Presented by Jones Partners

Kite (Trustee), in the matter of Murray (a Bankrupt) v Murray [2023] FCA 198.

Kite v Murray is another contentious example of the murky, mingled waters of bankruptcy law, trust law, and legal presumptions. This case concerned a husband (the bankrupt) and his wife (the respondent), who had purchased a residential property, where the wife held sole, registered legal title. 

The appointed trustee of the estate was suing the respondent, claiming:

  1. a 50% interest in the property; or
  2. An interest in the property in accordance with contributions made by the bankrupt towards the purchase price; or
  3. An order pursuant to s139DA of the Bankruptcy Act that 50% of the property vests with the trustee; or
  4. Certain payments towards the property made by the bankrupt were void.

S139DA of the Bankruptcy Act is rarely applied. It outlines a three-limb test for an order against property held by a third party. The first limb requires that the bankrupt in question continues to derive some benefit from the property during the period in question. The second limb highlights the requirement that the respondent (the wife) was only able to acquire the property in contention, as a direct or indirect result of financial contributions made by the bankrupt. The final requirement is that the entity (the wife) still has an interest in the property.

Whilst the Court ruled in favour of the trustee, the Court concluded that the trustee’s claim under s139DA of the Bankruptcy Act was successful to the extent of $197,773.86, being the amount that the bankrupt had contributed to the purchase price. This amounted to just over 11% of the property. The Court additionally upheld the transaction as voidable, as outlined under s121(2) of the Bankruptcy Act (transfer to defeat creditors).

The justification for this ruling came from satisfaction that the true intention of the couple was to make the respondent the legal and beneficial owner of the property, at the time of purchase and transfer.  Some factors the Court cited in assessing the intention included the timing, monies used, the health of the bankrupt’s businesses, past property dealings, their financial position and consideration for the overall circumstances leading up to the purchase. The Court additionally dismissed the trustee’s submission of intention as demonstrated through the Contract for Sale, which contained both the bankrupt and the respondent’s name and both signatures. The Court was satisfied this was an error.

Considering the Bosanac judgment, this case provides additional clarity on the importance of establishing actual intention when seeking to rebut a purchase-money resulting trust. The Bankruptcy Act continues to provide avenues for asset recovery in bankruptcy, but it is important to note that a successful action rests on establishing an objective view using credible evidence.