What happens with property purchased with after acquired money of a Bankrupt?
What you Need to Know
The case of Di Cioccio v Official Trustee in Bankruptcy considered whether after acquired property purchased with after acquired money vested in the Official Trustee (OT) upon bankruptcy and was divisible among his creditors. The decision reached by the Court in this case contradicts the previous approach taken in a previous case – De Santis v Aravanis.
In De Santis v Aravanis the Court held that there was a special class of property that was created when a bankrupt used after acquired money to purchase an asset. Such property would not vest in the bankruptcy trustee as after acquired property under section 58(1) Bankruptcy Act 1966 (the Act).
In the Di Cioccio case, Mr Di Cioccio (the bankrupt) notified the OT that he intended to buy a vehicle by selling shares that he bought using his own savings. The OT notified the bankrupt that the shares vested in the OT for the benefit of his creditors. Following an internal review which affirmed the OT’s decision, the OT sold the bankrupt’s shares. The bankrupt applied to the Court to review the OT’s actions.
The court held that the shares bought during the bankruptcy were considered after-acquired property under section 58(1) of the Act, despite having been purchased using money the bankrupt was entitled to retain for personal use. The Court indicated that the Act does not prohibit a bankrupt individual from purchasing any specific item of property. However, the Act deems that after acquired property vests in the bankrupt’s trustee, unless it is exempt by section 116(2) of the Act.
In summary, the Di Cioccio decision reaffirms the position prior to De Santi v Aravanis, in that an undischarged bankrupt is not permitted to retain certain property purchased with income earned during bankruptcy.
If you need any advice regarding the above matter, the team at The Quinn Group can help. Contact us on on 02 9223 9166 or submit an online enquiry.