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30 October 2015

It’s only money

Bankruptcy & Liquidation
Federal

Asked

Dear Sir/Madam, our client became a bankrupt on 13 March 2005 and was discharged from this bankruptcy on 14 November 2008.

During her period of bankruptcy her father passed away. His will directed that the income from his estate was to be paid to our client during her life. Our client viewed this as insufficient provision and commenced court action to obtain more funds. This court action was commenced during her bankruptcy although the final judgment was handed down after she was discharged from bankruptcy. The final judgment saw our client receive $300,000.

We would appreciate your comment on the following:

1) Is the trustee of our client's bankrupt estate able to claim any of that $300,000?

2) Is the trustee of our client's bankrupt estate able to claim any of the regular income received by our client from her late father's estate?

Thank you for your comments.

Answered

As the judgment was handed down after the discharge from bankruptcy it is unlikely but, depending on the circumstances, not a certainty that the trustee will be able to claim the inheritance. Generally a chose in action vests in the trustee unless it relates to such personal matters as a defamation claim. In other words a chose in action is often property of the bankrupt that vests in the trustee.

There is a duty to disclose to the trustee and in doing so you will ascertain their view and be able to argue the outcome. We suggest for guidance you refer to McLeod v Johns [1981] 1 NSWLR 347.

In this case Kearney J held that, although the claim was commenced during the bankruptcy, the applicant had no entitlement to the chose in action until his case was established and, as the hearing was after his discharge from bankruptcy, the property did not vest in the official trustee.

Regards Mentor