Judge Forbes clarified in Odrzywolska (Trustee) v Rozmaric, in the matter of Vidmar (Bankrupt)[1], that the beneficial interest in a deceased estate and a right to indemnity of an executor who is bankrupt vests in the bankruptcy trustee in the case of bankruptcy of the executor
Background
Ms Vidmar (the Bankrupt) was the executor and residuary beneficiary of her mother’s will.
Odrywolska (Trustee) was the trustee of the bankrupt estate of Ms Vidmar.
The respondents were Ms Rozmaric, sister of the bankrupt and Karl, nephew of the bankrupt, respectively (together, the Respondents).
The principal asset of the deceased’s estate was a property in Richmond. The Bankrupt later became the sole registered proprietor of the property in her capacity as executor of her mother’s will. The property was rented out by the Bankrupt.
After a previous tenant vacated the property, the Respondents subsequently moved in without the Bankrupt’s consent.
The Respondents never paid rent, outgoings, utilities, Owners Corporation fees or maintained the property. These debts accrued against the Bankrupt in her capacity as executor and contributed to her bankruptcy.
The Bankrupt and the Respondents agreed for the sale of the property. The Trustee received an appraisal of between $450,000 to $490,000.
The Respondents’ continued occupation prevented inspections, marketing, and overall deteriorated the value of the Property.
A subsequent appraisal valued the Property at $375,000, or $425,000 if sold with vacant possession.
The Trustee asserted an interest in the Property insofar as the Bankrupt has a right to be indemnified for the costs incurred as executor while administering the deceased estate.
The Trustee sought orders from the court under sections 30 and 58 of the Bankruptcy Act 1966 (Cth) (the Act) to provide for:
vacant possession of the property;
authority to sell the property;
withdrawal of caveats lodged by the Respondents; and
ancillary orders for the Respondents cooperation.
Key Issue
The sale of the property was not directly in issue.
The key issue was whether the Trustee had an interest as to entitle her to vacant possession and sole control over the sale of the property where the bankrupt is the executor.
Court Findings
Judge Forbes held that although the Trustee does not step into the shoes of the executor, the bankrupt’s interest in the deceased estate vests as property in the Trustee.
His Honour found that following were all property of the Bankrupt that vested in the Trustee:
the Bankrupt’s interest as registered proprietor of the property;
a beneficial interest in her deceased mother’s estate; and
the right of indemnity for costs incurred by her as executor.
The Court also granted orders for vacant possession, removal of caveats and the Trustee’s sole control for the sale of the property, on the basis that:
the Trustee has a duty to administer the estate of the Bankrupt for the benefit of the creditors under the Act;
continued occupation of the property by the Respondents would adversely impact its realisable value; and
the sale of the property is necessary to carry out and give effect to the Act.
Key Takeaways
The Court confirmed the wide scope of power conferred by section 30 of the Bankruptcy Act, allowing the Court to make orders for vacant possession, withdrawal of caveats and facilitation of the sale of property in favour of the Trustee.
The Court also affirmed the fiduciary and legal duty of the Trustee to creditors to manage the bankrupt estate prudently to achieve the best possible return on assets.
In cases where the bankrupt is an executor, the bankrupt’s beneficial interest in the deceased estate and their right of indemnity vests in the bankruptcy trustee.
If you would like to discuss any aspect of this further please contact Alicia Hill or Edward Skilton on the contact details below:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
Edward Skilton
Principal
T: +61 3 9611 0145 | M: +61 429 077 166
E: eskilton@sladen.com.au
Penny Qin
Law Clerk
E: pqin@sladen.com.au
This article was originally published on the Sladen Legal website: What interest does a bankruptcy trustee have in the property of a bankrupt executor?
