Tim McGrath, Partner Melanie Husband, Senior Associate 24 July 2014 Miller Harris in Business

Looking below the surface: home ownership Miller Harris in Business Constructive trusts Resulting trusts Exoneration Equitable accounting Occupation rent Bankruptcy Act

The bankrupt co-owner Trustee becomes owner of bankrupt’s share 1. Trustee seeks to sell to spouse or consent to sell whole property 2. Spouse buys bankrupt’s share; or trustee sells whole 3. Miller Harris in Business

Case study Valuation $200,000 Equity $100,000Mortgage$100,000 Miller Harris in Business Bankrupt $50,000 Spouse $50,000

Exceptions Trust property Constructive trust Resulting trust Miller Harris in Business

Resulting trusts Miller Harris in Business

Constructive trusts Miller Harris in Business Remedial in nature; what is required to do justice between the parties? Muschinski v Dodds Calverley v Green

1. Joint property except his interest greater because: She paidHe paid ½ mortgage $9,000 deposit ½ mortgage Miller Harris in Business

2. Joint property except trust over his undeserved equity She paidHe paid Other $ $20,000 purchase price Other $ Miller Harris in Business

Here is how the trust worked: Her $ contribution His $ contribution His ½ share property Her ½ share property He must account to her for this He retains this equity She retains this equity Miller Harris in Business

Exoneration? Miller Harris in Business

Exoneration Charge over jointly owned property for 3rd party creditor Charge to benefit not all co ‑ owners Fund is so applied

Farrugia: trustee’s claim Miller Harris in Business Item Sum Sale price$41,000 Less “acquisition” finance($12,500) Sub ‑ total $28,500 Less “business” finance($10,500) Net proceeds$18,000 BANKRUPT’S ESTATE$9,000 WIFE’S SHARE$9,000

Mrs Farrugia’s figures Miller Harris in Business Item Sum Sale price$41,000 Less “acquisition” finance($12,500) Sub ‑ total $28,500 Bankrupt’s share$14,250 Less “business” finance($10,500) BANKRUPT’S ESTATE$3,750 WIFE’S SHARE$14,250

Shortfall scenario Miller Harris in Business Item Sum Sale price$30,000 Less “acquisition” finance($12,500) Sub ‑ total $17,500 Bankrupt’s share$8,750 Less “business” finance($8,750) BANKRUPT’S ESTATENIL Wife’s interest$8,750 Less “business” finance($1,750) WIFE’S SHARE$7,000

What could possibly go wrong? Miller Harris in Business Equitable accounting Occupation rent

Div 4A Bankruptcy Act Elements for a claw back Personal services Bankrupt controlled entity Inadequate remuneration Bankrupt’s services  acquisition Bankrupt derived benefit Respondent’s estate continues Miller Harris in Business

Claw back provisions 2 years – ‘others’ 4 years – related parties Or up to 5 years… Miller Harris in Business

Birdseye v Sheahan Miller Harris in Business

Div 4B Bankruptcy Act Miller Harris in Business The Edelsten factor; income diverted from the bankrupt to a third party

What about the PPSA? Miller Harris in Business No application to land No application to equitable interests No application to Bankruptcy Act recovery

What does it all mean? Tim McGrath Partner Melanie Husband Senior Associate Miller Harris in Business