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By: Mark Madsen, Esq. & Ruth Sainsbury, Esq.
Mullins Lawyers
Brisbane, Australia

Under section 127 of the Bankruptcy Act, trustees are barred from making a claim to any property of a bankrupt after the expiration of 20 years from the date on which the person became a bankrupt. In Madden v Official Trustee and Bankruptcy [2014] FCA 446, the Court looked at the operation of this section when a discharged bankrupt made a claim for re-vesting of property after the expiration of the limitation period.

Mr Madden was entitled to a 50.5% equitable interest in the subject property. This interest arose during his bankruptcy. Accordingly, his interest in the property was considered after-acquired property and it vested in the Official Trustee. At no time was the interest of the Official Trustee recorded on the title of the property nor was any action taken by the Official Trustee or its successor trustee, Mr Prentice, within the relevant 20 year period.

The question before the Court was whether the Official Trustee or Mr Prentice were required to ‘make a claim’ in relation to the bankrupt’s interest in the property so as to perfect the title. If so, did section 127 then operate to bar the trustee from making such a claim?

The Court looked at the concept of ‘claim’ and determined that the effect of the relevant subsection is to “prevent a trustee from doing anything active to enable him to obtain a title to the land the property of the bankrupt after twenty years from sequestration, but not to prevent him from retaining a title which has already been perfected”.

The Court stated that to establish the existence of an equitable interest, it is necessary to establish the nature and extent of the interest. In the Court’s view, that required the holder of the equitable interest to make a claim to it in order to ‘perfect’ his or her title to it.

The trustee would, therefore, need to ‘make a claim’ to Mr Madden’s share of the property. However, any such claim would be barred by virtue of s127 of the Act.

Mr Madden did not disclose his interest in the property to the trustee. The trustee submitted that this failure to disclose amounted to a breach of a fiduciary duty or estopped the bankrupt. The Court disagreed.

Ultimately, the Court found that more than 20 years having passed since Mr Madden became bankrupt, it was not open to the trustee to commence proceedings and the right to the property was, under the Act, deemed to be re-vested in the bankrupt.

However, the Court went on to commend that, as Mr Madden’s silence effectively deprived his bankrupt estate of the benefit of his interest in the property, the trustee should consider pursuing Mr Madden in relation to any offences to which he may be liable under the Act.

Whilst the timing of notice to the trustee in this particular case was prohibitive, it is important that trustees in bankruptcy are mindful of all relevant time limits in relation to making a claim for property of a bankrupt. Additionally, trustees should consider whether it is necessary to make a claim to any legal and/or equitable interests to ensure that their title is perfected within the 20 year period.

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