Bankrupts’ Right to Intervene as a Non-Party to a Proceeding

Bankrupts' Right to Intervene as a Non-Party to a ProceedingIn a recent Federal Magistrate’s Court Decision, Low v Barnet (Trustee); In the Matter of Mathai [2014] FCA 728 (04 July 2014) (Foster J), it was affirmed that a bankrupt will be granted leave to intervene as a non-party to proceedings between a creditor and a trustee if they have both a financial interest in seeing the proceedings properly defended and a contingent legal interest directly affected by a creditor’s claim.

The facts and the circumstances of the case were as follows:-

  • The bankrupt was made bankrupt pursuant to a sequestration order made against him.
  • During his investigations, the bankruptcy trustee established that there were 2 properties in which the bankrupt held interest prior to the date of his bankruptcy and these were transferred to numerous related entities in order to defeat creditors.
  • One of the two properties was transferred amongst others, to the bankrupt’s son (“The Son”).
  • The trustee applied to the Court under section 121 of the Bankruptcy Act, 1966 (“The Act”) against the bankrupt and the related entities. The trustee was indemnified in the proceedings by the petitioning creditor.
  • Subsequent to the discharge of the bankrupt, the Court decided in favour of the trustee and ordered that the legal title in the 2 properties be transferred to the trustee.
  • The petitioning creditor subsequently applied to Court for orders that after paying amounts required under section 109 (1) (a) and 82 of the Act, the trustee distribute to her the whole amount of all property and expenses recovered or realised in the administration of the bankrupt’s estate; or alternatively such proportion of the property and expenses recovered or realised that the Court considered just and equitable.
  • The bankrupt and his son applied to Court for leave to intervene the petitioning creditor’s application on the basis that the outcome of the application would directly affect them due to the possible surplus from the estate.

The issue before the Court was whether the bankrupt or his son had real interest in the outcome of the petitioning creditor’s application based upon which they could be granted a leave to intervene.

After considering the following aspects, the Court granted leave to the bankrupt for the intervention but not to his son:-

  • The bankrupt’s son’s title had been transferred to the trustee, as such, he no longer held any legal or financial interest in the property which was previously in his name, and accordingly was not granted leave to intervene.
  • A surplus in the bankrupt’s estate seemed very likely. As such, the bankrupt would be affected by the outcome of the application.
  • His Honour had established the bankrupt’s sufficient real and direct interest in the outcome of the application as he had a contingent legal interest and a financial interest considering the surplus from the estate would be forwarded to him.

The above grant of leave to the Bankrupt confirms that although a non-party to a proceeding, the bankrupt holds the right to request a leave to intervene where he has both a financial and a contingent legal interest directly affected by a creditor’s claim.

Source: https://www.afsa.gov.au/practitioner/pir-newsletter/pir-newsletter-pdfs/sep-2014-pir