Application of s 60 of the Bankruptcy Act: Glover & Webster [2021] FedCFamC1A 69

The application of section 60 of the Bankruptcy Act 1966 has again sprung its head, this time in the Full Court’s decision in Glover & Webster [2021] FedCFamC1A 69.?Section 60 last notably appeared in the matter of Sloane & Sloane [2018] FamCA 610, where the Family Court (as it was then), considered the issue of whether the bankrupt party could continue its application in circumstances where, as the Applicant, a sequestration order was made during the course of the proceedings.?

In Glover, the elementary facts are as follows:

1.??????????????The parties lived together from about 2010 and separated in 2015;

2.??????????????On 1 July 2010 the parties entered into the BFA pursuant to?Pt VIIIAB?of the Act. The agreement was to “deal with the division of their property and financial resources and the maintenance in the event of the breakdown of their relationship”;

3.??????????????The issue of whether the financial agreement was binding was heard by a judge of the Federal Circuit Court in August 2018 and on 17 December 2018 the judge declared the financial agreement to be binding on the parties. Consequential orders were made that the parties file points of claim identifying which property is or is not said to be covered by the BFA;

4.???????????????On 9 July 2020, the primary judge ordered that there be a preliminary hearing on whether there is property in existence not covered by the BFA;

5.??????????????On 8 April 2021 a judge of the Family Court of Australia (now known as the Federal Circuit and Family Court of Australia (Division 1)) made a declaration that a Binding Financial Agreement (“the BFA”) entered into between Ms Glover (“the First Appellant”) and Mr Webster (“the first respondent”) on 1 July 2010, covered all the assets, liabilities, superannuation, financial interests and financial resources of them or each of them and, as a consequence there were no interests not covered by the terms of that financial agreement;

6.??????????????By a Notice of Appeal filed on 6 May 2021, the First Appellant appealed that declaration;

7.??????????????By mid-July 2021, so after the filing of the Notice of Appeal, the First Appellant had become bankrupt upon the making of a sequestration order;

8.??????????????On 13 August 2021, the appeal registrar wrote to the first appellant’s trustee in bankruptcy (“the Trustee”) enquiring as to his stance in relation to the appeal. That action was necessary having regard to?s 60?of the?Bankruptcy Act 1966;

9.??????????????Consistent with Sloane, Counsel for the first respondent reiterated his submissions made at the appeal hearing that the right to appeal vests with the Trustee, the Trustee has elected not to pursue the appeal and thus, the first appellant had no standing to prosecute the appeal;

10.???????????The First Appellant submitted that the Court can determine how much of the property will vest with the trustee and how much will vest with a bankrupt party and that the trustee has simply opted not to litigate on behalf of the trust himself, rather he left it open to the court to decide.?

The Appeal

The Full Court was asked to consider what is the bankrupt Appellant’s interest in the Order that is subject to the Appeal.?In consideration of this question, the court noted that the answer to this question “depends on the characterisation of the order from which this appeal is brought and the interest in that order (O’Neill v O’Neill and Ors [1998] FamCA 67; (1998) FLC 92-811 (“O’Neill”) at [64].”?

In this case, the Court noted that the Orders comprised of two categories:

1.??????????????First, those relating to the property of the bankrupt appellant husband, which vested in the trustee upon the making of the sequestration order, and

2.??????????????Secondly, those which related to a claim by the bankrupt appellant husband for property which would vest in the trustee if successful. The Full Court held that in these circumstances there was not the necessary interest to support the filing of the appeal.

The Court went on to make a number of further points in relation to the bankrupt Appellant's standing to bring the Appeal:

At paragraph 29:??????????“Where a person is made bankrupt, the effect of the order is that on one hand, all of the divisible property of the bankrupt vests in the Trustee and, on the other, the bankrupt’s creditors’ rights and remedies against him or her are converted into rights to prove in the bankruptcy.”

At paragraph 30:??????????“Fundamental to the bankrupt being relieved of both his property for the benefit of his creditors is that the bankrupt has no financial interest in an appeal such that he may continue it in his own name after being made bankrupt”.

Paragraph 33:??????????????“Whilst a bankrupt party can commence property settlement proceedings, in?Guirguis v Guirguis?[1997] FamCA 6;?(1997) FLC 92-726?(“Guirguis”), the Full Court accepted that a bankrupt party cannot appeal property orders where the subject of the orders vests or will vest in the trustee in bankruptcy, because the bankrupt lacks sufficient interest.” For completeness, in relation to Guirguis, the Court said at para. 34 of its decision that ,“The appeal there was against property settlement orders, with the appellant husband becoming bankrupt between the making of those orders and the filing of the Notice of Appeal, and was dismissed as the effect of the bankruptcy was to leave the appellant husband without the necessary interest to support the institution of an appeal in his own name.’

The Court in O'Neill followed Guirguis and Cummings v Claremont Petroleum?Pty Ltd?(1996) 185 CLR 124 at 138.

Conclusion

By way of conclusion, the Full Court noted that even if the Appellant were to be successful in their Appeal and the Full Court were to order a setting aside of the declaration made at first instance, there would need to be either a re-exercise of discretion or a re-hearing of whether there was property not covered by the Financial Agreement.?Accordingly, the court, in any case, would be required to make an order with respect to section 90SM (s79).?Given the bankrupt was undischarged from their bankruptcy, the Full Court (or Court on re-hearing) could not make orders in favour of the bankrupt given the operation of s 58 of the Bankruptcy Act, which says, to paraphrase, that ‘after-acquired property vests in the trustee’.?

Accordingly, the Appellant did not have standing to bring their appeal, and if the trustee were not to pursue the Appeal, the Appeal is dismissed.??