NAB v State of New South Wales [2009] FCA 1066

In this case the borrowers went bankrupt and the trustee in bankruptcy executed a disclaimer of the bankrupts’ property in their land pursuant to s 133 of the Bankruptcy Act. The Registrar-General considered that the land escheated to the Crown and recorded the State of New South Wales as proprietor in borrower’s place. The question for the Court was how is NAB to release its security?

The obligations to pay the amounts secured by the mortgagee were personal to the bankrupts. Thus, the State, as the present registered proprietor of the land could not be given a notice under s 57(2)(b). This is because the State has no obligation under the mortgage even though its estate or interest is subject to the mortgage. The situation would be reverse of NAB did not use All Monies Mortgages. This is yet another black mark against the use of these mortgages.

Ultimately the court decided that the bank was entitled to be granted a vesting order under s 133(9) so the bank could sell the property to recover its debt. The bank was ordered to account to the trustee in bankruptcy for any surplus and report to the Registrar General and the State on how the money was accounted for.

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