The bank hopes to recover on the loan and mortgage agreement it executed with the debtor
The Federal Court has granted a vesting order in favour of the mortgagee Australia and New Zealand Banking Group (ANZ) after the mortgagor was declared bankrupt.
In Australia and New Zealand Banking Group Limited v State of Victoria, in the matter of Paksoy [2023] FCA 62, Cihan Paksoy owns a property in Mentone, Victoria. He executed a mortgage over the property in favour of ANZ as security for a loan. In 2018, Paksoy was declared bankrupt, and a sequestration order was made against his estate, including the Mentone property.
Paksoy failed to pay the ANZ loan, and as a result, ANZ obtained a default judgment against him in the Supreme Court of Victoria to recover possession of the Mentone property and for the payment of the loan.
After Paksoy was declared bankrupt, ANZ applied for a vesting order under s. 133(9) of the Bankruptcy Act 1966. The bank contended that it is just and equitable for the court to grant a vesting order in cases where neither the state nor any other interested property objected to the application. Further, ANZ asserted that if the court would not grant a vesting order, the bank could not enforce the mortgage agreement and would be deprived of its security.
The case reached the Federal Court, which ruled that an order vesting the property in ANZ must be granted. The court noted that a vesting order is proper if the applicant could show that the property's trustees made a disclaimer over the property. The applicant must also show that it has an interest in the disclaimed property and that it is entitled to the property or that the court considers it just and equitable that the property should be so vested or delivered.
The court found the evidence has established that the appointed trustees have disclaimed the property under the requirements of s. 133 of the act. A written notice of disclaimer signed by the trustees was lodged with the registrar of titles. The court pointed out that the effect of the disclaimer was to vest in the state the legal and equitable estate in fee simple of the property, subject to ANZ's mortgage.
Further, the court found that ANZ has a clear interest in the property. Paksoy's debt, secured by the property, has been in default since 2017. ANZ is the property's first and only registered mortgagee, and it has vacant possession of the property and the right of sale. According to the court, these circumstances show that ANZ is entitled to a vesting order under the bankruptcy act.
The court also found that it is just and equitable to grant a vesting order in circumstances where ANZ may not be able to enforce the mortgage. The court emphasized that the express purpose of the vesting order is to facilitate the ANZ's exercise of its power of sale as mortgagee of the property.
The court ultimately decided to grant a vesting order over the property in favour of ANZ so it could exercise its powers as a mortgagee and sell the property. Further, the court ordered that any surplus funds from the sale be paid to the court.
