In the last issue of Sheridans’ View we reported the case of De Santis v Aravanis [2014] FCA 1243, appealed to the Federal Court of Australia, in which it was held that property acquired by a bankrupt with after-acquired income does not vest in the trustee.
This decision appears to have been overturned in a recent appeal to the Federal Court of Australia, which stated that “The issue must be decided by this Court as a question of statutory construction.”
In the recent case of Di Cioccio v Official Trustee in Bankruptcy [2015] FCAFC 30 the facts were not in dispute.
Mr Di Cioccio was made bankrupt while he was in prison. Upon his release from prison, he lived rent-free with his parents, seemingly to allow him to get back on his feet. Using income he had earned for work done while he was in prison and some post-release Newstart allowance, the bankrupt invested in shares. The income Di Cioccio had received was below the income contribution threshold.
Di Cioccio had managed to save $8,850, which he used to purchase shares. Later in the year the bankrupt advised the Official Trustee that he intended to buy a motor car. When asked by the Official Trustee, the bankrupt advised that the money to purchase the car was to come from the sale of the shares he had purchased with the income he had saved.
The Official Trustee then informed Di Cioccio that the shares he had purchased were “after-acquired property” and therefore an asset that vested in the Official Trustee. The bankrupt sought a review by AFSA, which affirmed the Official Trustee’s position, and then he took the matter to the Federal Court for further review. In the meantime, the Official Trustee sold the shares for $9,240.
Di Cioccio contended that the shares were excluded from the operation of Section 58(1) of the Bankruptcy Act by reason of Div 4B of Part VI of the Act.
The appeal to the Federal Court was dismissed. The Court found no reason to depart from the earlier decisions of Rodway v White [2009] WASC 201 and Re Gillies; Ex parte Official Trustee in Bankruptcy [1993] FCA 289.
In summary, had Di Cioccio left his income and savings in his bank account until his discharge from bankruptcy, he would have continued to own the funds. However, because he converted his income and savings to an asset, he lost the protection that would have otherwise been afforded to his income.
In light of the above, and subject to an amendment to the existing provisions, the decision appears to be in conflict with the “fresh start” objective that the bankruptcy legislators often refer to.
July 2015