Can shares acquired with income below threshold amount to after-acquired property vesting in trustee under the Bankruptcy Act?

Di Cioccio v Official Trustee in Bankruptcy [2014] FCA 782

Examination of whether shares purchased from a bankrupt’s income below the threshold amount in respect of which he was required to make contributions to his trustee under Division 4B of Part 6 of the Bankruptcy Act 1966 (Cth) is within the meaning of “after acquired property” in s 58(1).

The Bankrupt acquired shares in several companies during the period of his bankruptcy from income available for his personal use amount under Division 4B of Part 6 of the Bankruptcy Act 1966 (Cth). The Official Trustee adopted the view, and contended at the hearing, that any shares acquired during the bankruptcy was after-acquired property within the meaning of s 58(1) (b) and vested in the Official Trustee notwithstanding that the shares were acquired from money which had been available for the personal use of the bankrupt.[1]

The Bankrupt contended that personal income did not lose its character as income excluded from sections 58 and 116 by the acquisition of shares.

Both the Bankrupt and the Official Trustee accepted that the Official Trustee could have had no claim on the money which had been received by the Bankrupt as income if it had been applied by him for most kinds of personal expenditure. The Court noted that Division 4B deals with a bankrupt’s income below a threshold and does not concern itself with the consequences of how that income is applied. However, other provisions, including sections 58 and 116, may have effect upon what the income below the threshold is used to acquire.

Court noted that the provisions of s 58 and s 116 and those in Division 4B are not inconsistent, although they may reflect competing policy objectives. “Each set of provisions is directed to a specific circumstance and reflects the balance struck by the legislature of the competing objectives...”[2]

The court “must strive to give meaning to every word of the provision”[3] and adjust the meaning of “competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions”[4].

Although the Bankrupt would have been able to enjoy the income personally had he not purchased the shares, the Court contended that it was is not a sufficient reason to depart from the views expressed in Re Gillies; Ex parte Official Trustee in Bankruptcy [1993] FCA 289; (1993) 42 FCR 571 and Rodway v White [2009] WASC 201; (2009) 233 FLR 262.

The Court noted that although the position may seem harsh from the bankrupt’s perspective to include the shares within “after acquired property” it accorded with one of the important, albeit competing, policy objectives of the Bankruptcy Act 1966 (Cth), namely that “after acquired” property of the bankrupt be available for division among creditors in accordance with s 116.

Commentary

Although, a bankrupt’s income below the threshold amount belongs wholly to the bankrupt and does not vest with the Official Trustee, the purpose of Division 4B is not to operate as an exclusive code to which the other provisions did not apply.

Andrea Mapp – CommBar profile