Application for sale of property orders in bankruptcy

As mentioned in a previous article, upon the commencement of a bankruptcy, s 58(1) of the Bankruptcy Act 1966 (“the Act”) provides for the vesting of a bankrupt’s property in the trustee (subject to certain exclusions – s 116(2)).

It is common place, however, for a bankrupt to own real estate jointly with another person, such as their spouse (“the Co-Owner”). Ownership of this nature is commonly referred to as “Joint Tenancy” ownership.

In situations such as these, s 58 of the Act effects a severance of the Joint Tenancy, so that the respective interests of the bankrupt and the Co-Owner are instead held under a “Tenants in Common” ownership structure.

In Western Australia, before any realisations may take place, a bankruptcy trustee must secure legal title to a bankrupt’s interest in a property. In order for this to occur, a bankruptcy trustee must cause the property to be registered in their own name (s 234(1) of the Transfer of Land Act 1893 (WA)).

In circumstances where the realisation of a jointly owned property is likely to result in a return to the bankrupt estate, the bankruptcy trustee will, in the first instance, invite the Co-Owner to make an offer to purchase the bankruptcy trustee’s right, title and interest or to join in the sale of the property.

In the event that the Co-Owner is unable or unwilling to purchase the bankruptcy trustee’s interest and will not consent to a joint sale, the bankruptcy trustee has the option of seeking orders from the Court as to the partition of land for sale, pursuant to s 126(1) of the Property Law Act 1969 (WA).

This very matter was recently considered by the Federal Court of Australia in Dudley (Trustee) v Pope [2022] FCA 1110.

In this particular case, the bankruptcy trustee had, over the course of six years, corresponded ‘off and on’ with the bankrupt’s wife, who held a 50% interest in the property, in an effort to agree terms in which the bankrupt’s wife might buy out the bankruptcy trustee’s 50% interest (s 234 of the Transfer of Land Act 1893 (WA)) in the property or at least allow access to the property for a valuation to be conducted.

Despite six years of ‘off and on’ correspondence with the bankrupt’s wife, the bankruptcy trustee was unable to reach an agreement as to the sale of his 50% interest in the property to the bankrupt’s wife or the granting of access to the property for a third-party to undertake a formal valuation.

As such, following an application brought by the bankruptcy trustee, the Court ordered that, pursuant to s 19 and s 30(1)(b) of the Act and s 126(1) of the Property Law Act 1969 (WA):

a)  the bankruptcy trustee have the conduct of the sale and be authorised to instruct an agent and auctioneer for that purpose of the sale of the property;

b)  the bankruptcy trustee is to decide whether the property is to be sold by public auction or private treaty;

c)  the bankruptcy trustee is to decide whether or not to set a reserve price for any auction of the property and, if set, at what price;

d)  the bankruptcy trustee be empowered to sign any contract of sale, transfer of land and any other conveyancing documents on behalf of the bankrupt’s wife to give effect to the sale in the event that the bankrupt’s wife fails or refuses to sign these documents within such time as required by the bankruptcy trustee’s solicitors;

e)  the bankrupt and his wife do all such things as may be reasonably required by the bankruptcy trustee, his selling agent or solicitors for the purpose of achieving a sale of the property including providing access the property for the purposes of valuation and viewing by potential purchasers;

f)  the bankrupt and his wife have liberty to bid at the sale;

g)  the net proceeds of the sale of the property, after payment of what shall be due to any encumbrancer or encumbrancers according to their priorities and of all other proper costs, charges and expenses of the sale, be paid to the bankruptcy trustee and the bankrupt’s wife in equal shares;

h)  the bankrupt, his wife and any other natural person residing at the property to provide vacant possession together with all keys for the property to the bankruptcy trustee’s solicitors and to remove all tangible property on the property within 21 days of the orders.

Furthermore, the Court ordered that the bankrupt and his wife were to pay the bankruptcy trustee’s application costs.

The above case highlights the various powers which the Court may grant a bankruptcy trustee in instances where cooperation by a property co-owner is not forthcoming.

It must be stressed, however, that application to the Court for orders is often only considered by a bankruptcy trustee as a last resort, once all other property realisation avenues have been exhausted, due to the costs involved with such an undertaking.

Should you or your client have any queries relating to the treatment of property in bankruptcy or insolvency in general, please feel free to contact our office for assistance.