign judgment for possession.

However, I have reservations as to whether signing of the default judgment for debt is within s 58(5). I consider that an action in debt is not an action dealing with the security.

Thus it would seem it is not appropriate to obtain default judgement for a monetary sum–only for possession.

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