Court Grants Leave to Unsecured Creditor of Bankrupt Estate to Defend Property Adjustment Claim by Wife

In Vincent & Anor [2016] FCCA 227 (12 February 2016) Judge Riethmuller dealt with a situation where after an 11 year marriage the wife applied for a property order after the husband was made bankrupt.

The wife sought to pursue her claim against the bankrupt estate. The bankrupt estate consisted of $659,704, including superannuation with unsecured creditors of $667,847. The intervenor in the case sought leave to continue to participate in the proceedings in circumstances where the trustee in bankruptcy expressed no intention to pursue or defend the wife’s application.  In other words, the intervenor was endeavouring to stop the wife’s family law property application against the husband’s estate.
The Court said (at para 13):

“In the interests of avoiding a multiplicity of suits, and consistent with the princip[al] function of a trust of separating beneficiaries from the task of managing property, the trustee is generally the proper party to sue or be sued with respect to a trust estate. ( … ) The remedies available to beneficiaries at equity, allowing beneficiaries standing where the Court grants leave to sue or defend suits to protect the trust estate, if the trustee fails to do so. Ordinarily the trustee in bankruptcy is the appropriate person to bring or defend proceedings. It is open to the court to direct the trustee to do so. However, there is a practical problem if the trustee is not in funds and the creditors cannot fund the suit. In such a situation it would be unjust to the creditors not to allow them to represent themselves and pursue the suit for the benefit of the trust estate (indirectly for their even benefit). Whilst such an exercise is unusual, it is open if the justice of a particular case demands. To hold otherwise would allow impecuniosity (potentially caused by the bankrupt) to deny a significant creditor a remedy.”

The Court was ultimately satisfied that on the material the intervenor had a prima facie case that the husband’s property or part thereof should not be settled on the wife under s 79 of the Family Law Act 1975. Significantly, this is not a case where the intervenor is pursuing a claim, rather she is now defending the bankrupt estate against a claim by the Wife.

The Court granted leave to the intervenor to defend the bankrupt estate. The husband remained a party “to enable him to defend [his significant unvested] superannuation] interests” . The Court also ordered that if either the husband or intervenor sought to make a claim against either spouse so as to augment the bankrupt estate they should seek leave and file and serve a Statement of Claim particularising this claim.

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