“If you don’t want it, I’ll have it”

An interesting Federal Court of Australia decision on 1 August 2018 effectively supports the recent September 2017 insolvency law reforms regarding the assignment of causes of action (Rambaldi v Meletis, in the matter of Karas (Bankrupt) [2018] FCA 791).

The brief facts of the matter were:

  • In 2013 a company was placed into liquidation.
  • In 2015 a former director of the company declared bankruptcy.
  • The bankruptcy trustees investigated and identified that the company had various causes of action, and that possibly the company owed monies to the bankrupt estate.
  • The liquidator, who was without funding, was not going to take any action and intended to finalise the liquidation.
  • In July 2017, the trustees offered to acquire the assigned claims from the liquidator for $25,000, which the liquidator accepted (subject to creditor approval).
  • In September 2017, the liquidator obtained creditor approval and by a deed of assignment, the rights, title and interest in specific causes of action were assigned to the trustees.
  • The trustees then commenced legal action regarding the assigned causes of action for the benefit of the bankrupt estate.

The defendants via their interlocutory application challenged the trustees’ power to acquire the assigned claims and whether the trustees were justified in acquiring the assigned claims. An important third question for determination by the trustees’ interlocutory application was whether the deed of assignment was valid and enforceable, however upon agreement by the parties this was not determined at this stage.

In short, the Court was satisfied that the acquisition of the assigned claims fell within the scope of the trustees’ powers under Section 134 of the Bankruptcy Act 1966 (Cth):

Whilst s 134 does not prescribe a specific power to acquire property, the powers contained in s 134 are wide and expressed in general terms. In my view, they are of sufficiently broad compass to include the power to acquire property where the trustee has formed the view that the acquisition is in the best interests of creditors and likely to maximise the return to creditors, conformable with the duties on trustees imposed by s 19 of the Act and general law.

A rather exciting, and pleasing, decision, I think.

I recommend a read of the judgment: http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2018/2018fca0791

August 2018