Jacky Campbell, Partner at Forte Family Lawyers and Wolters Kluwer Australian Family Law & Practice Consultant Author, reviews seven hot cases of 2017. This is the fourth instalment.
Refer to CCH Books’ Family Law books for more insights and information.
Official Trustee in Bankruptcy v Galanis (2017) FLC 93-760 – standing of trustee in bankruptcy
The ability of a trustee in bankruptcy to set aside a financial agreement after the husband was discharged from bankruptcy was considered by the Family Court in Official Trustee in Bankruptcy & Galanis  FamCA 832 and by the Full Court of the Family Court in Official Trustee in Bankruptcy & Galanis (2017) FLC 93-760;  FamCAFC 20. The Official Trustee was unsuccessful both before the trial judge and on appeal.
The matrimonial cause under consideration was (eab) of s 4 which gives the court power to deal with (eab) “third party proceedings (as defined in s 4A) to set aside a financial agreement.”
The trustee argued that it had standing to bring the proceedings as it was a “government body” within s 4A(1)(b)(iii) which provides:
“(1) For the purposes of paragraph (eab) of the definition of matrimonial cause in subsection 4(1), third party proceedings means proceedings between:
(a) any combination of:
(i) the parties to a financial agreement; and…
(b) any of the following:
(i) a creditor
(iii) a government body acting in the interests of a creditor;
being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(aa).”
Section 90K(1)(aa) enables financial agreements to be set aside because a party entered into the agreement for the purpose (or one of the purposes) of defrauding a creditor or with reckless disregard for that creditor’s interests.
The trial judge, Rees J, found that the Official Trustee was not a government body but a statutory trustee. She also found that it would be completely anomalous if one category of trustee (the Official Trustee) were advantaged by the right to make an application under the FLA where another trustee, who was not the Official Trustee, did not have that right.
The trustee also argued that the matter was a “matrimonial cause” within s 4(1)(cb) being:
“(cb) proceedings between:
(i) a party to a marriage; and
(ii) the bankruptcy trustee of a bankrupt party to the marriage;
with respect to any vested bankruptcy property in relation to the bankrupt party, being proceedings:
(iii) arising out of the marital relationship …”
Although the husband was discharged from bankruptcy under s 149(1) Bankruptcy Act (“BA”) and the bankruptcy had ended, the bankrupt still had some ongoing obligations to the trustee. The trustee retained the right to make claims against the bankrupt in certain circumstances, limited by s 127(1) BA:
“After the expiration of 20 years from the date on which a person became a bankrupt, a claim shall not be made by the trustee in the bankruptcy to any property of the bankrupt, and that property shall, subject to the rights, if any, of a person other than the trustee in respect of the property, be deemed to be vested in the bankrupt, or a person claiming through or under him or her, as the case may be.”
In determining whether a trustee in bankruptcy could initiate proceedings against a discharged bankrupt at any time prior to the expiration of 20 years after bankruptcy, Rees J considered the Explanatory Memorandum to the 2005 amendments to the FLA and the BA and concluded that the term “bankrupt party” in s 4(1)(b) did not mean a party to a marriage who had been discharged from bankruptcy and said (at , ):
“The emphasis appears to be on closing off the avenue, which may have previously existed, that allowed a debtor to alienate property using a financial agreement so as to make that property unavailable, to his or her trustee in bankruptcy, for the payment of creditors. …
If the legislature intended that the provisions of the Act would apply to give jurisdiction to the Family Court of Australia to deal with proceedings between a party to a marriage and the trustee in bankruptcy of a discharged bankrupt, then those words could have been included.”
Rees J dismissed the trustee’s application and ordered that the trustee pay the wife’s costs on a solicitor/client basis.
The Full Court in Official Trustee in Bankruptcy & Galanis (2017) FLC 93-760 agreed with the trial judge and noted (at ):
“As we pointed out at the commencement of these reasons, and as was accepted by the parties, in this case the Official Trustee can pursue its claim against the wife in other courts without any need to set the agreement aside. What is in issue in this case is whether the Court has jurisdiction in determine the trustee’s claim to set the financial agreement aside.”
The Full Court contrasted Australian Securities & Investments Commission (ASIC) with the Official Trustee. ASIC is a Commonwealth entity for the purposes of the Public Governance, Performance & Accountability Act 2013. Section 18AA BA states that the Official Trustee is not a Commonwealth entity.
The Civil Law & Justice Legislation Amendment Bill 2017 includes proposed amendments to the BA, to clarify that the Family Court has bankruptcy jurisdiction when a trustee in bankruptcy applies to set aside a financial agreement.
If you missed our ‘Hot Cases in Family Law 2017’ webinar, watch the recording here.
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