Australia: Shifting The Onerous: Onerous Land Disclaimed By Bankruptcy Trustees Can Also Become Onerous For Lenders

This update deals with "onerous property" and the issues involved when a trustee in bankruptcy disclaims onerous land, including the potential impact on lenders.

Disclaimer of onerous land by a trustee in bankruptcy

At any time, the trustee of a bankrupt estate may disclaim land which is burdened with onerous covenants or is unsaleable or not readily saleable (s 133 of the Bankruptcy Act 1966 (Cth)).

A disclaimer of this type discharges the trustee from all personal liability in respect of the disclaimed property as from the date the property vested in the trustee.

It is possible to challenge disclaimers in Court, so it is important for trustees to ensure they hold satisfactory evidence in support of their decision to disclaim.

A disclaimer is only effective if the trustee gives proper notice. There is no prescribed form for a notice of disclaimer of land, but the notice must:

  • be in writing and signed by the trustee
  • identify the bankrupt and the property being disclaimed
  • be given to each person who has an interest in the property (for example, other registered proprietors and mortgagees).

The trustee should also give notice of the disclaimer of land to the relevant land title office (for example, the Registrar General who oversees the NSW land title system).

A liquidator may exercise similar powers of disclaimer (s 568 of the Corporations Act 2001 (Cth)).

Effect of disclaimer of land

Practically speaking, the State becomes the registered proprietor of disclaimed land, subject to any subsequent Court order for the vesting of that land in other parties. In New South Wales, the Registrar General is able record the State of New South Wales as the proprietor of disclaimed land.

The land will remain subject to any charges and mortgages despite the change in proprietor. However, in order to enforce a mortgage after land has been disclaimed, a lender may need to take advantage of the provisions in the Bankruptcy Act which allow for vesting orders to be made.

Enforcing a mortgage over disclaimed land in New South Wales

In NSW, the Real Property Act 1900 outlines the process to enforce a mortgage of a registered lease which has been disclaimed.

However, there is no equivalent provision or guidance in the legislation for the enforcement of a mortgage over land in NSW which has been disclaimed.

The initial consideration for a lender looking to enforce its mortgage over disclaimed land in NSW is whether the Registrar General will accept a "transfer by mortgagee under power of sale", being the transfer form which is lodged with the land title office on settlement of a mortgagee sale.

In the usual course, a lender is entitled to enforce its mortgage and exercise power of sale if it has given the relevant notice to a mortgagor and the notice has not been complied with. When the lender comes to sell the property, the Registrar General will accept a transfer by mortgagee under power of sale, and the land will become registered in the name of the purchaser.

However, the Registrar General may not accept a transfer by mortgagee under power of sale if it has become aware that the land has been disclaimed. This appears to be because the State has become the registered proprietor and, on one view, a lender may not be entitled to issue a power of sale notice to the State where the State was not the borrower nor the mortgagor and has no obligations under the mortgage. Without a power of sale notice being properly issued, no power of sale would arise under the Real Property Act.

It may be necessary to first confirm whether the Registrar General is willing to accept a transfer by mortgagee under power of sale at settlement of the lender's sale of the disclaimed land. If a power of sale has arisen before the disclaimer, the Registrar General may be more likely to accept a transfer by mortgagee under power of sale.

Do lenders need vesting orders to sell the disclaimed land?

If the Registrar General will not accept a transfer by mortgagee under power of sale, the lender may need to apply to the Court for an order that the land vests in the lender (s 133(9) of the Bankruptcy Act). This would allow the lender to sell the property as the registered proprietor.

The proceeds of the sale would be applied as directed by the Court, and the Court is likely to give those directions having regard to the provisions in the Real Property Act for the application of proceeds following a mortgagee sale.

Commercial arrangements between trustees and lenders?

Trustees are understandably keen to disclaim onerous property where by doing so they are discharged from personal liability in relation to the disclaimed property.

However, it's important to remember that the disclaimer can be made at any time, and that the discharge of personal liability operates:

  • as from the date the property vested in the trustee (being the date of bankruptcy, not the date of the disclaimer); and
  • even if the trustee has taken steps to sell, taken possession or exercised any act of ownership.

Accordingly, a trustee may be comfortable delaying any disclaimer of land in order to contact the relevant lender /mortgagee for the purpose of exploring a commercially suitable arrangement.

The most likely reason that a trustee will disclaim property as quickly as possible is to avoid the ongoing costs and time involved in managing the land as part of the bankrupt estate.

As we've outlined above, any disclaimer could have a considerable impact on a lender's enforcement of its mortgage and cause potentially significant additional costs and delay. This is particularly concerning where disclaimed land by its very nature is more likely to result in a shortfall situation when sold.

For these reasons, trustees and lenders should consider the option of entering into commercial arrangements allowing for the prompt sale of the land without any disclaimer, including a situation where a lender may cover a trustee's costs incurred as a result of not disclaiming the land.

Checklist when dealing with disclaimed land

Set out below is a checklist of the issues that lenders and trustees should consider when dealing with onerous land:

  • Has the trustee complied with the notice requirements for the disclaimer of the land?
  • If the land hasn't been disclaimed, can the lender and trustee enter into a commercial arrangement for the sale of the land without any disclaimer?
  • Did the lender's power of sale arise before or after the property was disclaimed?
  • Has the State become the registered proprietor?
  • What is the Registrar General's attitude towards the lodging of a transfer by mortgagee under power of sale?
  • Is it necessary to approach the Court seeking an order that the property vests in the lender for the purposes of a sale?

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
6 Dec 2017, Webinar, New York, United States

Join Dentons for a complimentary webinar focused on the ongoing challenge of integrating new technologies into existing information governance policies and risk management frameworks.

7 Dec 2017, Seminar, Cape Town, South Africa

Dentons South Africa would be delighted if you could join us for our upcoming event.

8 Dec 2017, Seminar, Johannesburg, South Africa

Dentons South Africa would be delighted if you could join us for our upcoming event.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.